10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

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 001-38832

SURGALIGN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	83-2540607
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
520 Lake Cook Road, Suite 315, Deerfield, Illinois	60015
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (224) 303-4651

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class	Trading Symbol	Name of exchange on which registered
common stock, $0.001 par value	SRGA	Nasdaq Global Select Market

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 and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

Shares of common stock, $0.001 par value, outstanding on May 3, 2021:  110,365,085

SURGALIGN HOLDINGS, INC.

FORM 10-Q For the Quarter Ended March 31, 2021

Index

		Page #
Part I    Financial Information
Item 1	Unaudited Condensed Consolidated Financial Statements	1 - 20
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21 - 27
Item 3	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4	Controls and Procedures	28
Part II    Other Information
Item 1	Legal Proceedings	30
Item 1A	Risk Factors	31
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3	Defaults Upon Senior Securities	32
Item 4	Mine Safety Disclosures	32
Item 5	Other Information	32
Item 6	Exhibits	33
Signatures		34

Part I Financial Information

Item 1. Unaudited Condensed Consolidated Financial Statements

SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share data)

	March 31,			December 31,
	2021			2020
Assets
Current Assets:
Cash and cash equivalents	$	63,763		$	43,962
Accounts receivable - less allowances of $10,183 at March 31, 2021 and $8,203 at December 31, 2020		29,325			27,095
Inventories - current		22,852			22,841
Prepaid and other current assets		5,001			10,284
Total current assets		120,941			104,182
Non-current inventories		10,378			7,856
Property and equipment - net		526			521
Other assets - net		12,398			10,145
Total assets	$	144,243		$	122,704
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable	$	13,140		$	13,418
Accrued expenses		30,816			21,644
Accrued income taxes		12,061			11,761
Total current liabilities		56,017			46,823
Acquisition contingencies		37,726			47,519
Other long-term liabilities		4,116			4,192
Total liabilities		97,859			98,534
Commitments and contingencies (Note 16)
Stockholders' equity:
Common stock, $.001 par value: 150,000,000 shares authorized; 110,305,246 and 81,678,179 shares issued and outstanding, as of March 31, 2021 and December 31, 2020, respectively		110			81
Additional paid-in capital		554,537			517,123
Accumulated other comprehensive loss		(2,345	)		(2,416	)
Accumulated deficit		(500,152	)		(484,962	)
Less treasury stock, 1,491,461 and 1,444,578 shares, as of March 31, 2021 and December 31, 2020, respectively, at cost		(5,766	)		(5,656	)
Total stockholders' equity		46,384			24,170
Total liabilities and stockholders' equity	$	144,243		$	122,704

See notes to unaudited condensed consolidated financial statement.

1

SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income / (Loss)

(Unaudited, in thousands, except share and per share data)

	For the Three Months Ended
	March 31,
	2021			2020
Revenues	$	23,291		$	27,102
Cost of goods sold		6,238			9,224
Gross profit		17,053			17,878
Expenses:
Marketing, general and administrative		25,943			37,193
Research and development		2,875			4,282
Severance and restructuring costs		218			-
Gain on acquisition contingency		(51	)		-
Asset impairment and abandonments		2,176			1,879
Transaction and integration expenses		322			2,409
Total operating expenses		31,483			45,763
Operating loss		(14,430	)		(27,885	)
Other income (expense):
Interest income		4			50
Foreign exchange loss		(545	)		(244	)
Total other expense - net		(541	)		(194	)
Loss before income tax benefit		(14,971	)		(28,079	)
Income tax (expense) benefit		(219	)		3,539
Net loss from continuing operations		(15,190	)		(24,540	)
Discontinued operations (Note 3)
Income from operations of discontinued operations		-			6,677
Income tax expense		-			-
Net income from discontinued operations		-			6,677
Net loss applicable to common shares		(15,190	)		(17,863	)
Other comprehensive gain (loss):
Unrealized foreign currency translation gain (loss)		71			(370	)
Comprehensive loss	$	(15,119	)	$	(18,233	)
Net loss from continuing operations per common share - basic	$	(0.15	)	$	(0.34	)
Net loss from continuing operations per common share - diluted	$	(0.15	)	$	(0.34	)
Net income from discontinued operations per common share - basic	$	-		$	0.09
Net income from discontinued operations per common share - diluted	$	-		$	0.09
Weighted average shares outstanding - basic		98,109,900			72,864,390
Weighted average shares outstanding - diluted		98,109,900			72,864,390
See notes to unaudited condensed consolidated financial statements.

2

SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders' Equity

(Unaudited, in thousands)

	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Treasury Stock			Total
Balance, January 1, 2021	$	81	$	517,123	$	(2,416	)	$	(484,962	)	$	(5,656	)	$	24,170
Net loss		—		—		—			(15,190	)		—			(15,190	)
Foreign currency translation adjustment		—		—		71			—			—			71
Exercise of common stock options		—		23		—			—			—			23
Stock-based compensation		—		936		—			—			—			936
Purchase of treasury stock		—		—		—			—			(110	)		(110	)
Share offering		29		36,455		—			—			—			36,484
Balance, March 31, 2021	$	110	$	554,537	$	(2,345	)	$	(500,152	)	$	(5,766	)	$	46,384

See notes to unaudited condensed consolidated financial statements.

3

SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders' Equity

(Unaudited, in thousands)

	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Treasury Stock			Total
Balance, January 1, 2020	$	75	$	498,438		$	(7,629	)	$	(451,179	)	$	(5,141	)	$	34,564
Net loss		—		—			—			(17,863	)		—			(17,863	)
Foreign currency translation adjustment		—		—			(370	)		—			—			(370	)
Exercise of common stock options		—		20			—			—			—			20
Stock-based compensation		—		1,310			—			—			—			1,310
Purchase of treasury stock		—		—			—			—			(193	)		(193	)
Amortization of preferred stock series A issuance costs		—		(44	)		—			—			—			(44	)
Balance, March 31, 2020	$	75	$	499,724		$	(7,999	)	$	(469,042	)	$	(5,334	)	$	17,424

See notes to unaudited condensed consolidated financial statements.

4

SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	For the Three Months Ended
	March 31,
	2021			2020
Cash flows from operating activities:
Net loss	$	(15,190	)	$	(17,863	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense		520			2,239
Provision for bad debts and product returns		1,978			406
Provision for inventory write-downs		2,754			517
Revenue recognized due to change in deferred revenue		—			(1,188	)
Deferred income tax benefit		—			(383	)
Stock-based compensation		936			1,310
Asset impairment and abandonments		2,176			1,879
Gain on acquisition contingency		(51	)		—
Paid in kind interest expense		—			1,415
Other		58			277
Change in assets and liabilities:
Accounts receivable		(4,280	)		3,853
Inventories		(5,636	)		(2,706	)
Accounts payable		(238	)		9,437
Accrued expenses		9,659			4,412
Deferred revenue		—			4,161
Other operating assets and liabilities		(7,212	)		(1,250	)
Net cash (used in) provided by operating activities		(14,526	)		6,516
Cash flows from investing activities:
Purchases of property and equipment		(2,321	)		(5,084	)
Patent and acquired intangible asset costs		(161	)		(286	)
Net cash used in investing activities		(2,482	)		(5,370	)
Cash flows from financing activities:
Proceeds from exercise of common stock options		23			20
Payments for treasury stock		(110	)		(193	)
Share offering proceeds, net		36,484			—
Net cash provided by (used in) financing activities		36,397			(173	)
Effect of exchange rate changes on cash and cash equivalents		412			(24	)
Net increase in cash and cash equivalents		19,801			949
Cash and cash equivalents, beginning of period		43,962			5,608
Cash and cash equivalents, end of period	$	63,763		$	6,557
Supplemental cash flow disclosure:
Cash paid for interest		—			2,081
Net income tax payments (refunds)		7			(1,695	)
Non-cash acquisition of property and equipment		397			247

See notes to unaudited condensed consolidated financial statements.

5

SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data or otherwise noted)

1. Business

Surgalign Holdings, Inc. (the “Company”), (formerly known as RTI Surgical Holdings, Inc. (“RTI”)) is a global medical technology company committed to the promise of digital surgery and is building out its digital surgery platform to drive transformation across the surgical landscape. The Company has a broad portfolio of spinal hardware implants, including solutions for fusion procedures in the lumbar, thoracic, and cervical spine, motion preservation solutions for the lumbar spine, and a minimally invasive surgical implant system for fusion of the sacroiliac joint. The Company also has a portfolio of advanced and traditional orthobiologics, or biomaterials. In addition to its spinal hardware and biomaterials portfolios, the Company is developing an Augmented Reality and Artificial Intelligence digital surgery platform called ARAI^TM   (referred to “ARAI”) to enable digital spine surgery, which the Company believes is one of the most advanced artificial intelligence technologies being applied to surgery. ARAI is designed to automatically segment, identify, and recognize patient anatomy to autonomously assist the surgeon throughout the surgical procedure. This proprietary artificial intelligence-based platform system is an intelligent anatomical mapping technology designed to assist surgeons by allowing them to remain in safe anatomical zones, and to enhance surgical performance. The Company plans to leverage its digital surgery platform to improve patient outcomes and drive adoption of its spinal hardware implants and biomaterials products. The Company is developing a pipeline of new innovative technologies that it plans to integrate with its digital surgery platform. The Company currently markets and sells products to hospitals, ambulatory surgery centers, and healthcare providers in the United States and in more than 40 countries worldwide. The Company is headquartered in Deerfield, Illinois, with commercial, innovation and design centers in San Diego, CA; Wurmlingen, Germany; and Warsaw, Poland.

OEM Disposition

On July 20, 2020, pursuant to the Equity Purchase Agreement, dated as of January 13, 2020 (as amended from time to time, the “OEM Purchase Agreement”), by and between the Company and Ardi Bidco Ltd. (the “Buyer”), the Company completed the sale of its former original equipment manufacturing business and business related to processing donated human musculoskeletal and other tissue and bovine and porcine animal tissue in producing allograft and xenograft implants using BIOCLEANSE®, TUTOPLAST® and CANCELLE®SP sterilization processes (collectively, the “OEM Businesses”) to Buyer and its affiliates for a purchase price of $440 million of cash, subject to certain adjustments (the “Transactions”). More specifically, pursuant to the terms of the OEM Purchase Agreement, the Company sold to the Buyer and its affiliates all of the issued and outstanding shares of RTI OEM, LLC (which, prior to the Transactions, was converted to a corporation and changed its name to “RTI Surgical, Inc.”), RTI Surgical, LLC (which, prior to the Transactions, was converted to a corporation and changed its name to “Pioneer Surgical Technology, Inc.”), Tutogen Medical, Inc.(United States) and Tutogen Medical GmbH. The Transactions were previously described in the Proxy Statement filed by the Company with the SEC on June 18, 2020. Subsequent to the Transactions, the Company changed its name to Surgalign Holdings, Inc, operating through its primary subsidiary, Surgalign Spine Technologies, Inc. Where obvious and appropriate from the context, references herein to Surgalign or the Company refer to the Company including the disposed OEM Businesses.

Prior to the sale of the OEM Businesses, the Company operated two reportable segments: Spine and OEM.  Subsequent to the sale of the OEM Businesses, the Company operates only one reportable segment. Refer to Note 3 for further discussion on Discontinued Operations.

COVID-19

The coronavirus (COVID-19) pandemic, as well as the corresponding governmental response and the Company’s management of the crisis has had a significant impact on the Company’s business. The consequences of the outbreak and impact on the economy continues to evolve and the full extent of the impact is uncertain as of the date of this filing. The outbreak has brought a significant disruption to the operations of the Company.

Beginning in 2020, many hospitals and other medical facilities canceled elective surgeries, reduced and diverted staffing and diverted other resources to patients suffering from the infectious disease and limited hospital access for non-patients, including the Company’s direct and indirect sales representatives. Because of the COVID-19 pandemic, surgeons and their patients have been required, or are choosing, to defer procedures in which the Company’s products would be used, and many facilities that specialize in the procedures in which the Company’s products would be used have closed or reduced operating hours. These circumstances have negatively impacted the ability of the Company’s employees and distributors to effectively market and sell its products. In addition, even after the pandemic has subsided and/or governmental orders no longer prohibit or recommend against performing such procedures, patients may continue to defer such procedures out of concern of being exposed to coronavirus for other reasons.

6

The COVID-19 pandemic has also caused adverse effects on general commercial activity and the global economy, which has led to an economic slowdown or recession, and which has adversely affected the Company’s business, operating results or financial condition. The adverse effect of the pandemic on the broader economy has also negatively affected demand for procedures using the Company’s products, and could cause one or more of the Company’s distributors, customers, and suppliers to experience financial distress, cancel, postpone or delay orders, be unable to perform under a contract, file for bankruptcy protection, go out of business, or suffer disruptions in their business. This could impact the Company’s ability to provide products and otherwise operate its business, as well as increase its costs and expenses.

The COVID-19 pandemic has also led to and could continue to lead to severe disruption and volatility in the global capital markets, which could increase the Company’s cost of future capital and adversely affect its ability to access the capital markets in the future.

The Company cannot predict when its operations will return to pre-pandemic levels and will continue to carefully monitor the situation and the needs of the business.

The above and other continued disruptions to the Company’s business as a result of COVID-19 has resulted in a material adverse effect on its business, operating results and financial condition. Although vaccines have recently been made available, it remains uncertain when our business will return to normal operations. The full extent to which the COVID-19 pandemic will impact the Company’s business will depend on future developments that are highly uncertain and cannot be accurately predicted, including the possibility that new adverse information may emerge concerning COVID-19 and additional actions to contain it or treat its impact may be required.

Going Concern

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with generally accepted accounting principles in the United States of America. The going concern basis of presentation assumes that we will continue in operation one year after the date these unaudited condensed consolidated financial statements are issued, and we will be able to realize our assets and discharge our liabilities and commitments in the normal course of business.

As of March 31, 2021, we had cash of $63,763 and an accumulated deficit of $500,152. For the three months ended March 31, 2021, we had a loss from continuing operations of $15,190. We have incurred losses from operations in the previous two fiscal years and did not generate positive cash flows from operations in fiscal year 2020 or for the three months ended March 31, 2021.    

On February 1, 2021, we closed a public offering and sold a total 28,700,000 shares of our common stock at a price of $1.50 per share, less the underwriter discounts and commissions. We received net proceeds of $40,467 from the offering after deducting the underwriting discounts and commission of $3,983.

The Company is projecting it will continue to generate significant negative operating cash flows over the next 12-months and beyond.  In consideration of i) COVID-19 uncertainties, ii) negative cash flows that are projected over the next 12-month period, iii) the $14,860 of Federal income tax liability paid in April 2021 related to the gain on sale of the OEM Businesses, and iv) approximately $8,993 of the total contingent consideration of $50,632 are expected to become due to the former owners of Holo Surgical if regulatory approval in the US is obtained in 2021, which would be paid through combination of common stock and cash; the Company has forecasted the need to raise  additional capital in order to continue as a going concern.  The Company’s operating plan for the next 12-month period also includes continued investments in its product pipeline which will necessitate additional debt and/or equity financing in addition to the funding of future operations through 2021 and beyond. The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If cash resources are insufficient to satisfy the Company’s on-going cash requirements through 2021, the Company will be required to scale back operations, reduce research and development expenses, and postpone, as well as suspend capital expenditures, in order to preserve liquidity. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

In consideration of the inherent risks and uncertainties and the Company’s forecasted negative cash flows as described above, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one year after the date the unaudited condensed consolidated financial statements are issued. Management continually evaluates plans to raise additional debt and/or equity financing and will attempt to curtail discretionary expenditures in the future, if necessary; however, in consideration of the risks and uncertainties mentioned, such plans cannot be considered probable of occurring at this time.  

7

The recoverability of a major portion of the recorded asset amounts shown in the Company’s accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its funding requirements on a continuous basis, to maintain existing financing and to succeed in its future operations. The Company’s unaudited condensed consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the results of operations for the periods shown.  The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a fair presentation of the unaudited condensed consolidated financial position, results of operations, comprehensive loss and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP often requires us to make estimates and judgments that affect reported amounts. These estimates and judgments are based on historical experience and assumptions that we believe to be reasonable under the circumstances. Assumptions and judgments based on historical experience may provide reported results which differ from actual results; however, these assumptions and judgments historically have not varied significantly from actual experience and we therefore do not expect them to vary significantly in the future. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. The Company includes acquisition, disposal, integration and separation related costs, which are predominantly composed of legal, consulting, advisor fee expenses, within the “Transaction and integration expense” line on the condensed consolidated comprehensive loss.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Surgalign Spine Technologies, Inc., Paradigm Spine, LLC (“Paradigm”), Pioneer Surgical Technology, Inc. (“Pioneer Surgical”), Zyga Technology, Inc. (“Zyga”) and Holo Surgical Inc. (“Holo Surgical”). The operating results of the disposed OEM Businesses have been reported as discontinued operations in the unaudited condensed consolidated financial statements in the prior comparative periods.

For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Immaterial restatement of earnings per share (EPS)

The Company identified errors in the calculation of its historical basic and diluted EPS.  In the historical periods presented in the filing, the weighted average basic and diluted shares incorrectly included treasury stock, restricted stock awards, and restricted stock units.  The weighted average shares used in the restated basic and diluted EPS from continuing operations and discontinued operation has been corrected.

Significant New Accounting Policies

Internal use Software- The Company accounts for its costs to develop computer software for internal use in accordance with Accounting Standards (“ASC”) 350-40, Internal use Software. These costs are directly attributable to the development and implementation of the new ERP system.  The Company capitalizes the costs incurred during the application development stage, which generally include costs to design the software configuration and interfaces, coding, installation and testing.

The Company begins capitalizing qualifying costs when both the preliminary project stage is complete, and management has authorized further funding.  Costs incurred during the preliminary project stage along with post implementation stages of internal use software are expensed as incurred. Capitalized development costs are currently being accumulated within CIP and are evaluated for impairment on a quarterly basis.

Liquidity      

As the global outbreak of COVID-19 continues to rapidly evolve, it could continue to materially and adversely affect our revenues, financial condition, profitability, and cash flows for an indeterminate period of time.

8

As discussed in Note 18, the Securities and Exchange Commission (“SEC”) has an active investigation that remains ongoing.  The Company continues to cooperate with the SEC in relation to the investigation. Based on current information available to the Company, the impact associated with SEC investigation and related shareholder and derivative litigation may have on the Company cannot be reasonably estimated.

3. Discontinued Operations

In connection with the Transactions, on July 20, 2020, the Company completed the disposition of its OEM Businesses. Accordingly, the OEM Businesses are reported as discontinued operations in accordance with ASC 205-20, Discontinued Operations (“ASC 205-20”). The results of operations from the OEM Businesses are classified as discontinued operations in the condensed consolidated statements of comprehensive income/(loss). There were no assets or liabilities of the OEM Businesses as of December 31, 2020 or March 31, 2021 due to the transaction occurring on July 20, 2020. Applicable amounts in prior years have been recast to conform to this discontinued operations presentation.  

The following table presents the financial results of the discontinued operations:

	Three Months Ended March 31,
	2020
Major classes of line items constituting net income from discontinued operations
Revenues	$	46,625
Costs of processing and distribution		24,049
Gross profit		22,576
Expenses:
Marketing, general and administrative		5,460
Transaction and integration expenses		6,872
Total expenses		12,332
Operating income		10,244
Other expense:
Interest expense		(3,565	)
Foreign exchange loss		(2	)
Total other expense - net		(3,567	)
Income from discontinued operations		6,677
Income tax provision		—
Net Income from discontinued operations	$	6,677

In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations. As such, the marketing and general and administrative expenses in discontinued operations include corporate costs incurred directly to solely support the Company’s OEM Businesses.

Pursuant to the OEM Purchase Agreement, The Company and the Buyer have also entered into a Transition Services Agreement, through which the disposed OEM Businesses will provide to the Company transitional services related to IT support, customer and vendor management, procurement and other services for periods ranging from 3 to 12 months after the disposal.   

The Company applied the “Intraperiod Tax Allocation” rules under ASC 740, Income Taxes (“ASC 740”), which requires the allocation of an entity’s total annual income tax provision among continuing operations and, in the Company’s case, discontinued operations.

On December 1, 2020, pursuant to the OEM Purchase Agreement, the Company received a notice from the Buyer indicating that a post-closing adjustment in an amount of up to $14 million may be owed in respect of the working capital adjustment paid at closing. The Company disagrees with Buyer’s proposed post-closing adjustment and is disputing the adjustment in accordance with the terms of the OEM Purchase Agreement. The Company updated the working capital adjustment for $1.4 million which was agreed with the Buyer as part of the adjustment report and recorded the amount in Q4 2020 in the discontinued operations.

9

Total operating and investing cash flows of discontinued operations for the three months ended March 31, 2020 is comprised of the following, which exclude the effect of income taxes:

	Three Months Ended
	March 31,
	2020
Significant operating non-cash reconciliation items:
Depreciation and amortization	$	941
Provision for bad debt and products returns	$	6
Revenue recognized due to change in deferred revenue	$	(1,188	)
Stock-based compensation	$	124
Paid in kind interest expense	$	1,415
Significant investing items:
Purchases of property and equipment	$	(1,459	)
Patent and acquired intangible asset costs	$	(286	)

4. Revenue from Contracts with Customers

The Company recognizes revenue upon transfer of control of promised products in an amount that reflects the consideration it expects to receive in exchange for those products. The Company typically transfers control at a point in time upon shipment or delivery of the implants for direct sales, or upon implantation for sales of consigned inventory. The customer is able to direct the use of, and obtain substantially all of the benefits from, the implant at the time the implant is shipped, delivered, or implanted, respectively based on the terms of the contract.

Disaggregation of Revenue

The Company’s entire revenue for the three months ended March 31, 2021 and 2020 were recognized at a point in time. The following table represents total revenue by geographical region for the three months ended March 31, 2021 and 2020, respectively:   

	For the Three Months Ended
	March 31,
	2021		2020
Revenues:
Domestic	$	19,849	$	22,272
International		3,442		4,830
Total revenues from contracts with customers	$	23,291	$	27,102

The Company’s performance obligations consist mainly of transferring control of implants identified in the contracts. Some of the Company’s contracts offer assurance-type warranties in connection with the sale of a product to a customer. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation and are not material to the unaudited condensed consolidated financial statements.

5. Holo Surgical Acquisition

On September 29, 2020, the Company entered into a Stock Purchase Agreement (the “Holo Purchase Agreement”), with Roboticine, Inc, a Delaware corporation (the “Seller”), Holo Surgical S.A., a Polish joint-stock company (“Holo S.A.”), Pawel Lewicki, PhD (“Lewicki”), and Krzysztof Siemionow, MD, PhD (“Siemionow”), which provides for the Company to acquire all of the issued and outstanding equity interests in Holo Surgical Inc., a Delaware corporation and a wholly owned subsidiary of the Seller (“Holo Surgical”). The Seller, Holo S.A., Lewicki and Siemionow are together referred to herein as the “Seller Group Members”. The Acquisition was closed on October 23, 2020.

As consideration for the Holo Acquisition, the Company paid to the Seller $30,000 in cash and issued to the Seller 6,250,000 shares of common stock, par value $0.001 of the Company (“Common Stock”). In addition, the Seller is entitled to receive contingent consideration from the Company valued in an aggregate amount of up to $83 million, to be paid through the issuance of Common Stock or the payment of cash, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing. The Purchase Agreement provides that the Company will issue Common Stock to satisfy any contingent consideration payable to the Seller, until the total number of shares of Common Stock issued to the Seller pursuant to the Purchase Agreement (including the 6,250,000 shares of Common Stock issued

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at closing) is equal to 14,900,000 shares of Common Stock. Following the attainment of that limitation, the post-closing contingent payments would be payable in cash. The number of shares of Common Stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the Common Stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone. The Purchase Agreement also includes certain covenants and obligations of the Company with respect to the operation of the business of Holo Surgical that apply during the period in which the milestones may be achieved.

The Company determined that substantially all of the fair value was concentrated in the acquired in-process research and development (“IPR&D”) asset in accordance with the guidance of ASC 805, Business Combinations. As such, the acquisition was accounted for as an asset acquisition. The total consideration of the asset acquisition was determined to be $94,999, which consisted of a cash consideration of $30,000, $12,250 of the 6,250,000 shares of Common Stock issued to the Seller, direct and incremental costs of $2,117 incurred for the Holo Acquisition, and an estimated fair value of $50,632 related to the contingent consideration. The Company has determined that the contingent consideration was part of the consideration of the asset acquisition and was accounted for as a liability at fair value on the acquisition date of October 23, 2020 in accordance with ASC 480, Distinguishing Liabilities from Equity. Subsequently, the liability shall be marked to market at the end of each reporting period with any change recognized in current earnings. The fair value of the liability was $56,464 as of March 31, 2021 with $18,738 classified as current liabilities within accrued expenses while $37,726 is included as other long-term liabilities. The change in the fair value of the liability of $51 since December 31, 2020 was recognized in the gain (loss) on acquisition contingency line of the condensed consolidated statements of comprehensive income/(loss). 

6. Stock-Based Compensation

In the first three months of 2021, the Company granted 173,683 stock options, and 78,084 restricted stock awards under its 2018 Incentive Compensation Plan.     

For the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation as follows:

	For the Three Months Ended
	March 31,
	2021		2020
Stock-based compensation:
Costs of goods sold	$	21	$	36
Marketing, general and administrative		889		1,135
Research and development		26		15
Total	$	936	$	1,186

For the three months ended March 31, 2021 and 2020, the Company incurred $0 and $124, respectively, of stock-based compensation expense related to the disposed OEM Businesses. These expenses have been presented in the results from discontinued operations.

7. Net Loss Per Common Share

A reconciliation of the number of shares of common stock used in the calculation of basic and diluted net income per common share is presented below:

	For the Three Months Ended
	March 31,
	2021		2020
Weighted average basic and dilutive shares		98,109,900		72,864,390

For the three months ended March 31, 2021 and 2020, the Company has recorded a net loss from its continuing operations. As a result, the Company has excluded all potential dilutive shares from the computation of the diluted net loss per common share to avoid the anti-dilutive effect.

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The following table includes the number of potential dilutive shares that were excluded due to the anti-dilutive effect:

	For the Three Months Ended
	March 31,
	2021		2020
Stock Option		781,144		484,518
RSU and RSA		886,434		1,119,133
Convertible Series A Preferred Stock		—		15,152,761
Total		1,667,578		16,756,412

For the three months ended March 31, 2021 and 2020, respectively, 4,264,055 and 2,837,404 of issued stock options were not included in the computation of diluted net loss per common share because their exercise price exceeded the average market price during the period.

On October 23, 2020, the Company completed the acquisition of Holo and became obligated for a contingent consideration in an aggregate amount of $50,632, which must be first paid in shares of the Company’s common stock (in an amount up to 8,650,000 shares) and then paid in cash thereafter, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing. The number of shares of common stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the common stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone. As of March 31, 2021, none of the contingent events have occurred. See Note 5 for further discussion of the Holo Acquisition.

8. Inventories

The inventory balances as of March 31, 2021 and December 31, 2020 consist entirely of finished goods and are stated on a consistent basis using the first-in, first-out method.

For the three months ended March 31, 2021 and 2020, the Company had inventory write-downs of $2,754  and $1,177, respectively.  

In January 2021, the Company received notice that the CervAlign ACP system (“CervAlign”) was recalled. As the Company was made aware of the recall in December 2020, all the product was reserved at December 31, 2020 and continues to be fully reserved for as of March 31, 2021.

9. Prepaid and Other Current Assets

Prepaid and other current assets are as follows:

	March 31,		December 31,
	2021		2020
Income tax receivable	$	2,299	$	4,836
Prepaid expenses		1,931		1,543
Other receivable		625		3,795
Other		146		110
	$	5,001	$	10,284

Other receivable as of December 31, 2020 included fees and expenses of $3,208 related to the Company’s public offering in January 2021, which was recorded as a reduction of Additional paid-in-capital upon the receipt of the proceeds from the offering.

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10. Property and Equipment

The net book value of property and equipment after accumulated depreciation and all impairment is as follows:

	March 31,		December 31,
	2021		2020
Processing equipment	$	28	$	35
Surgical instruments		454		440
Office equipment, furniture and fixtures		29		34
Computer equipment and software		12		12
Construction in process		3		—
	$	526	$	521

For the three months ended March 31, 2021 and 2020, the Company had depreciation expense in connection with property and equipment of $520 and $935, respectively using the straight line method of depreciation.  

For the three months ended March 31, 2021 and 2020, the Company recorded asset impairment and abandonment charges of $2,176 and $1,879. The fair value of property and equipment was measured utilizing an orderly liquidation value of each of the underlying assets.

As of March 31, 2021 and December 31, 2020, the Company capitalized a total of $310 and $0 of internal software related to the implementation of a new ERP system.  These costs have been recorded within construction in process as the development is still on going.  As part of the quarterly impairment analysis the Company impaired $307 in March 2021.  In addition, the Company expensed $126 and $0 related to ERP implementation costs that were not capitalizable for the three-month periods ended March 31, 2021 and 2020 which are recorded in the “Marketing, general, and administrative” line on the condensed consolidated statements of comprehensive income/(loss).

The Company does not have any finance leases and the Company’s operating leases do not have any residual value guarantees, restrictions or covenants. The Company’s leases have remaining lease terms of 1 to 9 years, some of which include options to extend or terminate the leases. The option to extend is only included in the lease term if the Company is reasonably certain of exercising that option. Operating lease ROU assets are presented within other assets-net on the condensed consolidated balance sheets and are $1,251 and $1,425 as of March 31, 2021 and December 31, 2020, respectively.  The current portion of operating lease liabilities are presented within accrued expenses (see Note 12), and the non-current portion of operating lease liabilities are presented within other long-term liabilities (see Note 13) on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively.

Operating lease costs for the three-month periods ended March 31, 2021 and 2020 was $183 and $376, respectively. The company does not have any variable lease costs.

As of March 31, 2021, the weighted-average remaining lease term was 5.84 years. The Company’s lease agreements do not provide a readily determinable implicit rate nor is it available to the Company from its lessors. Instead, the Company estimates its incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value. The weighted-average discount rate of the Company’s operating leases was 4.93%, as of March 31, 2021.

11. Fair Value Information

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for classification and disclosure of fair value measurements as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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Acquisition Contingencies

Zyga - On January 4, 2018, the Company acquired Zyga Technology, Inc. (“Zyga”) as further explained in Note 16 below. As of March 31, 2020, and December 31, 2019, based on a probability weighted model, the Company estimated a contingent liability related to the clinical and revenue milestones of $1,130. The fair value of the contingent liability was measured using Level 3 inputs. As of December 31, 2020, the Company determined that Zyga was not expected to meet the clinical milestone to earn the contingent consideration. As such, the liability for the milestone payment was reduced to zero as of December 31, 2020.

Holo - On October 23, 2020, the Company acquired Holo Surgical as previously explained in Note 5 above. A portion of the consideration is contingent upon the achievement of certain regulatory, commercial and utilization milestones (the “milestone payment”). The contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in the loss (gain) on acquisition contingency line item in the condensed consolidated statements of income/(loss). Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent consideration liabilities.

The Company determined the fair value of each milestone payment to be the present value of the future payment amount estimated using a probability weighted model. As of March 31, 2021 and December 31, 2020, a probability of success factor ranging from 40% to 90%, and 60% to 90%, respectively, was used in the fair value calculation to reflect inherent regulatory, development and commercial risk of the contingent payments. As of March 31, 2021 and December 31, 2020, the discount rate applied ranged from 0.06% to 9.39%, and 0.11% to 16.86%, respectively. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the milestone payments is based on several factors, such as: the probability of expected achievement of the specific milestones, including risks associated with uncertainty regarding achievement and payment of milestones; obtaining regulatory approvals in the United States and Europe; development of new features used with the product; adaption of the new technology by surgeons; and placement of the devices within the field.

As of December 31, 2020, the fair value of the contingent liability was $56,515 with $8,996 classified current liability included within the accrued expenses line and $47,519 as long-term liability included within other long-term liabilities. As of March 31, 2021, the fair value of the contingent liability was $56,464 with $18,738 classified current liability included within the accrued expenses line and $37,726 as long-term liability included within other long-term liabilities. A reconciliation of the Company’s acquisition contingencies is as follows (in thousands):

Impairment	2021			2020
Beginning balance as of January 1	$	56,515		$	1,130
(Gain) loss		(51	)		—
Purchases (settlement)		—			—
Ending balance as of March 31	$	56,464		$	1,130

Property and Equipment, Intangibles and Other Assets

Fair value is measured using Level 3 inputs for property and equipment, other intangible assets, and other assets. As of March 31, 2021, the Level 3 fair value was measured based on orderly liquidation value for the property and equipment and other assets. Other intangible assets Level 3 fair value was measured based on the income approach. Because the Company’s forecasted cash flow is negative, any intangible assets acquired during the period were immediately impaired, as the underlying business could not support the asset value.

Unobservable inputs for the orderly liquidation value included replacement costs (unobservable), physical deterioration estimates (unobservable) and market sales data for comparable assets and unobservable inputs for the income approach included forecasted cash flows generated from use of the intangible assets (unobservable).

Property and equipment, other intangibles and other assets were impaired and written down to their estimated fair values during the three months ended March 31, 2021 and year ended December 31, 2020. As a result of impairments recognized, the following table summarizes the fair value of assets subject to fair value measured using Level 3 inputs for the periods presented:

	March 31,		December 31,
Fair Value	2021		2020
Property and equipment - net	$	526	$	521
Other intangibles - net		—		—
Other assets - net (1)		12,398		10,145
	$	12,924	$	10,666

(1) Other assets subject to fair value impairment under ASC 350 and ASC 360 are a subset of Other Assets – net, as presented on the Balance Sheet

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Property and equipment was impaired and written down to their estimated fair values during the three months ended March 31, 2021 and 2020. Other intangible assets and other assets were impaired and written down to their estimated fair values during the three months ended March 31, 2021. The following table summarizes the impairment of assets subject to fair value measured using Level 3 inputs for the periods presented (in thousands):

	For the Three Months Ended
	March 31,
	2021		2020
Property and equipment - net	$	1,778	$	1,879
Other intangibles - net		161		—
Other assets - net		237		—
	$	2,176	$	1,879

12. Accrued Expenses

Accrued expenses are as follows:

	March 31,		December 31,
	2021		2020
Accrued compensation	$	2,798	$	2,268
Accrued severance and restructuring costs		218		—
Accrued distributor commissions		3,476		4,113
Accrued leases		532		650
Accrued acquisition contingency - Holo		18,738		8,996
Other		5,054		5,617
	$	30,816	$	21,644

During the first quarter of 2021, management implemented a plan as part of its reorganization which resulted in $218 of accrued severance and restructuring expense for the three months ended March 31, 2021 included in severance and restructuring costs within the condensed consolidated statements of comprehensive income/(loss). The severance plan is the transition of certain employees’ responsibilities from Marquette, MI to Chicago, IL or San Diego, CA and is composed of payroll and related healthcare expenses. The total severance and restructuring costs are anticipated to be paid in full by the third quarter of 2021 and are not expected to have a material impact on cash flows of the Company in any quarterly period. No related cash payments have been made as of March 31, 2021.

13. Other long-term liabilities

Other long-term liabilities are as follows:

	March 31,		December 31,
	2021		2020
Lease obligations	$	1,125	$	1,200
Acquisition contingencies		37,726		47,519
Other		2,991		2,991
	$	41,842	$	51,710

14. Income Taxes

The Company evaluates the need for deferred tax asset valuation allowances based on a more likely than not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company has evaluated all evidence, both positive and negative, and determined that its deferred tax assets are not more likely than not to be realized. In making this determination, numerous factors were considered including the Company’s cumulative losses in recent years.

For the three months ended March 31, 2021 and 2020, the Company recorded $0.2 million income tax expense and $3.5 million income tax benefit, respectively in continuing operations. The March 31, 2021 income tax provision was primarily a result of federal interest liability as a result of timing of payments. The March 31, 2020 income tax benefit was primarily impacted by the CARES Act tax benefit referenced below.

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On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. As a result of the enactment of the CARES Act, net operating losses (“NOL’s”) can now be carried back for five years, which resulted in the Company recognizing a benefit during the first quarter of 2020 of approximately $3.5 million.

On July 20, 2020, the Company completed the disposition of its OEM Businesses and recognized a tax gain related to the OEM sale. In April 2021, the Company paid $14.9 million of Federal tax liability related to the sale of the OEM Businesses.

15. Preferred Stock

Preferred stock is as follows:

	Preferred Stock Liquidation		Preferred Stock Issuance			Net
	Value		Costs			Total
Balance at January 1, 2021	$	—	$	—		$	—
Amortization of preferred stock issuance costs		—		—			—
Balance at March 31, 2021		—		—			—
	Preferred Stock Liquidation		Preferred Stock Issuance			Net
	Value		Costs			Total
Balance at January 1, 2020	$	66,519	$	(109	)	$	66,410
Amortization of preferred stock issuance costs		—		46			46
Balance at March 31, 2020		66,519		(63	)		66,456

On July 17, 2020, the Company received a notification from Water Street Healthcare Partners (“WSHP”) seeking redemption on or before September 14, 2020 of all of the outstanding shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”), all of which are held by WSHP. On July 24, 2020, the Company redeemed the Series A Preferred Stock for approximately $66,519 and Certificate of Retirement was filed with the Delaware Secretary of State retiring the Series A Preferred Stock.

16. Commitments and Contingencies

Acquisition of Paradigm – On March 8, 2019, pursuant to the Master Transaction Agreement, the Company acquired Paradigm in a cash and stock transaction valued at up to $300,000, consisting of $150,000 on March 8, 2019, plus potential future milestone payments. Paradigm’s primary product is the coflex® Interlaminar Stabilization® device, a minimally invasive motion preserving stabilization implant that is FDA premarket approved for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression.

Under the terms of the agreement, the Company paid $100,000 in cash and issued 10,729,614 shares of the Company’s common stock. The shares of Company common stock issued on March 8, 2019, were valued based on the volume weighted average closing trading price for the five trading days prior to the date of execution of the definitive agreement, representing $50,000 of value.  In addition, under the terms of the agreement, the Company may have been required to pay up to an additional $150,000 in a combination of cash and Company common stock based on a revenue earnout consideration.  The first potential earnout payment of $20,000 was based on revenues achieved during any twelve-month period ending on December 31, 2020.  As the revenue milestone was not achieved, there was no consideration due with respect to the first earnout period and the Company has no further liability with respect thereto. Based on a probability weighted model, the Company estimates a contingent liability related to the revenue based earnout of zero utilizing a Monte-Carlo simulation model. A Monte-Carlo simulation is an analytical method used to estimate fair value by performing a large number of simulations or trial runs and thereby determining a value based on the possible outcomes. Accounted for as a liability to be revalued at each reporting period, the fair value of the contingent liability was measured using Level 3 inputs, which includes weighted average cost of capital and projected revenues and costs.    

Acquisition of Zyga – On January 4, 2018, the Company acquired Zyga, a spine-focused medical device company that develops and produces innovative minimally invasive devices to treat underserved conditions of the lumbar spine. Zyga’s primary product is the SImmetry® Sacroiliac Joint Fusion System. Under the terms of the merger agreement dated January 4, 2018, the Company acquired Zyga for $21,000 in consideration paid at closing (consisting of borrowings of $18,000 on its revolving credit facility and $3,000 cash on hand), $1,000 contingent upon the successful achievement of a clinical milestone, and a revenue based earnout consideration of up to an additional

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$35,000.  As of March 31, 2021, the Company determined that Zyga was not expected to meet the clinical milestone to earn the contingent consideration.

Aziyo – On August 1, 2018, the Company and Aziyo Biologics, Inc. entered into a Distribution Agreement which was subsequently amended on December 3, 2018, and November 15, 2020 (the “Distribution Agreement”).  Pursuant to the Distribution Agreement, the Company has exclusive distribution rights to certain biologic implants manufactured by Aziyo and marketed under the ViBone trade name (“ViBone”).  The Distribution Agreement provides for minimum purchases of ViBone implants on an annual basis through calendar 2025.  If the minimum purchase obligations for a particular year are not fulfilled, the Distribution Agreement provides various options for the Company to satisfy such obligations (“Shortfall Obligations”) in subsequent years, including a combination of payments and/or providing purchase orders for the amount the shortfall in a given year.  For calendar years 2022 and beyond, if the Company does not satisfy the Shortfall Obligations using one of the methods specified in the Distribution Agreement, the Company can continue to market the ViBone implants on a non-exclusive basis. In January 2021, the Company issued a purchase order to Aziyo for $12,361 relating to the 2020 Shortfall Obligation.

Acquisition of Holo – As discussed in Note 5, pursuant to the terms of the Holo Purchase Agreement, the Seller will be entitled to receive contingent consideration from the Company valued in an aggregate amount of up to $83 million, to be paid through the issuance of Common Stock or the payment of cash, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing. The Holo Purchase Agreement provides that the Company will issue Common Stock to satisfy any contingent consideration payable to the Seller, until the total number of shares of Common Stock issued to the Seller pursuant to the Purchase Agreement (including the 6,250,000 shares of Common Stock issued at closing) is equal to 14,900,000 shares of Common Stock. Following the attainment of that limitation, the post-closing contingent payments would be payable in cash. The number of shares of Common Stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the Common Stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone. The Purchase Agreement also includes certain covenants and obligations of the Company with respect to the operation of the business of Holo Surgical that apply during the period in which the milestones may be achieved. Based on a probability weighted model, the Company estimated a total contingent liability of $50,632 with $8,993 classified as current liabilities and $41,639 classified as long-term liabilities on the acquisition date of October 23, 2020. The fair value of the liability was subsequently changed to $56,515  on December 31, 2020 with $8,996  classified as current liabilities within accrued expenses while $47,519 classified as other long-term liabilities. The fair value of the liability was $56,464 as of March 31, 2021 with $18,738 classified as current liabilities within accrued expenses while $37,726 is included as other long-term liabilities. The change in the fair value of the liability of $51 since December 31, 2020 was recognized in the gain (loss) on acquisition contingency line of the condensed consolidated statements of comprehensive income/(loss).

Manufacturing Agreements with Former OEM Affiliates – In connection with the closing of the OEM Transaction, on July 20, 2020 the Company entered into three manufacturing and distribution agreements with affiliates of Montague Private Equity:  (i) a Manufacture and Distribution Agreement (the “Hardware MDA”) with Pioneer Surgical Technology, Inc. (“Pioneer”) pursuant to which Pioneer will manufacture certain hardware implants for the Company; (ii) a Processing and Distribution Agreement with RTI Surgical, Inc. (“RTI”), an affiliate of Pioneer, pursuant to which RTI would process certain biologic implants for the Company (the “PDA”); and (ii) a Manufacture and Distribution Agreement (NanOss) pursuant to which Pioneer would manufacture certain synthetic implants for the Company (the “NanOss MDA”, and together with the Hardware MDA and the PDA, the “OEM Distribution Agreements”. The OEM Distribution Agreements contain aggregate minimum purchase obligations for each of the first three years of the agreements as follows:

• Year 1: $24,201

• Year 2: $25,767

• Year 3: $27,158

The OEM Distribution Agreements contain provisions whereby the minimum purchase obligations are reduced under certain circumstances, including certain force majeure events and termination of the agreements for certain specified reasons.  

In addition, on July 20, 2020, the Company entered into a Design and Development Agreement with Pioneer pursuant to which Pioneer will provide certain design and development services with respect to certain implants (the “Design and Development Agreement”).  The Design and Development Agreement contains a provision whereby the Company will pay Pioneer a minimum of $1.7 million for direct labor costs and certain services with respect to maintaining design history files in each of the first two years under the Design and Development Agreement.   

OPM Agreement – On January 20, 2021, the Company and Oxford Performance Materials, Inc. (“Oxford”) entered into an Amended and Restated License and Supply Agreement (the “Oxford Supply Agreement”) pursuant to which Oxford licenses certain intellectual property to the Company and supplies the Company on an exclusive basis in the United States with PEKK material for use

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in spinal implants.  In addition to certain royalties under the Oxford Supply Agreement the Company is obligated to issue binding purchase orders in each quarter of 2021 of at least $150, or $600 in the aggregate.  Although the contract extends through 2025, there are no minimum purchase obligations beyond 2021.

San Diego Lease – On March 12, 2021, the Company entered into a Lease (the “Lease”) with SNH Medical Office Properties Trust, a Maryland real estate investment trust (the “Landlord”), to house the Company’s offices, lab and innovation space (the “Building”) in San Diego, California. The initial term of the Lease is twelve (12) years, with one (1) extension option for a period of seven (7) years.

Under the terms of the Lease, the Company will lease an aggregate of approximately 94,457 rentable square feet building located at 3030 Science Park Road, San Diego, California (the “Premises”).  The Landlord will make improvements over the next 12 months, after which occupancy is expected to be delivered to the Company.

Aggregate payments towards base rent for the Premises over the term of the lease will be approximately $64.6 million, including 13-months of rent abatement. The Company will recognize the lease assets and liabilities when the Landlord makes the underlying asset available to the Company. Concurrent with the Company’s execution of the Lease, as a security deposit, the Company delivered to the Landlord a payment in the amount of $2.5 million.

17. Legal Actions

The Company is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary course of business. Based on the information currently available to the Company, including the availability of coverage under its insurance policies, the Company does not believe that any of these claims that were outstanding as of March 31, 2021 will have a material adverse impact on its financial position or results of operations. The Company’s accounting policy is to accrue for legal costs as they are incurred.

OEM Purchase Agreement Working Capital Dispute — On December 1, 2020, pursuant to the OEM Purchase Agreement, we received a notice from the Buyer indicating that a post-closing adjustment in an amount of up to $14 million may be owed in respect of the working capital adjustment paid at closing. We disagree with Buyer’s proposed post-closing adjustment and are disputing the adjustment in accordance with the terms of the OEM Purchase Agreement. The Company updated the working capital adjustment for $1.4 million which was agreed with the Buyer as part of the adjustment report and recorded the amount in Q4 2020 in the discontinued operations. The Company expects the matter to be resolved in the second quarter.

Coloplast — RTI Surgical, Inc., as a predecessor to the Company, is presently named as co-defendant along with other companies in a small percentage of the transvaginal surgical mesh (“TSM”) mass tort claims being brought in various state and federal courts. The TSM litigation has as its catalyst various Public Health Notifications issued by the FDA with respect to the placement of certain TSM implants that were the subject of 510k regulatory clearance prior to their distribution. The Company does not process or otherwise manufacture for distribution in the U.S. any implants that were the subject of these FDA Public Health Notifications. The Company denies any allegations against it and intends to continue to vigorously defend itself.

In addition to claims made directly against the Company, Coloplast, a distributor of TSM’s and certain allografts processed and private labeled for them under a contract with the Company, has also been named as a defendant in individual TSM cases in various federal and state courts.  Coloplast requested that the Company indemnify or defend Coloplast in those claims which allege injuries caused by the Company’s allograft implants, and on April 24, 2014, Coloplast sued RTI Surgical, Inc. in the Fourth Judicial District of Minnesota for declaratory relief and breach of contract.  On December 11, 2014, Coloplast entered into a settlement agreement with RTI Surgical, Inc. and Tutogen Medical, Inc. (the “Company Parties”) resulting in dismissal of the case.  Under the terms of the settlement agreement, the Company Parties are responsible for the defense and indemnification of two categories of present and future claims:  (1) tissue only (where Coloplast is solely the distributor of Company processed allograft tissue and no Coloplast-manufactured or distributed synthetic mesh is identified) (“Tissue Only Claims”), and (2) tissue plus non-Coloplast synthetic mesh (“Tissue-Non-Coloplast Claims”) (the Tissue Only Claims and the Tissue-Non-Coloplast Claims being collectively referred to as “Indemnified Claims”).  As of March 31, 2021, there are a cumulative total of 1,157 Indemnified Claims for which the Company Parties are providing defense and indemnification. In connection with the Transactions, liabilities related to these claims remained a liability retained by the Company The defense and indemnification of these cases are covered under the Company’s insurance policy subject to a reservation of rights by the insurer.

Based on the current information available to the Company, the impact that current or any future TSM litigation may have on the Company cannot be reasonably estimated.

LifeNet — On June 27, 2018, LifeNet Health, Inc. (“LifeNet”) filed a patent infringement lawsuit in the United States District Court for the Middle District of Florida (since moved to the Northern District of Florida) claiming infringement of five of its

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patents by the Company’s predecessor RTI Surgical, Inc. The suit requests damages, enhanced damages, reimbursement of costs and expenses, reasonable attorney fees, and an injunction. The asserted patents are expired. On April 7, 2019, the Court granted the Company’s request to stay the lawsuit pending the U.S. Patent Trial and Appeal Board’s (PTAB) decision whether to institute review of the patentability of LifeNet’s patents. On August 12, 2019 the PTAB instituted review of three LifeNet patents, and on September 3, 2019 the PTAB instituted review of the remaining two. On August 4,2020 and August 26, 2020, the PTAB issued final written decisions finding that certain claims were shown to be unpatentable and others not. Neither party appealed the PTAB’s decisions with respect to the three LifeNet patents on which the PTAB instituted review on August 12, 2019.  With respect to the remaining two LifeNet patents, Surgalign filed Notices of Appeal with the Federal Circuit on October 27, 2020 and LifeNet filed a Notice of Cross-appeal on November 9, 2020. The briefings related to these appeals were filed in March and April respectively. In connection with the Transactions, liabilities related to these claims remained a liability retained by the Company. The Company continues to believe the suit is without merit and will vigorously defend its position. Based on the current information available to the Company, the impact that current or any future litigation may have on the Company cannot be reasonably estimated.

Securities Class Action— There is currently ongoing stockholder litigation related to the Company’s Investigation (as defined below).  A class action complaint was filed by Patricia Lowry, a purported shareholder of the Company, against the Company, and certain current and former officers of the Company, in the United States District Court for the Northern District of Illinois on March 23, 2020 asserting claims under Sections 10(b) and 20(a) the Securities Exchange Act of 1934 (the “Exchange Act”) and demanding a jury trial (“Lowry Action”).   The court appointed a different shareholder as Lead Plaintiff and she filed an amended complaint on August 31, 2020.  On October 15, 2020, the Company and the other-named defendants moved to dismiss the amended complaint. In April 2021, the court denied the defendants’ motions to dismiss. The case will now move to the discovery phase.

Derivative Lawsuits—Three derivative lawsuits have also been filed on behalf of the Company, naming it as a nominal defendant, and demanding a jury trial.  On June 5, 2020, David Summers filed a shareholder derivative lawsuit (“Summers Action”) against certain current and former directors and officers of the Company (as well as the Company as a nominal defendant), in the United States District Court for the Northern District of Illinois asserting statutory claims under Sections 10(b), 14(a) and 20(a) of the Exchange Act, as well as common law claims for breach of fiduciary duty, unjust enrichment and corporate waste.  Thereafter, two similar shareholder derivative lawsuits asserting many of the same claims were filed in the same court against the same current and former directors and officers of the Company (as well as the Company as a nominal defendant).  The three derivative lawsuits have been consolidated into the first-filed Summers Action.  On September 6, 2020 the court entered an order staying the Summers Action pending resolution of the motions to dismiss in the Lowry Action. The court has not yet taken action regarding the derivative actions.

In the future, we may become subject to additional litigation or governmental proceedings or investigations that could result in additional unanticipated legal costs regardless of the outcome of the litigation. If we are not successful in any such litigation, we may be required to pay substantial damages or settlement costs.  Based on the current information available to the Company, the impact that current or any future stockholder litigation may have on the Company cannot be reasonably estimated.

18. Regulatory Actions

SEC Investigation— As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2020, and the Form 10-K filed with the SEC on June 8, 2020, the Audit Committee of the Board of Directors, with the assistance of independent legal and forensic accounting advisors, conducted an internal investigation of matters relating to the Company’s revenue recognition practices for certain contractual arrangements, primarily with customers of the Company’s formerly-owned OEM Businesses, including the accounting treatment, financial reporting and internal controls related to such arrangements (the “Investigation”). The Investigation also examined transactions to understand the practices related to manual journal entries for accrual and reserve accounts.  As a result of the Investigation, the Audit Committee concluded that the Company would restate its previously issued audited financial statements for fiscal years 2018, 2017 and 2016, selected financial data for fiscal years 2015 and 2014, the unaudited condensed consolidated financial statements for the quarterly periods within these years commencing with the first quarter of 2016, as well as the unaudited condensed consolidated financial statements for the quarterly periods within the 2019 fiscal year.  The Investigation was precipitated by an investigation by the U.S. Securities and Exchange Commission initially related to the periods 2014 through 2016 (the “SEC Investigation”). The SEC Investigation is ongoing and the Company is cooperating with the SEC.  The Company has contacted the SEC regarding a potential settlement of the SEC Investigation and is awaiting a response.  Based on the current information available to the Company the financial or other impact of the SEC Investigation cannot be reasonably determined.

Environmental Protection Agency—On January 28, 2020, RTI, as predecessor to the Company, received an Opportunity to Show Cause letter from the United States Environmental Protection Agency (“EPA”). The letter alleged potential violations of hazardous waste regulations at the Company’s Alachua, Florida facilities based on a November 20, 2019 inspection conducted by EPA, and offered the Company the opportunity to meet with EPA to explain why EPA should not take any formal enforcement action.  The Company held a virtual meeting with EPA on May 19, 2020 to respond to EPA’s allegations.  During subsequent discussions, EPA indicated that it intended to impose a penalty on the Company related to the allegations in the letter. The Company subsequently recorded a liability for the amount the EPA communicated it intended to impose on the Company related to the allegations in the letter.  Subsequently, the Company provided additional information demonstrating its compliance with State and

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Federal requirements related to hazardous waste management.  In January 2021, the EPA notified the Company that it would not be bringing an enforcement action against the Company at this time.  As a result of this notice, the Company reversed the accrued liability relating to this matter, resulting in no impact on the Company’s consolidated statement of comprehensive loss for the year ended December 31, 2020.  

19. Related Party Transactions

The Company’s related parties include: i) a person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if he or she does not presently serve in that role) an executive officer, director or nominee for election as a director; ii) granter than five percent beneficial owner of the Company’s common stock; or iii) immediate family member of any of the foregoing. The Company did not enter into any related party transactions in 2018 and 2019. In 2020, the Company has entered into the following related party transactions:

The Holo Surgical Acquisition

As discussed in Note 5, on September 29, 2020, the Company entered into the Holo Purchase Agreement, pursuant to which, among other things, the Company consummated the Acquisition on October 23, 2020. As consideration for the Acquisition, the Company paid to Seller $30,000 in cash and issued to Seller 6,250,000 shares of its common stock with a fair value of $12,250. In addition, the Seller will be entitled to receive contingent consideration from the Company valued at $50,632 as of October 23, 2020, which must be first paid in shares of our common stock (in an amount up to 8,650,000 shares) and then paid in cash thereafter, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the Closing Date. Dr. Pawel Lewicki, a member of the Company’s board of directors, indirectly owns approximately 57.5% of the outstanding ownership interests in the Seller. Dr. Lewicki was appointed to the Company’s board of directors on November 23, 2020.

Simpson Consulting Agreement

On July 15, 2020, the Board appointed Stuart F. Simpson to serve as the Chairman of the Board, effective immediately upon consummation of the transactions contemplated by the Holo Surgical Purchase Agreement. On July 20, 2020, Mr. Simpson entered into a consulting agreement (“the Consulting Agreement”) with the Company, pursuant to which he will provide consulting services to the Company. The Consulting Agreement has an initial term of three years, but may be extended with the mutual agreement of the parties. Mr. Simpson will be entitled to an annual consulting fee of $275 per year during the term of the Consulting Agreement, payable in 12 equal monthly installments, and the Company agreed to enter into a restricted stock award agreement, pursuant to which the Company will grant to Mr. Simpson a restricted stock award equal to $825. The restricted stock grant shall vest in three equal amounts on the first, second and third anniversaries of the grant date. These amounts are in lieu of any amounts Mr. Simpson would otherwise receive as a director.

20. Subsequent Events

The Company evaluated subsequent events as of the issuance date of the unaudited condensed consolidated financial statements as defined by FASB ASC 855, Subsequent Events.

On April 30, 2021, the Company and Surgalign Spine Technologies, Inc., a Delaware corporation and wholly owned subsidiary, entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), with a fully capable machine shop (“the Shop”, which provides for the Company to acquire all property, plant and equipment of the Shop. The shop designs and manufactures products for the medical device and aerospace industries.

Pursuant to the terms of the Asset Purchase Agreement, the Company agreed to pay an aggregate amount $1,100, subject to certain purchase price adjustments. The acquisition was closed on April 30, 2021. At the closing, the Company paid $330 and issued restricted shares with an aggregate fair market value of $220 to the seller.

The initial accounting for the Asset Purchase Agreement is incomplete as the Company is in the process of obtaining and reviewing additional information related to the acquisition, including an analysis of the estimated fair value of assets acquired and liabilities assumed. Such information will be subsequently disclosed.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Relating to Forward Looking Statements

Information contained in this filing contains “forward-looking statements” which can be identified by the use of forward-looking terminology such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “requires,” “hopes,” “assumes” or comparable terminology, or by discussions of strategy. There can be no assurance that the future results covered by these forward-looking statements will be achieved. Some of the matters described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020, or in subsequent Quarterly Reports on Form 10-Q (including this one), constitute cautionary statements which identify some of the factors regarding these forward-looking statements, including certain risks and uncertainties, that could cause actual results to vary materially from the future results indicated in these forward-looking statements. Other factors could also cause actual results to vary materially from the future results indicated in such forward-looking statements.

Management Overview

We are a global medical technology company committed to the promise of digital surgery and is building out its digital surgery platform to drive transformation across the surgical landscape. We have a broad portfolio of spinal hardware implants, including solutions for fusion procedures in the lumbar, thoracic, and cervical spine, motion preservation solutions for the lumbar spine, and a minimally invasive surgical implant system for fusion of the sacroiliac joint. We also have a portfolio of advanced and traditional orthobiologics, or biomaterials. In addition to our spinal hardware and biomaterials portfolios, we are developing a digital surgery platform that we call ARAI, for Augmented Reality and Artificial Intelligence, which we believe is one of the most advanced artificial intelligence technologies being applied to surgery, designed to automatically segment, identify, and recognize patient anatomy to autonomously assist the surgeon throughout the surgical procedure. This proprietary artificial intelligence-based platform system is an intelligent anatomical mapping technology designed to assist surgeons by allowing them to remain in safe anatomical zones, and to enhance surgical performance. We plan to leverage our digital surgery platform to improve patient outcomes and drive adoption of our spinal hardware implants and biomaterials products. We are developing a pipeline of new innovative technologies that we plan to integrate with our digital surgery platform.

Our product portfolio of spinal hardware implants and biomaterials products address an estimated $12.7 billion global spine market. We estimate that our current portfolio addresses nearly 87% of all surgeries utilizing spinal hardware implants and approximately 70% of the biomaterials used in spine-related uses. Our portfolio of spinal hardware implants consists of a broad line of solutions for spinal fusion in minimally invasive surgery (“MIS”), deformity, and degenerative procedures; motion preservation solutions indicated for use in one- or two-level disease; and an implant system designed to relieve sacroiliac joint pain. Our biomaterials products consist of a broad range of advanced and traditional bone graft substitutes that are designed to improve bone fusion rates following spinal surgery.

We offer a portfolio of products for thoracolumbar procedures, including: the Streamline TL Spinal Fixation system, a system for degenerative and complex spine procedures; and the Streamline MIS Spinal Fixation System, a broad range of implants and instruments used via a percutaneous or mini-open approach. We offer a complementary line of interbody fusion devices, Fortilink-TS, Fortilink-L, and Fortilink-A, in our TETRAfuse 3D Technology, which is 3D printed with nano-rough features that have been shown to allow more bone cells to attach to more of the implant, increasing the potential for fusion. We offer a portfolio of products for cervical procedures, including: the CervAlign ACP System, a comprehensive anterior cervical plate system; the Fortilink-C IBF System, a cervical interbody fusion device that utilizes TETRAfuse 3D technology; and the Streamline OCT System, a broad range of implants used in the occipito-cervico-thoracic posterior spine. Our motion preservation systems are designed to enable restoration of segmental stability, while preserving motion. These systems include: Coflex Interlaminar Stabilization device, the only FDA PMA-approved implant for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression; and HPS 2.0 Universal Fixation System, a pedicle screw system used for posterior stabilization of the thoracolumbar spine that includes a unique dynamic coupler, shown to preserve motion and reduce the mechanical burden on adjacent segments. Our implant system for fusion of the sacroiliac joint, SImmetry SI Joint Fusion System, is a minimally invasive surgical implant system that has been clinically demonstrated to produce high rates of sacroiliac joint fusion and statistically significant decreases in opioid use, pain, and disability.

Through a series of distribution agreements, our product portfolio of biomaterials consists of a variety of bone graft substitutes including cellular allografts, demineralized bone matrices (“DBMs”) and synthetic bone growth substitutes that have a balance of osteoinductive and osteoconductive properties to enhance bone fusion rates following spinal surgery. We market ViBone and ViBone Moldable, two next-generation viable cellular allograft bone matrix products intended to provide surgeons with improved results for bone repair. ViBone and ViBone Moldable are processed using a proprietary method optimized to protect and preserve the health of native bone cells to potentially enhance new bone formation and are designed to perform and handle in a manner similar to an autograft. ViBone and ViBone Moldable contain cancellous bone particles as well as demineralized cortical bone particles and fibers, delivering osteoinductive, osteoconductive, and osteogenic properties. Our DBM product offering includes BioSet, BioReady, and BioAdapt, a DBM portfolio consisting of putty, putty with chips, strips, and boat configurations for various surgical applications while providing osteoinductive properties to aid in bone fusion. Our synthetic bone growth substitutes include nanOss and nanOss 3D Plus, a family of products that provide osteoconductive nano-structured hydroxyapatite (“HA”) and an engineered extracellular matrix bioscaffold collagen carrier that mimics a natural bone growth solution.

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To complement our spinal hardware and biomaterials portfolios, we are developing a proprietary digital surgery platform called ARAI, which is a freestanding surgical guidance system that combines 3D visualization, data analytics, and machine learning, without interrupting the current surgical workflow. We believe it is one of the most advanced artificial intelligence technologies being applied to surgery, designed to automatically segment, identify, and recognize patient anatomy to autonomously assist the surgeon throughout the procedure. ARAI has been designed to address the limitations of current computer-assisted spine surgery and spine robotics systems that lack 3D visualization, patient anatomy recognition, and data analytics and that may have long setup requirements and lengthy registration times that can add significant amounts of time to the overall procedure.

ARAI combines (i) advanced augmented reality to provide the surgeon with an “X-ray vision”-like 3D overlay rendering of the patient’s anatomy, (ii) automated image processing and modular spine level identification and segmentation so the system knows the patient’s anatomy to enhance navigation, (iii) autonomous planning software and implant selection, and (iv) artificial intelligence and predictive analytics to provide autonomous guidance for preoperative and intraoperative surgeon decision-making. ARAI’s artificial intelligence has the ability to recognize the difference between patient anatomy, such as a nerve root and a blood vessel, and help identify anatomy within complex areas of the spine, where it is easy to miscount levels. ARAI has been designed with a unique setup process of quickly establishing the synchronization between virtual images and the patient’s real anatomy, a process called registration. Many other computer-assisted spine surgery and robotics systems have long setup requirements and registration times that can result in surgery delays, leading to inefficiencies that are cited as a major reason why surgeons have not yet widely adopted navigation and robotic technology. ARAI has been designed to provide surgeons with real-time perioperative information such as alerts and suggestions to ensure the correct operative plan is being followed, decrease surgical complications, reduce surgical times, and improve patient outcomes. We plan to make an FDA 510(k) premarket submission for our ARAI platform in the first quarter of 2021 and submit a CE mark application in Europe in 2022.

We plan to develop and commercialize several next-generation features for the ARAI platform, including smart instrumentation, integration with robotic platforms, patient-specific 3D printed implants, and diagnostic and predictive analytics. These surgical devices will be designed with tracking technology intended to allow real-time 3D visualization and positioning of the instruments in the surgical field and autonomous safety features to aid in surgical precision and help avoid potential damage to surrounding tissue and neurological structures. We are designing ARAI to be integrated with existing robotic platforms to make them “smart” by identifying relevant anatomy. In addition, we are designing the ARAI platform with a software application to enable patient-specific implants with exact dimensions, shape, and contour based on a patient’s specific bone density and height. We are also developing a novel diagnostic and predictive analytics capability using machine learning that leverages a large volume of patient data with known outcomes to allow for autonomous identification of spinal pathology.

We have aligned our core business principles with a focused business strategy that we believe will advance and scale our business with the ultimate goal of delivering on our promise to provide better patient outcomes. To support this effort, we have assembled a spine-industry experienced executive leadership team to execute against our growth strategy, which includes leveraging our digital surgery platform to improve patient outcomes and drive adoption of our spinal hardware implants and biomaterials products, developing and commercializing an increased cadence of innovative spinal hardware implants and biomaterials products, validating our innovative products with clinical evidence, growing our international business, and strategically pursuing acquisition, license, and distribution opportunities.

We currently market and sell our products to hospitals, ambulatory surgery centers, and healthcare providers in the United States and in more than 40 countries worldwide. Our U.S. sales organization consists of area sales directors and regional product specialists who oversee a network of independent spine and orthobiologics distributors who receive commissions for sales that they generate. Our international sales organization is composed of a sales management team that oversees a network of direct sales representatives, independent spine and orthobiologics distributors, and stocking distributors.

Sale of OEM Business, Retirement of Debt and Redemption of Preferred Stock

On July 20, 2020, pursuant to the OEM Purchase Agreement, by and between us and Ardi Bidco Ltd. (the “Buyer”), the Company sold the OEM Businesses to Buyer and its affiliates for a purchase price of $440 million of cash, subject to certain adjustments. In connection therewith on July 20, 2020, we (i) paid in full our $80 million revolving credit facility under that certain Credit Agreement dated as of June 5, 2018 (the “2018 Credit Agreement”), by and among Surgalign Spine Technologies, Inc. (formerly known as RTI Surgical, Inc. (“Legacy RTI”)), as a borrower, Pioneer Surgical Technology, Inc. (“Pioneer Surgical”), our wholly-owned subsidiary, as a borrower, the other loan parties thereto as guarantors (together, with Legacy RTI and Pioneer Surgical, the “JPM Loan Parties”), JPMorgan Chase Bank, N.A. (“JPM”), as lender (together with the various financial institutions as in the future may become parties thereto, the “JPM Lenders”) and as administrative agent for the JPM Lenders, as amended, (ii) terminated the 2018 Credit Agreement, (iii) paid in full our $100 million term loan and $30 million incremental term loan commitment under that certain Second Lien Credit Agreement, dated as of March 8, 2019 (the “2019 Credit Agreement”), by and among Surgalign Spine Technologies, Inc., as borrower, the lenders party thereto from time to time and Ares Capital Corporation (“Ares”), as administrative agent for the other lenders party thereto (the “Ares Lenders”), as amended and (iv) terminated the 2019 Credit Agreement.

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On July 17, 2020, we received a notification from WSHP seeking redemption on or before September 14, 2020 of all of the outstanding shares of the Series A Preferred Stock, all of which are held by WSHP. On July 24, 2020, we redeemed the Series A Preferred Stock for approximately $67 million, a Certificate of Retirement was filed with the Delaware Secretary of State retiring the Series A Preferred Stock, and the WSHP representatives resigned from the Company’s Board of Directors.

On December 1, 2020, pursuant to the OEM Purchase Agreement, we received a notice from the Buyer indicating that a post-closing adjustment in an amount of up to $14 million may be owed in respect of the working capital adjustment paid at closing. We disagree with Buyer’s proposed post-closing adjustment and are disputing the adjustment in accordance with the terms of the OEM Purchase Agreement. We expect this matter to be resolved in the second quarter.

The OEM Businesses met the criteria within ASC 205-20 to be reported as discontinued operations because the Transactions were a strategic shift in business that had a major effect on our operations and financial results. Therefore, we are reporting the historical results of the OEM Businesses including the results of operations and cash flows as discontinued operations, and related assets and liabilities were retrospectively reclassified as assets and liabilities of discontinued operations for all periods presented herein. Unless otherwise noted, applicable amounts in the prior year have been recast to conform to this discontinued operations presentation. See Note 3 of the unaudited condensed consolidated financial Statements in Part I, Item 1, “Unaudited Condensed Consolidated Financial Statements” of this Exhibit for additional information. Unless otherwise indicated, the following information relates to continuing operations. A more complete description of our business prior to the Transactions is included in Item 1. “Business”, in Part I of the Annual Report on Form 10-K for the year ended December 31, 2020 that was previously filed with the Securities and Exchange Commission (“SEC”) on March 16, 2021.

Acquisition

On October 23, 2020 we completed the acquisition of Holo Surgical Inc. (“Holo Surgical”) pursuant to the Stock Purchase Agreement, dated as of September 29, 2020 (the “Holo Purchase Agreement”), by and among us, Roboticine, Inc. (the “Seller”) and the other parties signatory thereto. Holo Surgical is a private technology company currently developing the ARAI platform, a differentiated digital spine surgery technology. As consideration for the transactions contemplated by the Holo Surgical Purchase Agreement, at closing, we paid to the Seller $30 million in cash and issued to the Seller 6,250,000 shares of our common stock with a fair value of $12.3 million. In addition, the Seller will be entitled to receive contingent consideration from us valued in an aggregate amount of $50.6 million as of October 23, 2020, which must be first paid in shares of our common stock (in an amount up to 8,650,000 shares) and then paid in cash thereafter, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing. The number of shares of common stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the common stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone. In connection with the contingent consideration, we have agreed not to take certain actions that could affect the ability to achieve the milestones related to the contingent consideration.

COVID-19

As discussed in more detail above in Part I, Item 1, “Business” of this Exhibit, the coronavirus (COVID-19) pandemic, as well as the corresponding governmental response, has had significant negative effects on the majority of the U.S. economy and has adversely affected our business. The consequences of the outbreak and impact on the economy continues to evolve and the full extent of the impact is uncertain as of the date of this filing. The outbreak has already had, and continues to have, a material adverse effect on our business, operating results and financial condition and has significantly disrupted our operations.

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Results of Operations

The following table set forth, in both thousands of dollars and as a percentage of revenues, the results of our operations for the three months ended March 31, 2021 and 2020, respectively.

	For the Three Months Ended March 31,
	2021					2020
Revenues	$	23,291		100.0	%	$	27,102		100.0	%
Cost of goods sold		6,238		26.8	%		9,224		34.0	%
Gross profit		17,053		73.2	%		17,878		66.0	%
Expenses:
Marketing, general and administrative		25,943		111.4	%		37,193		137.2	%
Research and development		2,875		12.3	%		4,282		15.8	%
Severance and restructuring costs		218		0.9	%		-		0.0	%
Gain on acquisition contingency		(51	)	-0.2	%		-		0.0	%
Asset impairment and abandonments		2,176		9.3	%		1,879		6.9	%
Transaction and integration expenses		322		1.4	%		2,409		8.9	%
Total operating expenses		31,483		135.2	%		45,763		168.9	%
Operating loss		(14,430	)	-62.0	%		(27,885	)	-102.9	%
Other income (expense):
Interest income		4		0.0	%		50		0.2	%
Foreign exchange loss		(545	)	-2.3	%		(244	)	-0.9	%
Total other expense - net		(541	)	-2.3	%		(194	)	-0.7	%
Loss before income tax benefit		(14,971	)	-64.3	%		(28,079	)	-103.6	%
Income tax (expense) benefit		(219	)	-0.9	%		3,539		13.1	%
Net loss from continuing operations		(15,190	)	-65.2	%		(24,540	)	-90.5	%
Discontinued operations (Note 3)
Income from operations of discontinued operations		-		0.0	%		6,677		24.6	%
Income tax expense		-		0.0	%		-		0.0	%
Net income from discontinued operations		-		0.0	%		6,677		24.6	%
Net loss applicable to common shares		(15,190	)	-65.2	%		(17,863	)	-65.9	%
Other comprehensive gain (loss):				0.0	%				0.0	%
Unrealized foreign currency translation gain (loss)		71		0.3	%		(370	)	-1.4	%
Comprehensive loss	$	(15,119	)	-64.9	%	$	(18,233	)	-67.3	%

Three Months Ended March 31, 2021, Compared With Three Months Ended March 31, 2020

Revenues – Our revenues decreased $3.8 million, or 14.1%, to $23.3 million for the three months ended March 31, 2021, compared to $27.1 million for the three months ended March 31, 2020, primarily due to decreased demand during the quarter as a result of reduction in elective surgical procedures primarily related to COVID-19 impacting our business.

Cost of Goods Sold – Costs of goods sold decreased $3.0 million, or 32.4%, to $6.2 million for the three months ended March 31, 2021, compared to $9.2 million for the three months ended March 31, 2020. Adjusted for the impact of purchase accounting step-up, cost of goods sold decreased $2.6 million or 31.6%, to $5.7 million, or 24.3% of revenue, for the three months ended March 31, 2021, compared to $8.3 million, or 30.8% of revenue, for the three months ended March 31, 2020. The decrease in costs of goods sold was primarily due to reduction in revenue and related impact on product mix.

Marketing, General and Administrative Expenses – Marketing, general and administrative expenses decreased $11.3 million, or 30.2%, to $25.9 million for the three months ended March 31, 2021, compared to $37.2 million for the three months ended March 31, 2020. The decrease in marketing, general and administrative costs is driven by a $13.0 million reduction in spending through the simplification of the distribution and marketing infrastructure and reduction in spending due to the sale of the OEM Businesses offset by incremental bad debt reserves of approximately $1.7 million for the three months ended March 31, 2021.

Research and Development Expenses – Research and development expenses decreased $1.4 million or 32.9%, to $2.9 million for the three months ended March 31, 2021, compared to $4.3 million for the three months ended March 31, 2020. The decrease in research and development expenses is a result of a reduction in spending on new product development, specifically external consultant and advisor expense, as the Company has begun to rebuild our R&D organization after the sale of the OEM business.

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Asset Impairment and Abandonments– Asset impairment and abandonments expenses were $2.2 million for the three months ended March 31, 2021, which was primarily the result of property and equipment being impaired.

Transaction and Integration Expenses – Transaction and integration expenses related to the acquisition of the Holo Surgical business were $0.3 million for the three months ended March 31, 2021, compared to $2.4 million of Paradigm acquisition costs for the three months ended March 31, 2020.

Total Net Other Expense – Total net other expense, which includes interest income, and foreign exchange loss, increased $0.3 million to $0.5 million as a result of foreign exchange loss associated with our foreign operations for the three months ended March 31, 2021, from $0.2 million loss for the three months ended March 31, 2020.

Income Tax (Expense) Benefit – Income tax expense for the three months ended March 31, 2021, increased $3.8 million to a $0.2 million income tax expense from the $3.5 million benefit for the three months ended March 31, 2020. As the comparative periods both have full valuation allowances, the increase is the result of non-recurring discrete tax activity including a federal interest liability and the CARES Act tax benefit for March 31, 2021 and 2020, respectively.

Discontinued Operations – Net income from discontinued operations for the three months ended March 31, 2020 was $6.7 million.

Non-GAAP Financial Measures

We utilize certain financial measures that are not calculated based on Generally Accepted Accounting Principles (“GAAP”). Certain of these financial measures are considered “non-GAAP” financial measures within the meaning of Item 10 of Regulation S-K promulgated by the SEC. We believe that non-GAAP financial measures provide an additional way of viewing aspects of our operations that, when viewed with the GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business. These non-GAAP financial measures are also used by our management to evaluate financial results and to plan and forecast future periods. However, non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Non-GAAP financial measures used by us may differ from the non-GAAP measures used by other companies, including our competitors.

To supplement our unaudited condensed consolidated financial statements presented on a GAAP basis, we disclose non-GAAP net income applicable to common shares and non-GAAP gross profit adjusted for certain amounts.  The calculation of the tax effect on the adjustments between GAAP net loss applicable to common shares and non-GAAP net income applicable to common shares is based upon our estimated annual GAAP tax rate, adjusted to account for items excluded from GAAP net loss applicable to common shares in calculating non-GAAP net income applicable to common shares.  Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP measures are included in the reconciliations below:

Non-GAAP Net Income Applicable to Common Shares, Adjusted:

	For the Three Months Ended
	March 31,
	2021			2020
	(In thousands)
Net loss from continuing operations, as reported	$	(15,190	)	$	(24,540	)
Severance and restructuring costs		218			—
Gain on acquisition contingency		(51	)		—
Asset impairment and abandonments		2,176			1,879
Inventory purchase price adjustment		527			878
Transaction and integration expenses		322			2,409
Tax effect on adjustments		—			—
Non-GAAP net loss applicable to common    shares, adjusted	$	(11,998	)	$	(19,374	)

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Non-GAAP Gross Profit, Adjusted:

	For the Three Months Ended
	March 31,
	2021		2020
	(In thousands)
Revenues	$	23,291	$	27,102
Costs of goods sold		6,238		9,224
Gross profit, as reported		17,053		17,878
Inventory purchase price adjustment		527		878
Non-GAAP gross profit, adjusted	$	17,580	$	18,756

The following are explanations of the adjustments that management excluded as part of the non-GAAP measures for the three months ended March 31, 2021 and 2020. Management removes the amount of these costs including the tax effect on the adjustments from our operating results to supplement a comparison to our past operating performance.

2021 Severance and restructuring costs – These costs relate to the reduction of our organizational structure, primarily driven by simplification of our Marquette, MI location.

2021 and 2020 Asset impairment and abandonments – These costs relate to asset impairment and abandonments of certain long-term assets within the asset group.

2021 Gain on acquisition contingency – The gain on acquisition contingency relates to an adjustment to our estimate of obligation for future milestone payments on the Holo acquisition.

2021 and 2020 Transaction and integration expenses – These costs relate to professional fees associated with the acquisition of Holo Surgical and other matters.

2021 and 2020 Inventory purchase price adjustment – These costs relate to the purchase price effects of acquired Paradigm inventory that was sold during the three months ended March 31, 2021 and 2020.

Liquidity and Capital Resources  

As the global outbreak of COVID-19 continues to rapidly evolve, it could continue to materially and adversely affect our revenues, financial condition, profitability, and cash flows for an indeterminate period of time.

As discussed in Note 18, the Securities and Exchange Commission (“SEC”) has an active investigation that remains ongoing.  The Company continues to cooperate with the SEC in relation to its investigation. Based on current information available to the Company, the impact associated with SEC investigation and shareholder litigation may have on the Company cannot be reasonably estimated.

Going Concern

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with generally accepted accounting principles in the United States of America. The going concern basis of presentation assumes that we will continue in operation one year after the date these unaudited condensed consolidated financial statements are issued, and we will be able to realize our assets and discharge our liabilities and commitments in the normal course of business.

As of March 31, 2021, we had cash of $63,763 and an accumulated deficit of $500,152 For the three months ended March 31, 2021, we had a loss from continuing operations of $15,190. We have incurred losses from operations in the previous two fiscal years and did not generate positive cash flows from operations in fiscal year 2020 or for the three months ended March 31,2021.

On February 1, 2021, we closed a public offering and sold a total 28,700,000 shares of our common stock at a price of $1.50 per share, less the underwriter discounts and commissions. We received net proceeds of $40,467 from the offering after deducting the underwriting discounts and commission of $3,983.

We project we will continue to generate significant negative operating cash flows over the next 12-months and beyond.  In consideration of: i) COVID-19 uncertainties, ii) negative cash flows that are projected over the next 12-month period, iii) the $14.9 million of Federal income tax liability paid in April 2021 related to the gain on sale of the OEM Businesses, iv) uncertainty regarding potential settlements related to ongoing litigation and regulatory investigations, and v) approximately $9 million of the total contingent

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consideration of $50.6 million are expected to become due to the former owners of Holo Surgical if regulatory approval in the US is obtained in 2021, which would paid through combination of common stock and cash; we have forecasted the need to raise additional capital in order to continue as a going concern.  The Company’s operating plan for the next 12-month period also includes continued investments in its product pipeline which will necessitate additional debt and/or equity financing in addition to the funding of future operations through 2021 and beyond.

In consideration of the inherent risks and uncertainties and the Company’s forecasted negative cash flows as described above, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one year after the date the unaudited condensed consolidated financial statements are issued. Management continually evaluates plans to raise additional debt and/or equity financing and will attempt to curtail discretionary expenditures in the future, if necessary, however, in consideration of the risks and uncertainties mentioned, such plans cannot be considered probable of occurring at this time.

The recoverability of a major portion of the recorded asset amounts shown in the Company’s accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its funding requirements on a continuous basis, to maintain existing financing and to succeed in its future operations. The Company’s unaudited condensed consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

The following table presents a summary of our cash flow activity for the periods set forth below (in thousands):

		For the Three Months Ended
		March 31				March 31
		2021				2020
Net cash (used in) provided by operating activities	$		(14,526	)	$		6,516
Net cash used in investing activities			(2,482	)			(5,370	)
Net cash provided by (used in) financing activities			36,397				(173	)
Effect of exchange rate changes on cash and cash    equivalents			412				(24	)
Net increase in cash and cash equivalents	$		19,801		$		949
Cash and cash equivalents, beginning of period			43,962				5,608
Cash and cash equivalents, end of period	$		63,763		$		6,557

At March 31, 2021, we had 115 days of revenues outstanding in trade accounts receivable, an increase of 19 days compared to the three months ended December 31, 2020. The increase is primarily driven due to timing of collections from our customers as a result of COVID-19 impacts.

At March 31, 2021, excluding the purchase accounting step-up of Paradigm inventory, we had 436 days of inventory on hand, an increase of 237 days compared to the three months ended December 31, 2020. The increase in inventory days is primarily due to the continued purchase of implants in the most recent quarter. We believe that our inventory levels will be adequate to support our on-going operations.

As of March 31, 2021, we have no material off-balance sheet arrangements.  

Certain Commitments.

The following table provides a summary of our operating lease obligations and other significant obligations as of March 31, 2021.

	Contractual Obligations Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
	(In thousands)
Operating lease obligations		66,965		1,418		5,169		10,975		49,403
Purchase obligations (1)		140,313		42,247		65,942		32,124		—
Acquisition contingencies		56,464		18,738		37,726		—		—
Total	$	263,742	$	62,403	$	108,837	$	43,099	$	49,403

(1) These amounts consist of contractual obligations for capital expenditures and open purchase orders.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risk from exposure to changes in interest rates based upon our financing, investing and cash management activities.

We are subject to market risk from exposure to changes in interest rates based upon our financing, investing and cash management activities.  We are exposed to interest rate risk in the United States and Germany. Changes in interest rates affect interest income earned on cash and cash equivalents. We have not entered into derivative transactions related to cash and cash equivalents. As of March 31, 2021, we did not have any outstanding indebtedness.

The value of the U.S. dollar compared to the Euro affects our financial results. Changes in exchange rates may positively or negatively affect revenues, gross margins, operating expenses and net income. Our international operations currently transact business primarily in the Euro. Assets and liabilities of foreign subsidiaries are translated at the period end exchange rate while revenues and expenses are translated at the average exchange rate for the period. Intercompany transactions are translated from the Euro to the U.S. dollar. Based on March 31, 2021 outstanding intercompany balances, a 1% change in currency rates would have had a de-minimis impact on our results of operations. We do not expect changes in exchange rates to have a material adverse effect on our income or our cash flows in 2021. However, we can give no assurance that exchange rates will not significantly change in the future.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2021. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2021, due to the existence of the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Material Weaknesses in Internal Control Over Financial Reporting

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or unaudited interim financial statements will not be prevented or detected on a timely basis.

As previously identified and described more fully under Item 9A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, we identified material weaknesses in the control environment, risk assessment, control activities, monitoring activities, information and communication components of internal control as we did not appropriately design controls in response to the risk of misstatement due to changes in our business environment. The material weaknesses resulted in misstatements that were corrected in the restatement included in our Annual Report on Form 10-K for the year ended December 31, 2019. The material weaknesses have not been remediated as of March 31, 2021.

Additionally, the material weaknesses described above could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement of the annual or unaudited interim consolidated financial statements that would not be prevented or detected.

Remediation Efforts to Address Material Weakness

Our management, with oversight from our Audit Committee, continues to take action on the remediation plan more fully described under Item 9A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.  This plan includes enhancing the overall internal control environment, the addition of experienced internal resources and/or third-party advisors and the implementation of additional controls and procedures to strengthen our internal controls over financial reporting.  While the remediation plan has been developed, and action has been taken on resolution of required activities within it, there are still a significant number of steps to be taken to enable management to complete the remediation.  Accordingly, we concluded that the material weaknesses had not yet been remediated as of March 31, 2021.

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Changes in Internal Control Over Financial Reporting

Material weaknesses identified in our internal control over financial reporting discovered in fiscal year 2020 existed as of December 31, 2018. Management has taken remediation activities since the time the material weaknesses were identified; however, the remediated controls were not in place for a sufficient period of time to be tested for their design and operational effectiveness. As such, there were no changes in our internal control over financial reporting, (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting as of March 31, 2021.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

SEC and related Audit Committee Investigation

As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2020, the Audit Committee of the Board, with the assistance of independent legal and forensic accounting advisors, conducted an internal investigation of matters relating to the Company’s revenue recognition practices for certain contractual arrangements, primarily with OEM customers, including the accounting treatment, financial reporting and internal controls related to such arrangements (the “Investigation”). The Investigation also examined transactions to understand the practices related to manual journal entries for accrual and reserve accounts. The Investigation was precipitated by an investigation by the SEC initially related to the periods 2014 through 2016. The SEC investigation is ongoing and the Company is cooperating with the SEC in its investigation.

The Audit Committee completed its Investigation in the second quarter of 2020.  On April 7, 2020, the Audit Committee of the Board concluded that the Company would restate its previously issued audited financial statements for fiscal years 2018, 2017 and 2016, selected financial data for fiscal years 2015 and 2014, the unaudited condensed consolidated financial statements for the quarterly periods within these years commencing with the first quarter of 2016, as well as the unaudited condensed consolidated financial statements for the quarterly periods within the 2019 fiscal year. The Company filed the restated financial statements on June 8, 2020.

Based on the results of the Investigation, the Company concluded that revenue for certain invoices should have been recognized at a later date than when originally recognized. In response to binding purchase orders from certain customers of the formerly owned OEM Businesses, goods were shipped and received by the customers before requested delivery dates and agreed-upon delivery windows. In many instances the OEM customers requested or approved the early shipments, but the Company determined that on other occasions the goods were delivered early without obtaining the customers’ affirmative approval. Some of those unapproved shipments were shipped by employees in order to generate additional revenue and resulted in shipments being pulled from a future quarter into an earlier quarter. In addition, the Company concluded that in July 2017 an adjustment was improperly made to a product return provision in the Direct Division. The revenue for those shipments was restated, as well as for other orders that shipped earlier than the purchase order due date in the system for which the Company could not locate evidence that the OEM customers had requested or approved the shipments. In addition, the Company concluded that in the periods from 2015 through the fourth quarter of 2018, certain adjustments were incorrectly or erroneously made via manual journal entries to accrual/reserve accounts, including a July 2017 adjustment to a product return provision in the Direct Division, among others. Accordingly, the Company restated its financial statements to correct these adjustments.

There is currently ongoing stockholder litigation related to the Company’s Investigation (as defined below).  A class action complaint was filed by Patricia Lowry, a purported shareholder of the Company, against the Company, and certain current and former officers of the Company, in the United States District Court for the Northern District of Illinois on March 23, 2020 asserting claims under Sections 10(b) and 20(a) the Securities Exchange Act of 1934 (the “Exchange Act”) and demanding a jury trial (“Lowry Action”).   The court appointed a different shareholder as Lead Plaintiff and she filed an amended complaint on August 31, 2020.  On October 15, 2020, the Company and the other-named defendants moved to dismiss the amended complaint. In April 2021, the court denied the defendants’ motions to dismiss. The case will now move to the discovery phase.

Three derivative lawsuits have also been filed on behalf of the Company, naming it as a nominal defendant, and demanding a jury trial.  On June 5, 2020, David Summers filed a shareholder derivative lawsuit (“Summers Action”) against certain current and former directors and officers of the Company (as well as the Company as a nominal defendant), in the United States District Court for the Northern District of Illinois asserting statutory claims under Sections 10(b), 14(a) and 20(a) of the Exchange Act, as well as common law claims for breach of fiduciary duty, unjust enrichment and corporate waste.  Thereafter, two similar shareholder derivative lawsuits asserting many of the same claims were filed in the same court against the same current and former directors and officers of the Company (as well as the Company as a nominal defendant).  The three derivative lawsuits have been consolidated into the first-filed Summers Action.  On September 6, 2020 the Court entered an order staying the Summers Action pending resolution of the motions to dismiss in the Lowry Action.

In the future, we may become subject to additional litigation or governmental proceedings or investigations that could result in additional unanticipated legal costs regardless of the outcome of the litigation. If we are not successful in any such litigation, we may be required to pay substantial damages or settlement costs.  Based on the current information available to the Company, the impact that current or any future stockholder litigation may have on the Company cannot be reasonably estimated.

For a further description, we refer you to Part I, Item 1, Note 17 entitled “Legal Actions” to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of material legal proceedings.

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Item 1A. Risk Factors

Except as described below, there has been no material change in our risk factors as previously disclosed in Part I, Item 1.A., Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 16, 2021.

The recent resignation of our independent auditor could delay our future SEC filings and adversely affect our business.

As previously disclosed, on April 5, 2021, Deloitte & Touche LLP resigned as our auditors. This resignation is effective no later than the earlier of the filing of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2021 or the Company’s engagement of a successor independent registered public accounting firm. Although the Company is in the process of engaging a new audit firm, no assurance can be given as to when such engagement will be complete.  The process of engaging and onboarding a new auditor can be costly and time consuming for management.  While we do not expect the change in auditors to delay our future filings with the SEC, such a delay is possible if we are unable to timely engage and onboard the new auditor. These events could adversely affect our financial condition and results of operations, or impact our ability to obtain financing.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to our repurchases of our common stock during the three months ended March 31, 2021.

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2021 to January 31, 2021		7,294	$	2.19		—		—
February 1, 2021 to February 28, 2021		39,589	$	2.51		—		—
March 1, 2021 to March 31, 2021		—	$	—		—		—

(1) The purchases include amounts that are attributable to shares surrendered to us by employees to satisfy, in connection with the vesting of restricted stock awards, their tax withholdings obligations.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

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Item 6. Exhibits

3.1	Amended and Restated Bylaws of Surgalign Holdings, Inc., adopted on November 13, 2020
3.2	Second Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Company, effective as of May 4, 2021. #
3.3	Amended and restated Bylaws of the Company, effective as of November 13, 2020. (1)
4.1	Certificate of Retirement of Series A Convertible Preferred Stock of the Company, effective as of July 24, 2020. (2)
10.1	Lease by and between SNH Medical Office Properties Trust and Surgalign Spine Technologies, Inc., dated March 12, 2021. #
10.2	Employment Agreement between the Company and Joshua H. DeRienzis dated March 12, 2021. (3)@
31.1	Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of such omitted schedule to the Securities and Exchange Commission upon request.

# Filed herewith.

(1) Incorporated by reference to Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q filed by the Registrant on November 16, 2020.

(2) Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed by the Registrant on July 24, 2020.

(3) Incorporated by reference to Exhibit 10.23 to Registrant’s Annual Report on Form 10-K filed by the Registrant on March 16, 2021.

@ Indicates a management contract or any compensatory plan, contract, or arrangement.

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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.

SURGALIGN HOLDINGS, INC. (Registrant)
By:	/s/ Terry M. Rich
	Terry M. Rich President and Chief Executive Officer
By:	/s/ Jonathon M. Singer
	Jonathon M. Singer Chief Financial and Operating Officer

Date: May 10, 2021

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EX-3.1

Exhibit 3.1

AMENDED AND RESTATED BYLAWS

OF

SURGALIGN HOLDINGS, INC.

Effective November 13, 2020

ARTICLEI OFFICES

SECTION1.01REGISTEREDOFFICE.TheregisteredofficeofthecorporationintheStateofDelawareshallbeintheCityofDover,Countyof Kent, and the name of its registered agent shall be United Corporate Services,Inc.

SECTION 1.02 OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 2.01 PLACE OF MEETING. All meetings of stockholders for the election of directors or for any other purpose shall be held at such place, if any, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication in accordance with Section 211(a) of the General Corporation Law of the State of Delaware, as amended (the “DGCL”). The Board of Directors may establish guidelines and procedures in accordance with applicable provisions of the DGCL and any other applicable law or regulation for participation in a stockholder meeting by means of remote communication.  Subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a stockholder meeting held by means of remote communication may be deemed present in person, may participate in the meeting and may vote, whether such meeting is to be held at a designated place or solely by means of remote communication; provided, however, that (i) the corporation shall implement measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the corporation shall implement measures to provide such stockholders and proxyholders an opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation or a delegate thereof.

SECTION 2.02 ANNUAL MEETING. The annual meeting of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. The Board of Directors may postpone, reschedule or cancel any annual meeting of stockholders previously scheduled by the Board of Directors.

SECTION 2.03 VOTING LIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address  of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder,   for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) at the corporation’s principal place of business. If the meeting is to be held at a place, then the list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then such list shall be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation.

SECTION 2.04 SPECIAL MEETING. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman of the Board or by the President of the corporation or by the Board of Directors or by written order of a majority of the directors and shall be called by the President or the Secretary at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purposes of the       proposed meeting. The Chairman of the Board or the President of the corporation or directors so calling, or the stockholders so requesting, any such meeting shall fix the time and any place, either within or without the State of Delaware, as the place for holding suchmeeting.

SECTION 2.05 NOTICE OF MEETING. Written notice of the annual, and each special meeting of stockholders, stating the date, time, place, if any, and, in the case of a special meeting, the purpose or purposes thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed present in person and vote at such meeting, shall be given to each stockholder entitled to vote thereat, not less than 10 nor more than 60 days before the meeting. The attendance of a stockholder at any meeting (including through its representation by a proxyholder) shall constitute a waiver of notice at such meeting, except where the stockholder attends the meeting for the express purpose of objecting, and does so object, at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.

SECTION 2.06 QUORUM. The holders of a majority of the shares of the corporation’s capital stock issued and outstanding and entitled to vote thereat, present in person, present by means of remote communication, if any, or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business, except as otherwise provided by statute or by the Certificate of Incorporation. Notwithstanding the other provisions of the Certificate of Incorporation or these bylaws, the holders of a majority of the shares of the corporation’s capital stock entitled to vote thereat, present in person, present by means of remote communication, if any, or represented by proxy, whether or not a quorum is present, the chairperson of such, shall have power to recess or adjourn the meeting from time to time to reconvene at the same or some other place, if any, without notice other than announcement at the meeting of the time and place, if any, of the meeting to be reconvened and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned or recessed meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If a quorum shall not be present or represented at any meeting of stockholders, the chairperson of the meeting shall have power to adjourn the meeting from time to time, in the manner provided in this Section 2.06, until a quorum is present or represented. A quorum, once established, shall not be broken by the withdrawal of any holders to leave less than a quorum. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originallynotified.

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SECTION 2.07 VOTING. When a quorum is present at any meeting of the stockholders, the vote of the holders of a majority of the shares of the corporation’s capital stock having voting power present in person or represented by proxy shall decide any question brought before such meeting,       unless the question is one upon which, by express provision of the statutes, of the Certificate of Incorporation or of these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Every stockholder having the right to vote shall       be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder, bearing a date not more than three years prior to voting, unless such instrument provides for a longer period, and filed with the Secretary of the corporation before, or at the time of, the meeting. If such instrument shall designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons    present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents   thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of the same portion of the shares as he is of the proxies representing suchshares.

SECTION2.08VOTINGOFSTOCKOFCERTAINHOLDERS.Sharesofthecorporation’scapitalstockstandinginthenameofanothercorporation, domestic or foreign, may be voted by such officer, agent, or proxy as the bylaws of such corporation may prescribe, or in the absence of such provision,   as the Board of Directors of such corporation may determine. Shares standing in the name of a deceased person may be voted by the executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of a guardian, conservator, or trustee may be voted by such fiduciary, either in person or by proxy. Shares standing in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer by the pledgor on the books of the corporation, he has expressly empowered the   pledgeetovotethereon,inwhichcaseonlythepledgee,orhisproxy,mayrepresentthestockandvotethereon.

SECTION 2.09 TREASURY STOCK. The corporation shall not vote, directly or indirectly, shares of its own capital stock owned by it; and such shares shall not be counted in determining the total number of outstanding shares of the corporation’s capital stock. Nothing in this Section 2.09 shall limit the right of the corporation to vote shares of stock of the corporation held by it in a fiduciary capacity.

SECTION2.10FIXINGRECORDDATE.TheBoardofDirectorsmayfixinadvanceadate,whichshallnotbemorethan60daysnorlessthan10 days preceding the date of any meeting of stockholders, nor more than 60 days preceding the date for payment of any dividend or distribution, or the   date for the allotment of rights, or the date when any change, or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed, shall be entitled to such notice of, and to vote at, any such meeting and any adjournment thereof, or to receive payment of such dividend or distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid.

SECTION 2.11 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS

(a)Annual Meetings of Stockholders.  To be properly brought before the annual meeting, nominations of persons for election to the board of directors or other business must be either: (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors; (ii) otherwise properly brought before the meeting by or at the direction of the board of directors or (iii) otherwise properly brought before the meeting by a stockholder ofrecord in compliance with Section 2.11(b).  For the avoidance of doubt, compliance with the foregoing clause (iii) shall be the exclusive means for a stockholder to make nominations, or to propose any other business (other than a proposal included in the corporation’s proxy materials pursuant to and in compliance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (such act, and the rules and regulations promulgated thereunder, the “Exchange Act”)), at an annual meeting of stockholders.

(b)Timing of Notice for Annual Meetings.  For nominations of persons for election to the board of directors or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 2.11(a) of these bylaws, (i) the subject matter thereof must be a matter which is a proper subject matter for stockholder action at such meeting; (ii) the stockholder must have been a stockholder of record of the corporation at the time the notice required by this Section 2.11 is delivered to the corporation and continues to be so through the date of such meeting and must be entitled to vote at the meeting; and (iii) the stockholder must have given timely written notice thereof by mail, courier or personal delivery to (A) the Nominating and Corporate Governance Committee of the board of directors, care of the Secretary of the corporation, for nominations, or (B) the Secretary of the corporation, for other business. To be considered timely, a stockholder’s notice must be delivered to or mailed and received by the Secretary of the corporation at the principal executive offices of the corporation not later than the close of business on the ninetieth (90th) day, or earlier than the close of business on the one hundred twentieth (120th) day, prior to the first anniversary of the date of the preceding year’s annual meeting of stockholders; provided, however that if the date of the annual meeting of stockholders is more than thirty (30) days prior to, or more than sixty (60) days after, the first anniversary of the date of the preceding year’s annual meeting or if no annual meeting was held in the preceding year, to be timely, a stockholder’s notice must be so received not later than the close of business on the later of (i) the ninetieth (90th) day prior to such annual meeting and (ii) the tenth (10th) day following the day on which public disclosure (as defined below) of the date of the meeting is first made by the corporation. In no event shall the adjournment, recess, postponement or rescheduling of an annual meeting (or the public disclosure thereof) commence a new time period (or extend any time period) for the giving of notice as described above.

(c)Form of Notice.  To be in proper written form, the notice of any stockholder giving notice under this Section 2.11 (each, a “Noticing Party”) must set forth:

(i)as to each person whom such Noticing Party proposes to nominate for election or reelection as a director (each, a “Proposed Nominee”), if any:

(A) the name, age, business address and residence address of such Proposed Nominee;

(B) the principal occupation and employment of such Proposed Nominee;

(C) a written questionnaire with respect to the background and qualification of such Proposed Nominee, completed by such Proposed Nominee in the form required by the corporation (which form such Noticing Party shall request in writing from the Secretary prior to submitting notice and which the Secretary shall provide to such Noticing Party within ten (10) days after receiving such request);

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(D) a written representation and agreement completed by such Proposed Nominee in the form required by the corporation (which form such Noticing Party shall request in writing from the Secretary prior to submitting notice and which the Secretary shall provide to such Noticing Party within ten (10) days after receiving such request) providing that such Proposed Nominee: (I) is not and will not become a party to any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such Proposed Nominee, if elected as a director of the corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the corporation or any Voting Commitment that could limit or interfere with such Proposed Nominee’s ability to comply, if elected as a director of the corporation, with such Proposed Nominee’s fiduciary duties under applicable law; (II) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director or nominee that has not been disclosed to the corporation; (III) will, if elected as a director of the corporation, comply with all applicable rules of any securities exchanges upon which the corporation’s securities are listed, the certificate of incorporation, these bylaws and all applicable publicly disclosed corporate governance, ethics, conflict of interest, confidentiality and stock ownership and trading policies and other guidelines and policies of the corporation generally applicable to directors (which will be provided to such Proposed Nominee within five (5) business days after the Secretary receives any written request therefor from such Proposed Nominee), and all applicable fiduciary duties under state law; and (IV) consents to being named as a nominee in the corporation’s proxy statement and form of proxy for the meeting and to serving a full term as a director of the corporation, if elected;

(E) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings, written or oral, during the past three (3) years, and any other material relationships, between or among such Proposed Nominee, on the one hand, and such Noticing Party or any Stockholder Associated Person (as defined below), on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 promulgated under Regulation S-K as if such Noticing Party and any Stockholder Associated Person were the “registrant” for purposes of such rule and the Proposed Nominee were a director or executive officer of such registrant; and

(F) all other information relating to such Proposed Nominee or such Proposed Nominee’s associates that would be required to be disclosed in a proxy statement or other filing required to be made by such Noticing Party or any Stockholder Associated Person in connection with the solicitation of proxies for the election of directors in a contested election or otherwise required pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (collectively, the “Proxy Rules”);

(ii) as to any other business that such Noticing Party proposes to bring before the meeting:

(A) a reasonably brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting;

(B) the text of the proposal or business (including the complete text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the certificate of incorporation or these bylaws, the language of the proposed amendment); and

(C) all other information relating to such business that would be required to be disclosed in a proxy statement or other filing required to be made by such Noticing Party or any Stockholder Associated Person in connection with the solicitation of proxies in support of such proposed business by such Noticing Party or any Stockholder Associated Person pursuant to the Proxy Rules; and

(iii)as to such Noticing Party, each Proposed Nominee and each Stockholder Associated Person:

(A) the name and address of such Noticing Party, each Proposed Nominee and each Stockholder Associated Person (including, as applicable, as they appear on the corporation’s books and records);

(B) the class, series and number of shares of each class or series of capital stock (if any) of the corporation that are, directly or indirectly, owned beneficially and/or of record by such Noticing Party, any Proposed Nominee or any Stockholder Associated Person and the date or dates such shares were acquired and the investment intent of such acquisition;

(C) the name of each nominee holder for, and number of, any securities of the corporation owned beneficially but not of record by such Noticing Party, any Proposed Nominee or any Stockholder Associated Person and any pledge by such Noticing Party, any Proposed Nominee or any Stockholder Associated Person with respect to any of such securities;

(D) any Short Interest (as defined below) held by or involving such Noticing Party, any Proposed Nominee or any Stockholder Associated Person;

(E) a complete and accurate description of all agreements, arrangements or understandings, written or oral, (including any derivative or short positions, profit interests, hedging transactions, options, warrants, convertible securities, stock appreciation or similar rights and borrowed or loaned shares) that have been entered into by, or on behalf of, such Noticing Party, any Proposed Nominee or any Stockholder Associated Person, the effect or intent of which is to mitigate loss, manage risk or benefit from changes in the price of any securities of the corporation, or maintain, increase or decrease the voting power of such Noticing Party, any Proposed Nominee or any Stockholder Associated Person with respect to securities of the corporation, whether or not such instrument or right shall be subject to settlement in underlying shares of capital stock of the corporation (any of the foregoing, a “Derivative Instrument”);

(F) any substantial interest, direct or indirect (including any existing or prospective commercial, business or contractual relationship with the corporation), by security holdings or otherwise, of such Noticing Party, any Proposed Nominee or any Stockholder Associated Person in the corporation or any affiliate thereof, other than an interest arising from the ownership of the corporation’s securities where such Noticing Party, such Proposed Nominee or such Stockholder Associated Person receives no extra or special benefit not shared on a pro rata basis by all other holders of the same class or series;

(G) a complete and accurate description of all agreements, arrangements or understandings, written or oral, (I) between or among such Noticing Party and any of the Stockholder Associated Persons or (II) between or among such Noticing Party or any Stockholder Associated Person and any other person or entity (naming each such person or entity) or any Proposed Nominee, including, without limitation, (x) any proxy, contract, arrangement, understanding or relationship pursuant to which such Noticing Party or any Stockholder Associated Person has a right to vote any security of the corporation, (y) any understanding, written or oral, that such Noticing Party or any Stockholder Associated Person may have reached with any stockholder of the corporation (including the name of such stockholder) with respect to how such stockholder will vote such stockholder’s shares in the corporation at any meeting of the corporation’s stockholders or take other action in support of any Proposed Nominee or other business, or other action to be taken, by

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such Noticing Party or any Stockholder Associated Person and (z) any other agreements that would be required to be disclosed by such Noticing Party, any Proposed Nominee, any Stockholder Associated Person or any other person or entity pursuant to Item 5 or Item 6 of a Schedule 13D pursuant to Section 13 of the Exchange Act and the rules and regulations promulgated thereunder (regardless of whether the requirement to file a Schedule 13D is applicable to such Noticing Party, any Proposed Nominee, any Stockholder Associated Person or any other person or entity);

(H) any rights to dividends on the shares of the corporation owned beneficially by such Noticing Party, any Proposed Nominee or any Stockholder Associated Person that are separated or separable from the underlying shares of the corporation;

(I) any proportionate interest in shares of the corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership, limited liability company or similar entity in which such Noticing Party, any Proposed Nominee or any Stockholder Associated Person is (I) a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership or (II) the manager, managing member or, directly or indirectly, beneficially owns an interest in the manager or managing member of such limited liability company or similar entity;

(J) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the corporation held by such Noticing Party, any Proposed Nominee or any Stockholder Associated Person;

(K) any direct or indirect interest of such Noticing Party, any Proposed Nominee or any Stockholder Associated Person in any contract with the corporation, any affiliate of the corporation or any principal competitor of the corporation (including, without limitation, any employment agreement, collective bargaining agreement or consulting agreement);

(L) a description of any material interest of such Noticing Party, any Proposed Nominee or any Stockholder Associated Person in the business proposed by such Noticing Party, if any, or the election of any Proposed Nominee;

(M) a complete an accurate description of any performance-related fees (other than an asset-based fee) to which such Noticing Party, any Proposed Nominee or any Stockholder Associated Person may be entitled as a result of any increase or decrease in the value of the corporation’s securities or any Derivative Instruments, including, without limitation, any such interests held by members of any Proposed Nominee’s or Stockholder Associated Person’s immediate family sharing the same household;

(N) the investment strategy or objective, if any, of such Noticing Party, any Proposed Nominee or any Stockholder Associated Person who is not an individual and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in the Noticing Party or any Stockholder Associated Person;and

(O) all other information relating to such Noticing Party or any Stockholder Associated Person, or such Noticing Party’s or any Stockholder Associated Person’s associates, that would be required to be disclosed in a proxy statement or other filing in connection with the solicitation of proxies in support of the business proposed by such Noticing Party, if any, or for the election of any Proposed Nominee in a contested election or otherwise pursuant to the Proxy Rules.

(iv)a representation that such Noticing Party intends to appear in person or by proxy at the meeting to bring such business before the meeting or nominate any Proposed Nominees, as applicable, and an acknowledgment that, if such Noticing Party (or a Qualified Representative (as defined below) of such Noticing Party) does not appear to present such business or Proposed Nominees, as applicable, at such meeting, the corporation need not present such business or Proposed Nominees for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the corporation;

(v)  a complete and accurate description of any pending or, to such Noticing Party’s knowledge, threatened legal proceeding in which such Noticing Party, any Proposed Nominee or any Stockholder Associated Person is a party or participant involving the corporation or, to such Noticing Party’s knowledge, any officer, affiliate or associate of the corporation;

(vi)   a representation from such Noticing Party as to whether such Noticing Party or any Stockholder Associated Person intends or is part of a group that intends (I) to deliver a proxy statement and/or form of proxy to a number of holders of the corporation’s voting shares reasonably believed by such Noticing Party to be sufficient to approve or adopt the business to be proposed or elect the Proposed Nominees, as applicable, or (II) engage in a solicitation (within the meaning of Exchange Act Rule 14a-1(l) with respect to the nomination or other business, as applicable, and if so, the name of each participant (as defined in Item 4 of Schedule 14A under the Exchange Act) in such solicitation; and

(vii)  a description of any agreement, arrangement or understanding, written or oral, the effect or intent of which is to increase or decrease the voting power of such Noticing Party or any Stockholder Associated Person with respect to any shares of the capital stock of the corporation, without regard to whether such agreement, arrangement or understanding is required to be reported on a Schedule 13D in accordance with the Exchange Act.

(d)Additional Information.  In addition to the information required above, the corporation may require any Noticing Party to furnish such other information as the corporation may reasonably require to determine the eligibility or suitability of a Proposed Nominee to serve as a director of the corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such Proposed Nominee, under the listing standards of each securities exchange upon which the corporation’s securities are listed, any applicable rules of the Securities and Exchange Commission, any publicly disclosed standards used by the Board in selecting nominees for election as a director and for determining and disclosing the independence of the corporation’s directors, including those applicable to a director’s service on any of the committees of the Board, or the requirements of any other laws or regulations applicable to the corporation. If requested by the corporation, any such additional information required under this paragraph shall be provided by a Noticing Party within ten (10) days after it has been requested by the corporation.    

(e)Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation’s notice of meeting (or any supplement thereto) (including a notice given in response to a request from stockholders made pursuant to Section 2.04). Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation’s notice of meeting (or any supplement thereto) (i) by or at the direction of the Board (or any duly authorized committee thereof) or (ii) provided that one or more directors are to be elected at such meeting pursuant to the corporation’s notice of meeting, by any stockholder of the corporation who (A) is a stockholder of record on the date of the giving of the notice provided for in this Section 2.11(e) and continues to be so through the date of such special meeting, (B) is entitled to vote at such special meeting and upon such election and (C) complies with the notice procedures set forth in this Section 2.11(e).  In addition to any other applicable requirements, for director nominations to be properly brought before a special meeting by a stockholder pursuant to the foregoing clause (ii), such stockholder must have given timely notice thereof in proper written form to the Secretary. To be timely, such notice must be received by the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of (x) the ninetieth (90th) day prior to such special meeting and (y) the tenth (10th) day following the day on which public disclosure of the date of the meeting is first made by the corporation. In no event shall an adjournment, recess, postponement or rescheduling of a special meeting (or the public disclosure thereof) commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. To be in proper written form, such notice shall include all information required pursuant to Section 2.11(c) and Section 2.11(d) above.

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(f)General.

(i)No person shall be eligible for election as a director of the corporation unless the person is nominated by a stockholder in accordance with the procedures set forth in this Section 2.11 or the person is nominated by the Board, and no business shall be conducted at a meeting of stockholders of the corporation except business brought by a stockholder in accordance with the procedures set forth in this Section 2.11 or by the Board.  The number of nominees a stockholder may nominate for election at a meeting may not exceed the number of directors serving in the class that is up for election at such meeting on the date the notice is first given.  Except as otherwise provided by law, the chairperson of a meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the procedures set forth in these bylaws, and, if the chairperson of the meeting determines that any proposed nomination or business was not properly brought before the meeting, the chairperson shall declare to the meeting that such nomination shall be disregarded or such business shall not be transacted, and no vote shall be taken with respect to such nomination or proposed business, in each case, notwithstanding that proxies with respect to such vote may have been received by the corporation. Notwithstanding the foregoing provisions of this Section 2.11, unless otherwise required by law, if the Noticing Party (or a Qualified Representative of the Noticing Party) proposing a nominee for director or business to be conducted at a meeting does not appear at the meeting of stockholders of the corporation to present such nomination or propose such business, such proposed nomination shall be disregarded or such proposed business shall not be transacted, as applicable, and no vote shall be taken with respect to such nomination or proposed business, notwithstanding that proxies with respect to such vote may have been received by the corporation.

(ii)A Noticing Party shall update such notice, if necessary, such that the information provided or required to be provided in such notice shall be true and correct (A) as of the record date for determining the stockholders entitled to receive notice of the meeting and (B) as of the date that is ten (10) business days prior to the meeting (or any postponement, rescheduling or adjournment thereof), and such update shall be received by the Secretary at the principal executive offices of the corporation (x) not later than the close of business five (5) business days after the record date for determining the stockholders entitled to receive notice of such meeting (in the case of an update required to be made under clause (A)) and (y) not later than the close of business seven (7) business days prior to the date for the meeting or, if practicable, any postponement, rescheduling or adjournment thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been postponed, rescheduled or adjourned) (in the case of an update required to be made pursuant to clause (B)).  For the avoidance of doubt, any information provided pursuant to this Section 2.11(f)(ii) shall not be deemed to cure any deficiencies in a notice previously delivered pursuant to this Section 2.11 and shall not extend the time period for the delivery of notice pursuant to this Section 2.11. If a Noticing Party fails to provide such written update within such period, the information as to which written update relates may be deemed to not have been provided in accordance with this Section 2.11.

(iii)If any information submitted pursuant to this Section 2.11 by any Noticing Party proposing individuals to nominate for election or reelection as a director or business for consideration at a stockholder meeting shall be inaccurate in any respect, such information shall be deemed not to have been provided in accordance with this Section 2.11.  Any such Noticing Party shall notify the Secretary in writing at the principal executive offices of the corporation of any inaccuracy or change in any information submitted pursuant to this Section 2.11 within two (2) business days after becoming aware of such inaccuracy or change.  Upon written request of the Secretary on behalf of the Board (or a duly authorized committee thereof), any such Noticing Party shall provide, within seven (7) business days after delivery of such request (or such other period as may be specified in such request), (A) written verification, reasonably satisfactory to the Board, any committee thereof or any authorized officer of the corporation, to demonstrate the accuracy of any information submitted by such Noticing Party pursuant to this Section 2.11 and (B) a written affirmation of any information submitted by such Noticing Party pursuant to this Section 2.11 as of an earlier date.  If a Noticing Party fails to provide such written verification or affirmation within such period, the information as to which written verification or affirmation was requested may be deemed not to have been provided in accordance with this Section 2.11.

(iv)Notwithstanding the foregoing provisions of this Section 2.11, a stockholder shall also comply with all applicable requirements of state law and the Exchange Act with respect to the matters set forth in this Section 2.11. Nothing in this Section 2.11 shall be deemed to affect any rights of (A) stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act, (B) stockholders to request inclusion of nominees in the corporation’s proxy statement pursuant to the Proxy Rules or (C) the holders of any series of preferred stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.

(v)For purposes of these bylaws, (A) “affiliate” and “associate” each shall have the respective meanings set forth in Rule 12b-2 under the Exchange Act; (B) “beneficial owner” or “beneficially owned” shall have the meaning set forth for such terms in Section 13(d) of the Exchange Act; (C) “close of business” shall mean 5:00 p.m. Eastern Time on any calendar day, whether or not the day is a business day; (D) “public disclosure” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act; (E) a “Qualified Representative” of a Noticing Party means (I) a duly authorized officer, manager or partner of such Noticing Party or (II) a person authorized by a writing executed by such Noticing Party (or a reliable reproduction or electronic transmission of the writing) delivered by such Noticing Party to the corporation prior to the making of any nomination or proposal at a stockholder meeting stating that such person is authorized to act for such Noticing Party as proxy at the meeting of stockholders, which writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, must be produced at the meeting of stockholders; (F) “Short Interest” shall mean any agreement, arrangement, understanding, relationship or otherwise, including, without limitation, any repurchase or similar so-called “stock borrowing” agreement or arrangement, involving any Noticing Party or any Stockholder Associated Person of any Noticing Party directly or indirectly, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of shares of the corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such Noticing Party or any Stockholder Associated Person of any Noticing Party with respect to any class or series of shares of the corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of shares of the corporation; and (G) “Stockholder Associated Person” shall mean, with respect to any Noticing Party, (I) any person directly or indirectly controlling, controlled by, under common control with such Noticing Party, (II) any member of the immediate family of such Noticing Party sharing the same household, (III) any person who is a member of a “group” (as such term is used in Rule 13d‑5 under the Exchange Act (or any successor provision at law)) with or otherwise acting in concert with such Noticing Party or Stockholder Associated Person with respect to the stock of the corporation, (IV) any beneficial owner of shares of stock of the corporation owned of record by such Noticing Party or Stockholder Associated Person (other than a stockholder that is a depositary), (V) any affiliate or associate of such Noticing Party or any Stockholder Associated Person, (VI) any participant (as defined in paragraphs (a)(ii)‑(vi) of Instruction 3 to Item 4 of Schedule 14A) with such Noticing Party or Stockholder Associated Person with respect to any proposed business or nominations, as applicable, and (VII) any Proposed Nominee.

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SECTION2.12ORGANIZATION AND CONDUCT OF MEETING.The Chairman of the Board shall act as chairperson of meetings of stockholders of the corporation. In the absence of the Chairman of the Board, the Chief Executive Officer of the corporation shall act as chairperson of meetings of stockholders of the corporation. The Board of Directors may designate any other director or officer of the corporation to act as chairperson of any meeting in the absence of such persons, and the Board of Directors may further provide for determining who shall act as chairperson of any meeting of stockholders in the absence of such persons. The Board of Directors may adopt by resolution such rules and regulations for the conduct of any meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairperson of any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairperson, are appropriate for the proper conduct of the meeting.   Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairperson of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) the determination of  when the polls shall open and close for any given matter to be voted on at the meeting; (c) rules and procedures for maintaining order at the meeting and the safety of those present; (d) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized proxies or such other persons as the chairperson of the meeting shall determine; (e) restrictions on entry to the meeting after the time fixed for the commencement of the meeting; (f) limitations on the time allotted to questions or comments by participants; (g) removal of any stockholder or any other individual who refuses to comply with meeting procedures, rules or guidelines; (h) conclusion, recess or adjournment of the meeting, regardless of whether a quorum is present, to a later date and time and at a place, if any, announced at the meeting; (i) restrictions on the use of cell phones, audio and video recording devices, and other electronic devices; (j) rules, regulations or procedures for compliance with any state and local laws and regulations concerning safety, health and security; (k) procedures (if any) requiring attendees to provide the corporation advance notice of their intent to attend the meeting and (l) any guidelines and procedures as the chairperson may deem appropriate regarding the participation by means of remote communication of stockholders and proxyholders not physically present at a meeting.  The chairperson of a stockholder meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall determine and declare to the meeting that a matter or business was not properly brought before the meeting, and, if the chairperson should so determine, the chairperson shall so declare to the meeting and any such matter of business not properly brought before the meeting shall not be transacted or considered. Except to the extent determined by the Board or the person acting as chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

SECTION 2.13. INSPECTORS OF ELECTION. In advance of any meeting of stockholders of the Corporation, the Chairman of the Board, the Chief Executive Officer or the Board, by resolution, shall have the right to appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the chairperson of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by applicable law.

ARTICLE III

BOARD OF DIRECTORS

SECTION 3.01 POWERS. The business and affairs of the corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these bylaws directed or required to be exercised or done by the stockholders.

SECTION3.02NUMBER,ELECTIONANDTERM.ThenumberofdirectorsthatshallconstitutethewholeBoardofDirectorsshallbenotlessthan one. Such number of directors shall from time to time be fixed and determined by resolution of the Board of Directors. No reduction of the authorized number of directors shall have the effect of   removing any director before that director’s term of office expires. The directors shall be appointed or elected as set forth in the Seventh Article of the Certificate of Incorporation and each director elected shall hold office for the period set forth in the Seventh Article of the Certificate ofIncorporation. Directors need not be residents of Delaware or stockholders of the corporation.

SECTION3.03VACANCIES,ADDITIONALDIRECTORS,ANDREMOVALFROMOFFICE.IfanyvacancyoccursintheBoardofDirectorscaused by death, resignation, retirement, disqualification, or removal from office of any director, or otherwise, or if any new directorship is created by an increase in the authorized number of directors, a majority of the directors then in office, though less than a quorum, or a sole remaining director, may choose a successor or fill the newly created directorship; and a director so chosen shall hold office until the next annual meeting of stockholders and until his successor shall be duly elected and shall qualify, subject to their earlier death, resignation, retirement or removal from service as a director. Any director may be removed either for or without cause at any special meeting of stockholders duly called and held for suchpurpose.

SECTION 3.04 REGULAR MEETING. Regular meetings of the Board of Directors shall be held each year at such time and place as the Board of Directors may provide, by resolution, either within or without the State of Delaware, without other notice than such resolution.

SECTION3.05SPECIALMEETING.AspecialmeetingoftheBoardofDirectorsmaybecalledbytheChairmanoftheBoardofDirectorsorbythe Chief Executive Officer of the corporation and shall be called by the Secretary on the written request of any two directors. The Chairman or Chief Executive Officer so calling, or the directors so requesting, any such meeting shall fix the time and any place, either within or without the State of Delaware, as the place for holding such meeting.

SECTION3.06NOTICEOFSPECIALMEETING.WrittennoticeofspecialmeetingsoftheBoardofDirectorsshallbegiventoeachdirectorin advance of each such meeting, the amount of time in advance of such meeting such notice is given being as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened and does so object, at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except that notice shall be given of any proposed amendment to the bylaws if it is to beadoptedatanyspecialmeetingorwithrespecttoanyothermatterwherenoticeisrequiredbystatute.

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SECTION 3.07 QUORUM. A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall bepresent.

SECTION 3.08 ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof as provided in Article IV of these bylaws, may be taken without a meeting, if all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or electronic transmission is filed with the minutes of proceedings of the Board of Directors or such committee.

SECTION 3.09 COMPENSATION. Directors shall be entitled to receive from the corporation such amount per annum and in addition, or in lieu thereof, such fees for attendance at meetings of the Board of Directors or of any committee of directors, or both, as the Board of Directors from time to time shall determine. Directors who are full-time employees of the Corporation shall not receive any compensation for their service as director. The Board of Directors may also likewise provide that the corporation shall reimburse each such director or member of such committee for any expenses paid by him or her on account of his or her attendance at any such meeting.  Any such payments may be made in cash or securities, as the Board of Directors may determine.  No provision of these bylaws shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

SECTION3.10CHAIRMANOFTHEBOARD. The Board of Directors shall appoint one of its members as Chairman of the Board.  TheChairmanoftheBoardshallpresideatallmeetingsofthe Board of Directors and shall have such other powers and duties as may from time to time be prescribed by these bylaws or the Board of Directors.

ARTICLE IV

COMMITTEES OF DIRECTORS

SECTION 4.01 DESIGNATION, POWERS AND NAME. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each such committee to consist of one or more of the directors of the corporation. The committee shall have and may exercise such of the powers of the Board of Directors in the management of the business and affairs of the corporation as may be provided in such resolution. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of or to dissolve any such committee. The committee may authorize any seal of the corporation to be affixed to all papers that may require it. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names and such limitations of authority as may be determined from time to time by resolution adopted by the Board  ofDirectors.

SECTION 4.02 MINUTES. Each committee of directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required.

SECTION4.03COMPENSATION.Membersofspecialorstandingcommitteesmaybeallowed such compensationas the Board of Directors shall determine.

ARTICLE V

NOTICE

SECTION 5.01 METHODS OF GIVING NOTICE. Whenever under the provisions of applicable statutes, the Certificate of Incorporation or these bylaws, notice is required to be given by the corporation to any director, member of any committee, or stockholder, such notice shall be in writing and delivered personally, by mail to such director, member, or stockholder or by electronic transmission (as defined below) (if permitted under the circumstances by the DGCL); provided that in the case of a director or a member of any committee such notice may be given orally. If mailed, any such notice to a director, member of a committee, or stockholder shall be deemed to be given when deposited in the United States mail first class in a sealed envelope, with postage thereon prepaid, or when delivered through reputable, recognized overnight courier service, addressed, in the case of a stockholder, to the stockholder at the stockholder’s address as it  appears on the records of the corporation or, in the case of a director or a member of a committee, to such person at his business address. If sent by electronic transmission, any such notice to a director, member of a committee or stockholder shall be deemed to be given at the times provided in the DGCL. For the purposes of these bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process.

SECTION 5.02 WRITTEN WAIVER. Whenever any notice is required to be given under the provisions of an applicable statute, the Certificate of Incorporation, or these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, or by electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent thereto. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or any regular or special meeting of the Board or committee thereof need be specified in any waiver of notice of such meeting unless so required by law.

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ARTICLE VI

OFFICERS

SECTION 6.01 OFFICERS. The officers of the corporation shall include a Chief Executive Officer, a President, one or more Vice Presidents, any one or more of which may be designated Executive Vice President or Senior Vice President, a Secretary and a Treasurer. The Board of Directors may appoint such other officers and agents, including Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers, in each case as the Board of Directors shall deem necessary, who shall exercise such powers and perform such duties as shall be determined by the Board. Any two or more offices may be held by the same person. None of the other officers need be a director, and none of the officers need be a stockholder of the corporation.  The Board of Directors may by resolution designate the position of Chairman of the Board as constituting status as an officer of the corporation, but in absence of such a designation, the position of Chairman of the Board shall not constitute status as an officer.

SECTION6.02ELECTIONANDTERMOFOFFICE.Theofficersofthecorporationshallbeelectedfrom time to timebytheBoardofDirectors. Each officer shall hold office until his successor shall have been chosen and shall have qualified or until his death or the effective date of his resignation or removal.

SECTION 6.03 REMOVAL AND RESIGNATION. Any officer or agent elected or appointed by the Board of Directors may be removed without cause by the Board of Directors whenever, in its judgment, the best interests of the corporation shall be served thereby; but such removal shall be without prejudice to the contractual rights, if any, of the person removed. Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 6.04 VACANCIES. Any vacancy occurring in any office of the corporation by death, resignation, removal, or otherwise, may be filled by the Board of Directors.

SECTION 6.05 COMPENSATION. The compensation of all executive officers of the corporation shall be fixed by the Board of Directors, an appropriate committee thereof, or pursuant to its or their direction; and no officer shall be prevented from receiving such compensation by reason of his also being a director.

SECTION6.06CHIEFEXECUTIVEOFFICER.SubjecttothecontroloftheBoardofDirectors,theChiefExecutiveOfficershallingeneralsupervise and control the business and affairs of the corporation. He shall have the power to appoint and remove subordinate officers, agents and employees,    except as may be determined by the Board of Directors. The Chief Executive Officer shall keep the Board of Directors fully informed and shall consult them concerning the business of the corporation. He may sign any deeds, bonds, mortgages, contracts, checks, notes, drafts, or other instruments that the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated by these bylaws or by the Board of Directors to some other officer or agent of the corporation, or shall be required by law to be otherwise executed. He may vote, or give a proxy to any other officer of the corporation to vote, all shares of stock of any other corporation standing in the name of the corporation and in general he shall perform all other duties normally performed by a Chief Executive Officer and such other duties as may be prescribed by the Board of Directors. In the absence of the Chairman of the Board, the Chief Executive Officer or another person designated by the Board of Directors shall preside at all meetings of the Board of Directors. He may also preside at any such meeting attended by the Chairman of the Board if he is so designated by the Chairman, or in the Chairman’s absence by the Board of Directors.

SECTION 6.07 PRESIDENT. The President shall report to the Chief Executive Officer and shall implement the general directives, plans and policies formulatedbytheChiefExecutiveOfficer.ThePresidentshallhaveauthoritytoexerciseallthepowersdelegatedtohimbytheChiefExecutiveOfficer.He may sign with the Secretary or Assistant Secretary certificates for shares of the corporation.  He may also sign any deeds, bonds, mortgages, contracts, checks, notes, drafts, or other instruments that the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated by these bylaws or by the Board of Directors to some   other officer or agent of the corporation, or shall be required by law to be otherwise executed and shall perform such other duties as may be prescribed by theChiefExecutiveOfficer ortheBoardofDirectors.

SECTION6.08VICEPRESIDENTS.IntheabsenceofthePresident,orintheeventofhisinabilityorrefusaltoact,theExecutiveVicePresident(or in the event there shall be no Vice President designated Executive Vice President, any Vice President designated by the Board) shall perform the duties and exercise the powers of the President. Any Vice President may sign, with the Secretary or Assistant Secretary, certificates for shares of the  corporation. The Vice Presidents shall perform such other duties as from time to time may be assigned to them by the Chief Executive Officer, President or the Board of Directors.

SECTION6.09SECRETARY.TheSecretaryshall(a)keeptheminutesofthemeetingsofthestockholders,theBoardofDirectorsandcommitteesof the Board of Directors; (b) see that all notices are duly given in accordance with the provisions of these bylaws and as required by law; (c) be custodian of the corporate records and of any seal of the corporation, and see that any such seal of the corporation or a facsimile thereof is affixed to all certificates for shares prior to the issue thereof and to all documents, the execution of which on behalf of the corporation under any such seal is duly authorized in accordance with the provisions of these bylaws; (d) keep or cause to be kept a register of the post office address of each stockholder which shall be furnished by such stockholder; (e) sign with the Chief Executive Officer, President, or a Vice President, certificates for shares of the corporation, the issue of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general, perform all duties normally incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Chief Executive Officer, President or the Board of Directors.

SECTION 6.10 TREASURER. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever and deposit all such moneys in the name of the corporation in such banks, trust companies, or other depositories as shall be selected in accordance with the    provisions of Section 7.03 of these bylaws; (c) prepare, or cause to be prepared, for submission at each regular meeting of the Board of Directors, at each annual meeting of the stockholders, and at such other times as may be required by the Board of Directors, the Chief Executive Officer or the President, a statement of financial condition of the corporation in such detail as may be required; and (d) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Chief Executive Officer, the President or the Board of Directors.

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SECTION 6.11 ASSISTANT SECRETARIES AND TREASURERS. The Assistant Secretaries and Assistant Treasurers shall, in general, perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the Chief Executive Officer, the President or the Board of Directors. The Assistant Secretaries and Assistant Treasurers shall, in the absence of the Secretary or Treasurer, respectively, perform all functions and duties which such absent officers may delegate, but such delegation shall not relieve the absent officer from the responsibilities and liabilities of his office. The Assistant Secretaries may sign, with the Chief Executive Officer, the President or a Vice President, certificates for shares of the corporation, the issue of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithfuldischargeoftheirdutiesinsuchsumsandwithsuchsuretiesastheBoardofDirectorsshalldetermine.

ARTICLE VII

CONTRACTS, CHECKS AND DEPOSITS

SECTION7.01CONTRACTS.SubjecttotheprovisionsofSection6.01,theBoardofDirectorsmayauthorizeanyofficer,officers,agent,oragents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specificinstances.

SECTION 7.02 CHECKS. All checks, demands, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers or such agent or agents of the corporation, and in such manner, as shall be determined by the Board of Directors.

SECTION 7.03 DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the Board of Directors may select.

ARTICLE VIII

CERTIFICATES OFSTOCK

SECTION 8.01 ISSUANCE. Each stockholder of this corporation shall be entitled to a certificate or certificates showing the number of shares of capital stock registered in his name on the books of the corporation. The certificates shall be in such form as may be determined by the Board of   Directors, shall be issued in numerical order and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder’s name and number of shares and shall be signed by the Chief Executive Officer, the President or a Vice President and by the Secretary or an Assistant Secretary. Any signature on the certificate may be a facsimile. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences, and relative participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and rights shall be set forth in full or summarized on the  face or back of the certificate which the corporation shall issue to represent such class of stock; provided that, except as otherwise provided by statute, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class  or series of stock, a statement that the corporation will furnish to each stockholder who so requests the designations, preferences and relative,  participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences andrights.Allcertificatessurrenderedtothecorporationfortransfershallbecanceledandnonewcertificateshallbeissueduntiltheformercertificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, stolen, destroyed, or mutilated certificate a new one may be issued therefor upon such terms and with such indemnity, if any, to the corporation as the Board of Directors may prescribe. Certificates shall not be issued representing fractional shares ofstock.

SECTION 8.02 LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the      person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require (1) the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require, (2) such owner to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate or certificates alleged to have been lost, stolen, or destroyed, or (3)both.

SECTION 8.03 TRANSFERS. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer, it shall be the duty of the corporation to issue a new certificate to    the person entitled thereto, cancel the old certificate, and record the transaction upon its books. Transfers of shares shall be made only on the books of    the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney and filed with the Secretary of the corporation or the TransferAgent.

SECTION 8.04 REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of the corporation’s capital stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.

ARTICLE IX

DIVIDENDS

SECTION 9.01 DECLARATION. Dividends with respect to the shares of the corporation’s capital stock, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to applicable law. Dividends may be paid in cash, in property, or in shares of capital stock, subject to the provisions of the Certificate of Incorporation.

SECTION 9.02 RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

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ARTICLE X

INDEMNIFICATION

SECTION10.01THIRDPARTYACTIONS.Thecorporationshallindemnifyanydirectororofficerofthecorporation,andmayindemnifyanyother person, who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another  corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct wasunlawful.

SECTION 10.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation shall indemnify any director or officer and may indemnify any other person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of    such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon   application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Court of Chancery or such other court shall deemproper.

SECTION 10.03 MANDATORY INDEMNIFICATION. To the extent that a director, officer, employee, or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Sections 10.01 and 10.02, or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

SECTION10.04DETERMINATIONOFCONDUCT.AnyindemnificationunderSection10.01or10.02ofthisArticleX(unlessorderedbyacourt) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 10.01 or 10.02 of this Article X. Such determination shall be made (a) by a majority vote of directors who were not parties to such action, suit or proceeding, even though less than a quorum, or(b) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, (c) iftherearenosuchdirectors,orifsuchdirectorssodirect,byindependentlegalcounselinawrittenopinion,or(d)bythestockholders.

SECTION10.05PAYMENTOFEXPENSESINADVANCE.Expensesincurredindefendingacivilorcriminalaction,suit,orproceedingshallbepaid by the corporation in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee, or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this ArticleX.

SECTION 10.06 INDEMNITY NOT EXCLUSIVE. The indemnification and advancement of expenses provided or granted hereunder shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any other bylaw, agreement, vote of stockholders, or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

SECTION10.07DEFINITIONS.ForpurposesofthisArticleX:

(a)“the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger that, if its separate existence had continued, would have had power and authority to indemnify its directors,    officers, and employees or agents, so that any person who is or was a director, officer, employee, or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, shall stand in the same position under this Article X with respect to the resulting or surviving corporation as he would have with respect   to such constituent corporation if its separate existence hadcontinued;

(b)“other enterprises” shall include employee benefit plans;

(c)“fines” shall include any excise taxes assessed on a person with respect to any employee benefitplan;

(d)“serving at the request of the corporation” shall include any service as a director, officer, employee, or agent of the corporation that imposes dutieson,orinvolvesservicesby,suchdirector,officer,employee,oragentwithrespecttoanemployeebenefitplan,itsparticipantsorbeneficiaries;and

(e)a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employeebenefitplanshallbedeemedtohaveactedinamanner“notopposedtothebestinterestsofthecorporation”asreferredtointhisArticleX.

SECTION10.08CONTINUATIONOFINDEMNITY.Theindemnificationandadvancementofexpensesprovidedorgrantedhereundershall,unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such aperson.

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ARTICLE XI

MISCELLANEOUS

SECTION 11.01 SEAL. Any corporate seal, if one is authorized by the Board of Directors, shall have inscribed thereon the name of the corporation, and the words “Corporate Seal, Delaware.” Any such seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.

SECTION 11.02 BOOKS. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at the offices of the corporation, or at such other place or places as may be designated from time to time by the Board of Directors.

SECTION 11.03  DGCL.  References in these bylaws to the “statute” or the “statutes” shall mean the DGCL.

ARTICLE XII

FORUM FOR CERTAIN ACTIONS

SECTION 12.01 FORUM. Unless a majority of the Board of Directors, acting on behalf of the corporation, consents in writing to the selection of an alternative forum (which consent may be given at any time, including during the pendency of litigation), the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another state court located within the State of Delaware or, if no court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware), to the fullest extent permitted by law, shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation under Delaware law, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim against the corporation or any of its directors, officers or other employees arising pursuant to any provision of the DGCL, these bylaws or the Certificate of Incorporation (in each case, as may be amended from time to time), (iv) any action asserting a claim against the corporation or any of its directors, officers or other employees governed by the internal affairs doctrine of the State of Delaware or (v) any other action asserting an “internal corporate claim,” as defined in Section 115 of the DGCL, in all cases subject to the court’s having personal jurisdiction over all indispensable parties named as defendants. Unless a majority of the Board of Directors, acting on behalf of the corporation, consents in writing to the selection of an alternative forum (which consent may be given at any time, including during the pendency of litigation), the federal district courts of the United States of America, to the fullest extent permitted by law, shall be the sole and exclusive forum for the resolution of any action asserting a cause of action arising under the Securities Act of 1933, as amended.

SECTION 12.02 PERSONAL JURISDICTION. If any action the subject matter of which is within the scope of Section 12.01 of this Article XII is filed in a court other than a court located within the State of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce Section 12.01 of this Article XII (an “Enforcement Action”) and (ii) having service of process made upon such stockholder in any such Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.

SECTION 12.03 ENFORCEABILITY. If any provision of this Article XII shall be held to be invalid, illegal or unenforceable as applied to any person, entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provision in any other circumstance and of the remaining provisions of this Article XII, and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.

SECTION 12.04 NOTICE AND CONSENT. For the avoidance of doubt, any person or entity purchasing or otherwise acquiring or holding any interest in any security of the corporation shall be deemed to have notice of any consented to the provisions of this Article XII.

ARTICLE XIII

AMENDMENT

Except as otherwise provided by applicable law or the Certificate of Incorporation, these bylaws may be altered, amended, or repealed by a majority of the number of directors then constituting the Board of Directors at any regular meeting of the Board of Directors without prior notice, at any special meeting of the Board of Directors if notice of such alteration, amendment, or repeal be contained in the notice of such special meeting or by action by written consent without a meeting of the Board of Directors.

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EX-3.2

Exhibit 3.2

SECOND CERTIFICATE OF AMENDMENT

TO

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

SURGALIGN HOLDINGS, INC.

Surgalign Holdings, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify:

FIRST:  That on March 10, 2021, the board of directors of the Corporation (the “Board of Directors”) duly adopted resolutions: (i) authorizing the Corporation to execute and file with the Secretary of State of the State of Delaware an amendment to the Amended and Restated Certificate of Incorporation of the Corporation to increase the authorized shares of the Corporation’s Common Stock; and (ii) declaring such amendment to be advisable.

SECOND:  That, in accordance with the provisions of the General Corporation Law of the State of Delaware, the holders of the majority of the issued and outstanding shares of the Corporation entitled to vote thereon approved the amendment at the annual meeting of the Corporation on May 4, 2021.

THIRD:  That upon the effectiveness of this certificate, the Amended and Restated Certificate of Incorporation is hereby amended by amending and restating Article FOURTH to read as follows:

“FOURTH: Capital Stock:

This corporation is authorized to issue 300,000,000 shares of Common Stock, $0.001 par value. Except as otherwise required by law, the holders of the Common Stock shall exclusively possess all voting power and each share of Common Stock shall have one vote.”

FOURTH: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by a duly authorized officer of the Corporation this 4th day of May, 2021.

By:
Name:	Joshua H. DeRienzis
Title:	Chief Legal Officer and Corporate Secretary

EX-10.1

Exhibit 10.1

LEASE

BY AND BETWEEN

SNH MEDICAL OFFICE PROPERTIES TRUST

LANDLORD

AND

SURGALIGN SPINE TECHNOLOGIES, INC.

TENANT

3030 SCIENCE PARK ROAD

SAN DIEGO, CALIFORNIA

TABLE OF CONTENTS

Page

Article 1  Reference Data			1
	1.1	Introduction and Subjects Referred To	1
	1.2	Exhibits	4
Article 2  Premises and Term			4
	2.1	Premises	4
	2.2	Term	4
	2.3	Extension Option	5
	2.4	Measurement of the Premises	7
	2.5	CASp Disclosures	7
	2.6	Right of First Refusal	7
	2.7	Right of First Offer	9
	2.8	Outdoor Amenity Area	9
	2.9	Temporary Space	9
Article 3  Commencement Date and Condition			10
	3.1	Commencement Date and Rent Commencement Date	10
	3.2	Condition of Premises	10
	3.3	Preparation of the Premises	10
	3.4	Construction Representatives	12
Article 4  Rent, Additional Rent, Insurance and Other Charges			13
	4.1	Fixed Rent	13
	4.2	Additional Rent	13
	4.2.1	Real Estate Taxes	13
	4.2.2	Operating Costs	14
	4.3	Personal Property and Sales Taxes	19
	4.4	Insurance	19
	4.4.1	Insurance Policies	19
	4.4.2	Requirements	20
	4.4.3	Waiver of Subrogation	20
	4.5	Utilities	20
	4.6	Late Payment of Rent	20
	4.7	Security Deposit	21
Article 5  Landlord’s Covenants			22
	5.1	Affirmative Covenants	22
	5.1.1	Mechanical Yard	22
	5.1.2	Cleaning; Water	22

TABLE OF CONTENTS

(CONTINUED)

Page

	5.1.3	Repairs	23
	5.1.4	Access to Building	23
	5.1.5	Hazardous Materials	23
	5.2	Interruption	24
	5.3	Parking	25
	5.4	Indemnification	25
	5.5	Landlord’s Insurance	25
	5.6	Estoppel	26
Article 6  Tenant’s Additional Covenants			26
	6.1	Affirmative Covenants	26
	6.1.1	Perform Obligations	26
	6.1.2	Use	26
	6.1.3	Repair and Maintenance and Janitorial Service	26
	6.1.4	Compliance with Law	27
	6.1.5	Indemnification	27
	6.1.6	Landlord’s Right to Enter	27
	6.1.7	Yield Up	28
	6.1.8	Rules and Regulations	28
	6.1.9	Estoppel Certificate	29
	6.1.10	Landlord’s Expenses For Consents	29
	6.1.11	Financial Information	29
	6.1.12	Data Obligations	29
	6.2	Negative Covenants	29
	6.2.1	Assignment and Subletting	29
	6.2.2	Nuisance	33
	6.2.3	Floor Load; Heavy Equipment	33
	6.2.4	Electricity	33
	6.2.5	Installation, Alterations or Additions	33
	6.2.6	Abandonment	35
	6.2.7	Signs	35
	6.2.8	Oil and Hazardous Materials	35
	6.2.9	Hazardous Materials Documents	37
	6.2.10	Exit Survey	38

3

TABLE OF CONTENTS

(CONTINUED)

Page

Article 7  Casualty or Taking			38
	7.1	Termination	38
	7.2	Restoration	39
	7.3	Award	39
	7.4	Waiver of Statutory Provisions	39
Article 8  Defaults			40
	8.1	Default of Tenant	40
	8.2	Remedies	40
	8.3	Remedies Cumulative	42
	8.4	Landlord’s Right to Cure Defaults	43
	8.5	Holding Over	43
	8.6	Effect of Waivers of Default	43
	8.7	No Waiver, etc	43
	8.8	No Accord and Satisfaction	44
	8.9	Tenant’s Self-Help Remedies	44
Article 9  Rights of Holders			45
	9.1	Rights of Mortgagees or Ground Lessor	45
	9.2	Representation	45
Article 10  Miscellaneous Provisions			46
	10.1	Notices	46
	10.2	Quiet Enjoyment; Landlord’s Right to Make Alterations, Etc	46
	10.3	Lease not to be Recorded; Press Releases	46
	10.4	Transfer of Title; Limitation of Landlord’s Liability	47
	10.5	Landlord’s Default	47
	10.6	Notice to Mortgagee and Ground Lessor	47
	10.7	Brokerage	48
	10.8	Intentionally Deleted	48
	10.9	Applicable Law and Construction	48
	10.10	Prevailing Party Rights	49
	10.11	Evidence of Authority	49

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LEASE

3030 Science Park Road

San Diego, California

Article 1

Reference Data

1.1Introduction and Subjects Referred To.

This is a lease (this “Lease”) entered into by and between SNH Medical Office Properties Trust, a Maryland real estate investment trust (“Landlord”) and Surgalign Spine Technologies, Inc., a Delaware corporation (“Tenant”).

Each reference in this Lease to any of the following terms or phrases shall be construed to incorporate the corresponding definition stated in this Section 1.1.

Date of

this Lease: /Date/

Building and

Property: That building in the City of San Diego located at 3030 Science Park Road (the “Building”).  The Building and the land parcel on which it is located and the sidewalks adjacent thereto are hereinafter collectively referred to as the “Property”.  The Property together with the properties at 3040 and 3050 Science Park Road is hereafter the “Complex”.

Premises: The entire rentable area of the Building.

Premises

Rentable Area: 94,457 square feet.

Original Term: Commencing on the Commencement Date and expiring on the day preceding the twelfth anniversary of the Rent Commencement Date, except that if the Rent Commencement Date shall occur on a day other than the first day of a month, the Original Term shall expire on the last day of the month in which such twelfth anniversary shall occur.

Fixed Rent:

Lease Year 1	$410,887.95 per month
Lease Year 2	$423,214.59 per month
Lease Year 3	$435,910.03 per month
Lease Year 4	$448,988.36 per month
Lease Year 5	$462,458.01 per month
Lease Year 6	$476,331.75 per month
Lease Year 7	$490,621.70 per month
Lease Year 8	$505,340.35 per month
Lease Year 9	$520,500.56 per month
Lease Year 10	$536,115.58 per month
Lease Year 11	$552,199.05 per month
Lease Year 12	$568,765.02 per month
The term “Lease Year” shall mean a period of twelve (12) consecutive calendar months with the First Lease Year commencing on the Rent Commencement Date, except that if the Rent Commencement Date is not the first day of a month, the first (1st) Lease Year shall be the period commencing on the Rent Commencement Date and expiring on the last day of the month in which the first (1st) anniversary of the Rent Commencement Date shall occur (in which case, in addition to Fixed Rent for the twelve (12) full months of Lease Year 1, Tenant shall, within five (5) Business Days (as defined in the Rules and Regulations) after the Rent Commencement Date, pay Fixed Rent for the month in which the Rent Commencement Date occurs in an amount equal to the monthly Fixed Rent for Lease Year 1 multiplied by a fraction the numerator of which is the number of days from the Rent Commencement Date through the last day of the month in which the Rent Commencement Date occurs, inclusive of both dates, and the denominator of which is the number of days in such month).
Notwithstanding the foregoing, Fixed Rent for the first thirteen (13) full calendar months following the Rent Commencement Date shall be abated (i.e. twelve full months of Lease Year 1 and the first month of Lease Year 2).

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Rent Commencement

Date: The earlier to occur of March 13, 2022 and the Substantial Completion Date.

Tenant’s Percentage: One hundred percent (100%).

Permitted Uses: Office, lab and research and development purposes and ancillary uses for (i) a cadaver lab, and (ii) uses related to office purposes to the extent permitted by applicable zoning and other laws from time to time, subject to the provisions of Subsection 6.1.2.

Security Deposit: $2,465,327.70

Commercial General

Liability Insurance

Limits: $5,000,000 per occurrence.

Original Address of

Landlord: SNH Medical Office Properties Trust

c/o The RMR Group LLC

8631 West Third Street

Suite 301E

Los Angeles, California  90048

Attn:  Vice President West Region

Landlord's Agent: The RMR Group LLC or such other entity as shall be designated by Landlord from time to time.

Original Address of

Tenant: Surgalign Spine Technologies, Inc.

520 Lake Cook Road, Suite 315

Deerfield, Illinois   60015

Attn:  Josh DeRienzis, Esq., General Counsel and Corporate Secretary

Email:  Jderienzis@surgalign.com

Address for Payment

of Rent: SNH Medical Office Properties Trust

PNC Bank, NA

c/o The RMR Group LLC

Dept #300

P.O. Box 31001-2144

Pasadena, California  91110-2144

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1.2Exhibits.

The Exhibits listed below in this section are incorporated in this Lease by reference and are to be construed as a part of this Lease.

EXHIBIT A-1.Outdoor Area.

EXHIBIT B.Rules and Regulations.

EXHIBIT C.Alterations Requirements.

EXHIBIT D.Secretary’s Certificate.
EXHIBIT E.LEED Requirements.

EXHIBIT F.Landlord’s Work.

Article 2

Premises and Term

2.1Premises.  Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord, subject to and with the benefit of the terms, covenants, conditions and provisions of this Lease, excluding exterior faces of exterior walls.  During the term, Tenant shall have the non-exclusive right to use, in common with other tenants in the Complex, those portions of the Complex (“Common Areas”) that are provided or operated for use in common by Landlord, Tenant and any other tenants of the Complex (or by the sublessees, employees, customers, invitees or licensees of any such party), whether or not those areas are open to the general public, including, to the extent operated for the benefit of tenants of the Complex, a gym and conference center both located at 3040 Science Park Road (Tenant acknowledging that while Landlord intends to maintain and operate such facilities throughout the term, it reserves the right to alter, relocate or discontinue one or both due to insufficient demand or other reasonable commercial reasons).  The Common Areas to which Tenant shall have rights under the prior sentence shall exclude any areas at the 3050 Building (hereinafter defined) absent a lease or amendment entered into pursuant to Section 2.7, and any areas of the 3040 Building (hereinafter defined) intended for the exclusive use or occupancy of tenants of either such property and also shall exclude (x) any areas of any property outside of the Property which may be reserved for or leased to one or more specific tenants for their exclusive use or occupancy and (y) the office in the garage in the Property, the mechanical yard at the Property and any other facilities providing service to the Complex.

2.2Term.  The term of this Lease shall be for a period beginning on the Commencement Date (as defined in Section 3.1) and continuing for the Original Term and any extension of the term hereof in accordance with the provision of this Lease, unless sooner terminated as hereinafter provided.  When the dates of the beginning and end of the Original Term have been determined such dates shall be evidenced by a confirmatory document executed by Landlord and Tenant in the form substantially as shown on Exhibit E hereto and delivered each to the other, but the failure of Landlord and Tenant to execute or deliver such document shall have no effect upon such dates.  The Original Term and any extension of the term hereof in accordance with the provisions of this Lease is hereinafter referred to as the “term” of this Lease.

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2.3Extension Option.  So long as this Lease is still in full force and effect and, unless Landlord shall waive the Conditions (which it may do at any time in its discretion), the Conditions are met as of the date of the Election Notice (as such terms are hereinafter defined) Tenant shall have the right to extend the term of this Lease for one (1) additional period (the “Extended Term”) of seven (7) years commencing on the day succeeding the expiration of the Original Term and ending on the day immediately preceding the seventh anniversary of the commencement of the Extended Term.  All of the terms, covenants and provisions of this Lease applicable immediately prior to the expiration of the Original Term shall apply to the Extended Term except that (i) the Fixed Rent for the Extended Term shall be the Market Rate (as hereinafter defined) for the Premises determined as of the commencement of such Extended Term, as designated by Landlord by notice to Tenant (“Landlord’s Notice”), but subject to Tenant’s right to dispute as hereinafter provided; and (ii) Tenant shall have no further right to extend the term of this Lease beyond the Extended Term hereinabove provided.  If Tenant shall elect to exercise the aforesaid option, it shall do so by giving Landlord notice (an “Election Notice”) of its election not later than one (1) year, nor sooner than fifteen (15) months, prior to the expiration of the Original Term.  If Tenant fails to give such Election Notice to Landlord or the Conditions are neither satisfied nor waived by Landlord, the term of this Lease shall automatically terminate no later than the end of the Original Term, and Tenant shall have no further option to extend the term of this Lease, it being agreed that time is of the essence with respect to the giving of such Election Notice.  If Tenant shall extend the term hereof pursuant to the provisions of this Section 2.3, such extension shall (subject to satisfaction of the Conditions, unless waived by Landlord) be automatically effected without the execution of any additional documents, but each party shall, at the other party’s request, execute an agreement confirming the Fixed Rent for the Extended Term.  The “Conditions” are that there shall exist no Default of Tenant at the time Tenant gives the Election Notice.

“Market Rate” shall mean the then fair market annual rent for the Premises for the Extended Term (determined as set forth below) (including annual adjustments), that a willing, non-equity tenant (excluding sublease and assignment transactions) would pay, and a willing landlord of a comparable quality building located in the Torrey Pines submarket of San Diego, California area would accept, in an arm’s length transaction, for space of comparable size, quality and floor height at the Premises, taking into account (x) the age, quality and layout of the existing improvements in the Premises, (y) that the Premises is comprised of a combination of office and laboratory uses, and (z) any other factors that professional real estate brokers or professional real estate appraisers customarily consider, including rental rates, space availability, tenant size, tenant improvement allowances, parking charges and any other lease considerations, if any, then being charged or granted by Landlord or the lessors of such similar buildings.  Landlord shall provide written notice of Landlord’s determination of the Market Rate not later than the later of (x) sixty (60) days after Tenant delivers the Election Notice or (y) thirteen (13) months prior to the expiration of the Original Term.  If Tenant disagrees with Landlord’s designation of the Market Rate, then Tenant shall give notice thereof to Landlord (“Tenant’s Notice”) within thirty (30) days after Landlord’s Notice (failure to provide such notice of disagreement within such 30-day period constituting acceptance by Tenant of Market Rate as set forth in Landlord’s Notice), in which case representatives of Landlord and Tenant will meet to present and discuss their individual determinations of the Market Rate and shall diligently and in good faith attempt to negotiate the Market Rate on the basis of such individual determinations.  Such meeting shall occur no later than ten (10) Business Days after Tenant's Notice.  The parties

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shall each provide the other with reasonable supporting information and documentation of its determination at such meeting.  If Landlord and Tenant do not agree upon the Market Rate at such meeting, each party submit to the other its respective best and final offer as to the Market Rate (“Rent Determination”) within three (3) Business Days following such meeting.  If Landlord and Tenant fail to reach agreement on such Market Rate within five (5) Business Days following such a meeting (“Outside Agreement Date”), Tenant's Election Notice will be deemed null and void unless Tenant demands appraisal by notice to Landlord on or before the Outside Agreement Date, in which event each party's Rent Determination shall be submitted to appraisal as follows:within fifteen (15) days after the Outside Agreement Date, Landlord and Tenant shall each give notice to the other specifying the name and address of the appraiser each has chosen who shall have the qualifications hereinafter set forth.  The two appraisers so chosen shall meet within ten (10) days after the second appraiser is appointed and if, within twenty (20) days after the second appraiser is appointed, the two appraisers shall not agree upon a determination of the Market Rate in accordance with the following provisions of this Section 2.3 they shall together appoint a third appraiser.  If only one appraiser shall be chosen whose name and address shall have been given to the other party within such fifteen (15) day period and who shall have the qualifications hereinafter set forth, that sole appraiser shall render the decision which would otherwise have been made as hereinabove provided.The determination of the appraiser(s) shall be limited solely to the issue of whether Landlord's or Tenant's Rent Determination is the closest to the actual Market Rate for the Premises as determined by the appraisers, taking into account the requirements specified in above (and such determination shall establish the Market Rate).

If said two appraisers cannot agree upon the appointment of a third appraiser within ten (10) days after the expiration of such twenty (20) day period, then either party, on behalf of both and on notice to the other, upon ten (10) days written notice to the other party, may apply to the Presiding Judge of the Superior Court of San Diego County to appoint a third appraiser meeting the qualifications.  The third appraiser, however, selected shall be a person who has not previously acted in any capacity for either party.

Each of the appraisers selected as herein provided shall have at least ten (10) years experience as a commercial real estate broker in the Torrey Pines area dealing with properties of the same type and quality as the Building.  Each party shall pay the fees and expenses of the appraiser it has selected and the fees of its own counsel.  Each party shall pay one half (1/2) of the fees and expenses of the third appraiser (or the sole appraiser, if applicable) and all other expenses of the appraisal.  The decision and award of the appraiser(s) shall be in writing and shall be final and conclusive on all parties, and counterpart copies thereof shall be delivered to both Landlord and Tenant.  Judgment upon the award of the appraiser(s) may be entered in any court of competent jurisdiction.

The appraiser(s) shall determine whether Landlord’s or Tenant’s Rent Determination is the closest to the actual Market Rate of the Premises for the Extended Term and render a decision and award as to their determination to both Landlord and Tenant (a) within twenty (20) days after the appointment of the second appraiser, (b) within twenty (20) days after the appointment of the third appraiser or (c) within fifteen (15) days after the appointment of the sole appraiser, as the case may be.  In rendering such decision and award, the appraiser(s) shall assume (i) that neither Landlord nor the prospective tenant is under a compulsion to rent, and that Landlord and Tenant are typically motivated, well informed and well advised, and each is

6

acting in what it considers its own best interest, and (ii) that in the event the Premises have been damaged by fire or other casualty prior to the commencement of the Extended Term, they have been fully restored.

If the dispute between the parties as to the Market Rate has not been resolved before the commencement of Tenant’s obligation to pay the Fixed Rent based upon determination of such Market Rate, then Tenant shall pay the Fixed Rent under the Lease based upon the Market Rate designated by Landlord in Landlord’s Rent Determination until either the agreement of the parties as to the Market Rate, or the decision of the appraiser(s), as the case may be, at which time Landlord shall refund any overpayment of the Fixed Rent to Tenant.

Landlord and Tenant hereby waive the right to an evidentiary hearing before the appraiser(s) and agree that the appraisal shall not be an arbitration nor be subject to state or federal law relating to arbitrations.

2.4Measurement of the Premises.  Landlord and Tenant agree that the Premises Rentable Area identified in Section 1.1 is recited for administrative purposes only and that, although the Fixed Rent has been determined by reference to such square footage (regardless of the possibility that the actual measurement of the Premises may be more or less than the number identified, irrespective of measurement method used), Fixed Rent and Tenant’s Percentage shall not be changed except as expressly provided in this Lease.

2.5CASp Disclosures.  For purposes of Section 1938(a) of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Premises have not undergone inspection by a Certified Access Specialist (CASp).  As required by Section 1938(e) of the California Civil Code, Landlord hereby states as follows:  "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."  In furtherance of the foregoing, Landlord and Tenant hereby agree as follows:  (a) any CASp inspection requested by Tenant shall be conducted, at Tenant's sole cost and expense, by a CASp designated by Landlord, subject to Landlord's reasonable rules and requirements; (b) Tenant, at its sole cost and expense (subject to Landlord’s Contribution), shall be responsible for making any improvements or repairs required under applicable accessibility laws but which would not be so required but for Tenant’s Work; and (c) Landlord, at its sole cost and expense, shall be responsible for making any improvements or repairs required under applicable accessibility laws but only if unrelated to Tenant’s Work.

2.6Right of First Refusal. So long as this Lease is still in full force and effect and the Conditions are met as of the date of the ROFR Notice, if Landlord has a bona fide letter of intent from a third party (a “Prospect”) to lease any space (excluding any area designated or intended by Landlord to provide space for food service or other amenity or service for the Complex) on

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the first and/or second floorsof the 3040 Science Park Road building (the “3040 Building”) which Landlord intends to accept, or if Landlord shall make a bona fide written offer to a Prospect to lease any such space (“3040 Space”) which is acceptable to such Prospect, Landlord shall so notify Tenant (the “ROFR Notice”) identifying the space (the “ROFR Space”) Landlord proposes to lease to the Prospect and the terms (the “ROFR Terms”) on which Landlord proposes to lease the ROFR Space to the Prospect (which may include a term whose expiration date is not co-terminous with the term applicable to the space then constituting the Premises demised hereunder except as hereinafter provided), including a copy of such letter of intent, and Tenant may, by giving notice to Landlord (the “ROFR Acceptance”) within five (5) Business Days after receipt of the ROFR Notice, irrevocably elect to lease the ROFR Space on the ROFR Terms. If Tenant shall have so elected to lease the ROFR Space on the ROFR Terms, it shall, within ten (10) days after submission by Landlord, enter into an amendment to this Lease, which shall be in a commercially reasonable form prepared by Landlord and reasonably acceptable to Tenant, confirming the lease of such ROFR Space to Tenant on the ROFR Terms and, except as otherwise provided in or inconsistent with the ROFR Terms, on the terms and conditions then and thereafter applicable to the Premises initially demised hereunder.  If Tenant shall not elect to lease the ROFR Space within the aforesaid five (5) Business Day period, then Tenant shall have no further rights under this Section 2.6 with respect to that ROFR Space and Landlord shall thereafter be free to lease any or all of that ROFR Space to the Prospect or to any other third party on such terms as Landlord shall determine, it being agreed that time is of the essence with respect to the exercise of Tenant’s rights under this Section 2.6; provided, however, that if Landlord does not enter into a lease of all or substantially all of the applicable ROFR Space within six (6) months after the expiration of such five (5) Business Day period, then, prior to leasing such ROFR Space, Landlord shall be obligated to provide a new ROFR Notice to Tenant, and the terms and conditions above shall apply. Notwithstanding anything to the contrary contained herein, Tenant’s rights under this Section 2.6 shall continue with respect to any 3040 Space as to which a ROFR Notice shall not have been given.

As to any ROFR Space as to which a ROFR Notice is given prior to the second anniversary of the Commencement Date, notwithstanding any of the ROFR Terms to the contrary, (i) the term applicable to the ROFR Space shall be co-terminous with the term of this Lease, and (ii) if the ROFR Terms contain a term (or initial term, as applicable) different from the then current term hereof, any rent abatement periods and any improvement allowance specified in the ROFR Terms for such (initial) term shall be appropriately pro-rated to reflect the difference between the (initial) term for the ROFR Space specified in the ROFR Terms and the actual initial term applicable to the ROFR Space.

Tenant acknowledges that all of the rentable area on the second floor of the 3040 Building is under lease as of the Date of this Lease.  Tenant furthermore acknowledges that all of the rentable area on the first floor of the 3040 Building which would otherwise be subject to Tenant’s rights hereunder is the subject of a lease under active negotiation as of the Date of this Lease, and that if such first floor space lease shall be executed, none of the space demised thereby shall be subject to this Section 2.6 unless any such lease terminates or expires during the term hereof.

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2.7Right of First Offer.  So long as this Lease is still in full force and effect and the Conditions are met, then if any rentable area at the building located at 3050 Science Park Road (the “3050 Building”) shall become available for lease, Landlord shall so notify Tenant, and shall identify the space available (the “Offered Space”) together with the rental rate and other terms and conditions (collectively, the “ROFO Terms”) under which in good faith Landlord intends to offer such space to third parties and the date on which such Offered Space is expected to be vacant, and Tenant may, by giving notice to Landlord within five (5) Business Days after such notice, irrevocably elect to lease the Offered Space on the ROFO Terms (which may include a term whose expiration date is not co-terminous with the term hereof).  If Tenant shall have so elected to lease the Offered Space, it shall enter into an amendment to this Lease within ten (10) days after it shall have received the same from Landlord, which shall be in a commercially reasonable form prepared by Landlord and reasonably acceptable to Tenant, confirming the lease of such Offered Space to Tenant on the ROFO Terms.  If Tenant shall not elect to lease the Offered Space within the aforesaid 5-Business Day period, then Landlord shall thereafter be free to lease any or all of such Offered Space to a third party or parties from time to time on such terms and conditions as it may deem appropriate, it being agreed that time is of the essence with respect to the exercise of Tenant’s rights under this addendum; provided, however, that if Landlord does not enter into a lease of substantially all of the ROFO Space within six (6) months after the expiration of such five (5) Business Day period, then, prior to leasing any such ROFO Space, Landlord shall be obligated to provide a new notice to Tenant, and the terms and conditions above shall apply.

Rentable area shall be deemed to be “available for lease” hereunder only after it shall have been leased pursuant to a lease existing as of the Date of this Lease or a lease entered into after the Date of this Lease and at such time as (x) the term of the then current lease for such space shall expire and not be extended or renewed (whether pursuant to a contractual right or not) or shall be terminated prior to the scheduled expiration date, and (y) Landlord does not, or is not obligated to, enter into a lease of such space to any party pursuant to the terms of a lease in effect as of the Date of this Lease.

2.8Outdoor Amenity Area.  At no additional rent or other charge to Tenant, Tenant and its employees, customers, subtenants, licensees and invitees shall have the exclusive right to use the outdoor amenity area at the Property identified on Exhibit A-1 (“Outdoor Area”) and any improvements thereto during the term.  The Outdoor Area shall be deemed to be part of the Premises for all purposes other than Section 5.1.2.

2.9Temporary Space.  Landlord shall pay all reasonable out of pocket costs Tenant shall incur to lease temporary space at a building in San Diego County for a term expiring on or about the Commencement Date (but not to exceed $250,000).  Landlord shall reimburse Tenant for such costs within thirty (30) days of receipt by Landlord of the executed lease for such space and a monthly payment request, together with paid invoices and provided there shall exist no Default of Tenant and this Lease shall remain in full force and effect.

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Article 3

Commencement Date and Condition

3.1Commencement Date and Rent Commencement Date.  The “Commencement Date”) shall be the Date of this Lease.

3.2Condition of Premises.  Landlord shall deliver possession of the Premises to Tenant and Tenant agrees to accept the Premises in their “as is” condition subject to Landlord’s continuing obligations under Article 5. Tenant acknowledges that it has inspected the Premises and the common areas and facilities of the Property and has found the condition of both satisfactory and is not relying on any representations of Landlord or Landlord’s agents or employees as to such condition, and Landlord shall have no obligation with respect thereto except as may be expressly set forth in this Lease. Notwithstanding the foregoing, if any systems serving the Premises are not, as of the Commencement Date, in compliance with Exhibit F, and if Tenant identifies such failure on or before the date which is at least three (3) weeks prior to the first anniversary of the Commencement Date, Landlord shall promptly correct the deficiency.

3.3Preparation of the Premises.

(a)Tenant, at Tenant’s sole cost and expense except to the extent of Landlord’s Contribution (hereinafter defined), shall be responsible for making any alterations or improvements to the Premises required by Tenant, subject to the terms of this Lease. The initial alterations and improvements to the Premises required by Tenant to prepare the Premises for Tenant’s occupancy, including improvements to the Outdoor Area, are hereinafter referred to as “Tenant’s Work” which may include the creation of an outdoor area as shown on Exhibit A-1 attached hereto.  Tenant shall prepare plans and specifications for Tenant’s Work (“Tenant’s Plans”) in accordance with the requirements of Exhibit C attached hereto and made a part hereof. Tenant’s Plans shall be subject to review and approval by Landlord as provided in Exhibit C. Landlord may not unreasonably withhold, condition or delay approval of Tenant’s Plans and failure by Landlord to either approve or deliver written notice of disapproval of Tenant’s Plans describing in reasonable detail the basis for such disapproval within ten (10) Business Days after the date of Landlord’s receipt of Tenant’s Plans (or five (5) Business Days after the date of Landlord’s receipt of any resubmission) shall constitute approval thereof, provided, however that no such automatic approval shall occur unless Tenant’s submission contains the following notice, printed in a prominent place on the outside thereof in not less fourteen (14) point bold-faced type: “LANDLORD REVIEW REQUIRED; FAILURE TO RESPOND TO THIS SUBMISSION WITHIN TEN (10) [FIVE (5)] BUSINESS DAYS SHALL RESULT IN AUTOMATIC APPROVAL PURSUANT TO LEASE SECTION 3.3.”

(b)Upon approval of Tenant’s Plans by Landlord, Tenant shall perform Tenant’s Work in accordance with Tenant’s Plans and the requirements of Article 6 and Exhibit C, diligently until Tenant’s Work is substantially complete. Tenant’s Work shall be considered substantially complete and the “Substantial Completion Date” shall occur on the first day as of which all of the following requirements have been met: (i) all work shown and described in Tenant’s Plans has been completed, with only punchlist items (i.e. minor and insubstantial details of decoration or mechanical adjustment) excepted; (ii) Tenant’s architect has issued a

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certificate of substantial completion on the standard AIA form which has been delivered to Landlord; (iii) all electrical, mechanical, plumbing and HVAC facilities installed or modified by Tenant are functioning properly;  (iv) the Premises are free of debris and construction materials, (v) any required certificate of occupancy for the Premises has been issued; and (vi) Tenant has obtained and delivered to Landlord all of the documents listed in Paragraph H of Exhibit C.

(c)Provided this Lease is in full force and effect, then, subject to the provisions of Section 3.3(d), Landlord will provide Tenant with an improvement allowance (the “Landlord’s Contribution”) equal to the lesser of (i) $150.00 per square foot of Premises Rentable Area, or (ii)  the third-party costs of Tenant’s Work. For purposes of this Section 3.2, the “costs” of Tenant’s Work shall mean all hard and soft costs of Tenant’s Work, including all fees and expenses of Tenant’s architectural and engineering professionals and all contractor charges for labor, materials, general conditions and contractor’s overhead and profit, permitting fees, plan check fees, and fees paid to independent construction managers, if any, and costs to construct (but not furnish) the Outdoor Area, less the lesser of Landlord’s actual costs incurred for Landlord’s third party construction manager and any required consultants fees for its role in reviewing Tenant’s Work or 1.5% of the foregoing amounts which Landlord shall retain as a construction management fee (such lesser amount, “Landlord’s Fee”).

(d)Tenant may, from time to time, requisition Landlord for payment of Landlord’s Contribution in installments, but not more often than monthly, provided that Landlord may withhold from each such installment of Landlord’s Contribution paid prior to the Final Payment (hereinafter defined), ten percent (10%) of the amount of hard construction costs otherwise due Tenant, less Landlord’s Fee attributable thereto. Each such installment of Landlord’s Contribution paid prior to the Final Payment is hereinafter referred to as a “Progress Payment”.  

Each requisition for a Progress Payment shall include (i) a detailed breakdown of the costs of Tenant’s Work, (ii) ) a copy of each executed Application for Payment and Architect’s Certificate for Payment (on AIA Documents G702 and G703 or reasonable equivalents) covering all contractor charges included in the requisition, (iii) copies of invoices for any costs of Tenant’s Work that are not included in a contractor’s Application for Payment, (iv) executed lien  waivers (in such form as Landlord shall reasonably require) from the general contractor, subcontractors and materials suppliers waiving, releasing and relinquishing all liens, claims and rights to lien under applicable laws on account of any labor, materials and/or equipment furnished by such party through the date of the requisition (provided that any such waiver may be conditioned upon receipt of the amount requested for such party in the requisition), and (vi) a certification by an officer of Tenant that Tenant has made full payment for all of the work and other costs of Tenant’s Work covered by the prior Progress Payments. Landlord shall make each Progress Payment (in an amount not to exceed the lesser of (x) the costs of Tenant’s Work as evidenced by the documentation submitted with the applicable requisition, or (y) the balance of Landlord’s Contribution then remaining, less amounts retained by Landlord as hereinabove provided) to Tenant within twenty-one (21) days after Landlord’s receipt of a Progress Payment requisition with all required supporting documentation unless, within such period, Landlord notifies Tenant of its rejection of all or part of such requisition as a result of Tenant’s failure to comply with the requirements of this Section 3.3(d), specifying the reasons therefor in reasonable detail, in which

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case Landlord will disburse the portion of Landlord’s Contribution that is not rejected by Landlord within such twenty-one (21) day period.

After the occurrence of the Substantial Completion Date, Tenant may submit a requisition to Landlord for payment of the balance of Landlord’s Contribution and all retained amounts (the “Final Payment”). Such requisition shall include: (i) a final detailed breakdown of all of the costs of Tenant’s Work and (ii) final mechanic’s and material supplier’s lien waivers, and (iii) all other documentation required for a Progress Payment pursuant to the preceding paragraph as to the portion of Tenant’s Work covered by the Final Payment. Landlord shall make the Final Payment within twenty-one (21) days after Landlord’s receipt of a timely requisition for the Final Payment with all required supporting documentation unless, within such period, Landlord notifies Tenant of its rejection of all or part of such requisition, specifying the reasons therefor.  Notwithstanding the foregoing, Tenant must make requisition for Landlord’s Contribution by a date no later than eighteen (18) months after the Rent Commencement Date; any remainder of Landlord’s Contribution for which Tenant shall not have made a compliant requisition by such date shall be forfeited and become Landlord’s property.

(e)Notwithstanding the foregoing, Tenant shall have the right to apply up to $5.00 per square foot of Premises Rentable Area of Landlord’s Contribution for the purchase and installation of furniture, fixtures and equipment for the Premises (including the Outdoor Area) including cabling and wiring, but otherwise no portion of the foregoing may be included in the cost of Tenant’s Work for purposes of Landlord’s Contribution (nor shall Landlord’s Fee be applied to such cost).

(f)Contemporaneously with the execution of this Lease by Landlord, in addition to Landlord’s Contribution, and provided Landlord shall have received a completed W-9 from such consultant, it shall pay Tenant’s workplace consultant a fee of $70,842.75.  In addition, Landlord previously paid a fit test allowance to Tenant or its consultant, which amount shall not be deducted from Landlord’s Contribution.

3.4Construction Representatives.  Both Landlord and Tenant shall appoint one individual as its “Construction Representative” who is authorized to act on its behalf in connection with any matters arising pursuant to this Article 3.  The Construction Representative may be changed from time to time by notice hereunder from the then current Construction Representative to the other party’s Construction Representative or by notice from Landlord or Tenant pursuant to Section 10.1.  The initial Construction Representatives shall be Bobby Purcell at BPurcell@rmrgroup.com (Landlord) and Terry Rich and Ryan Larson (Tenant).  Notwithstanding Section 10.1, any notices or other communication under this Article 3 may be made by letter or other writing sent by U.S. mail, facsimile or email, provided the communication is made by one party’s Construction Representative to the other party’s Construction Representative.

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Article 4

Rent, Additional Rent, Insurance and Other Charges

4.1Fixed Rent.  Tenant shall pay Fixed Rent to Landlord, or as otherwise directed by Landlord, without offset, abatement (except as provided in Article 1 or Article 7), deduction or demand, except as expressly provided in this Lease.  Except for the installment of Fixed Rent due on the Rent Commencement Date which is other than the first day of a month, Fixed Rent shall be payable in advance, on the first day of each and every calendar month during the term of this Lease, at the Address for Payment of Rent, or at such other place as Landlord shall from time to time designate by notice, by check drawn on a domestic bank or by wire or other electronic transfer.

4.2Additional Rent.  Tenant shall pay to Landlord, as Additional Rent, Tenant’s Percentage of Taxes and Operating Costs as provided in Sections 4.2.1 and 4.2.2, and all other charges and amounts payable by or due from Tenant to Landlord under the express terms of this Lease (all such amounts referred to in this sentence being “Additional Rent”).

4.2.1Real Estate Taxes.  Tenant shall reimburse Landlord for Tenant’s Percentage of all Taxes (“Tenant’s Tax Payment”) attributable to any portion of the term of this Lease, as Additional Rent.  

Tenant shall pay to Landlord, as Additional Rent on the first day of each calendar month during the term (commencing on the Rent Commencement Date) but otherwise in the manner provided for the payment of Fixed Rent, estimated payments on account of Tenant’s Tax Payment, such monthly amounts to be sufficient to provide Landlord by the time Tax payments are payable without penalty or interest a sum equal to Tenant’s Percentage thereof, as reasonably estimated by Landlord from time to time but not more than once annually on account of Taxes for the then current Tax year.  Landlord shall give Tenant notice of such estimated amounts promptly following its determination thereof for each Lease Year.  If the total of such monthly remittances is greater than Tenant’s Percentage of Taxes for such Tax year, Landlord shall credit such overpayment against Tenant’s subsequent obligations on account of Operating Costs and Taxes (or promptly refund such overpayment if the term of this Lease has ended and Tenant has no further obligations to Landlord); if the total of such remittances is less than Tenant’s Percentage of Taxes for such Tax year, Tenant shall pay the difference to Landlord within thirty (30) days after being so notified by Landlord.

If Landlord shall receive a refund of any portion of Taxes attributable to the term as a result of an abatement or reduction of such Taxes by legal proceedings, settlement or otherwise (without either party having any obligation to undertake any such proceedings), Landlord shall pay or credit to Tenant Tenant’s Percentage of the refund (after first deducting any reasonable expenses, including attorneys’, consultants’ and appraisers’ fees, incurred in connection with obtaining any such refund).

In the event that the Rent Commencement Date shall occur or the term of this Lease shall expire or be terminated during any calendar year for which Operating Costs are being computed,

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then the amount of Operating Costs which may be payable by Tenant as provided in this subsection 4.2.1 shall be pro-rated on a daily basis based on a 360 day year.

“Taxes” shall mean all real property taxes, assessments, and other charges and impositions which are general or special, ordinary or extraordinary, foreseen or unforeseen, of any kind or nature which are levied, assessed or imposed by any governmental authority upon or against or with respect to the Property or Landlord, or taxes in lieu thereof, and additional types of taxes to supplement real estate taxes due to legal limits imposed thereon as well as an allocation determined by Landlord on a commercially reasonable basis of any Taxes assessed to Common Areas or attributable to portions of the 3040 Building (or any other building in the Complex) containing a gym or conference center and any food service facility (but excluding any area within the premises demised by a lease of space to any food service provider) or other amenity for the Complex.  Taxes shall include any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election ("Proposition 13") and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Taxes shall also include any governmental assessments or the Property's contribution towards a governmental assessment for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies.  Taxes shall not include (i) any federal, state, or local franchise, estate, inheritance, transfer, income (except to the extent that a tax on income or revenue is levied solely on gross rental revenues and not on other types of income and then only from rental revenue generated by the Property), transfer or capital levy taxes assessed on Landlord, or (ii) penalties, fines or interest incurred as a result of Landlord’s failure to make timely payment of any installment of Taxes prior to delinquency and/or to file any tax or informational returns when due.  Taxes also shall include all court costs, attorneys’, consultants’ and accountants’ fees, and other expenses reasonably incurred by Landlord in analyzing and contesting Taxes through and including all appeals.  Taxes shall include any estimated payment made by Landlord on account of a fiscal tax period for which the actual and final amount of taxes for such period has not been determined by the governmental authority as of the date of any such estimated payment.

Landlord shall make commercially reasonable efforts to challenge assessments of Taxes which it reasonably deems to be excessive provided the cost of such challenge and the likelihood of recovery is reasonable in relation to the reduction sought.

4.2.2Operating Costs.  Tenant shall reimburse Landlord for Tenant’s Percentage of Operating Costs.  

Tenant shall pay to Landlord, as Additional Rent on the first day of each calendar month during the term commencing on the Rent Commencement Date but otherwise in the manner provided for the payment of Fixed Rent, estimated payments on account of Operating Costs, such monthly amounts to be sufficient to provide to Landlord, by the end of each calendar year, a

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sum equal to Operating Costs for such year, as reasonably estimated by Landlord.  Landlord shall give Tenant notice of such estimated amounts promptly following its determination thereof for each Lease Year, which notice Landlord will use reasonable efforts to provide to Tenant at least thirty (30) days prior to the beginning of each Lease Year.If, at the expiration of each year in respect of which monthly installments of Operating Costs shall have been made as aforesaid, the total of such monthly remittances is greater than the actual Operating Costs for such year, Landlord shall credit such overpayment against Tenant’s subsequent obligations on account of Taxes and Operating Costs (or promptly refund such overpayment if the term of this Lease has ended) or, if Tenant shall so request, against any installment of Annual Fixed Rent due not earlier than thirty (30) days prior to such request; if the total of such remittances is less than actual Operating Costs for such year, Tenant shall pay the difference to Landlord within thirty (30) days after being so notified by Landlord.

In the event that the Rent Commencement Date shall occur or the term of this Lease shall expire or be terminated during any calendar year for which Operating Costs are being computed, then the amount of Operating Costs which may be payable by Tenant as provided in this subsection 4.2.2 shall be pro-rated on a daily basis based on a 360 day year.

“Operating Costs” shall consist of all reasonable and customary costs and expenses paid for the operation, cleaning, management, maintenance, repair, insurance and upkeep of the Property, including an allocation as determined by Landlord on a commercially reasonable basis of those costs attributable to Common Areas, in accordance with generally accepted accounting principles consistently applied from year to year as such principles are generally applied in the real estate industry, including, without limitation:

(a)all salaries, wages, fringe benefits, payroll taxes and workmen’s compensation insurance premiums related thereto and all other costs paid or incurred with respect to employment of personnel engaged in operation, administration, cleaning, maintenance, repair, upkeep and security of the Property including, without limitation, on-site property managers and regional administrative staff, provided that (x) if any such administrative personnel are also employed on other property of Landlord, such cost of compensation shall be suitable prorated among the Property and such other properties and (y) no cost of personnel above one level above senior property manager (as of the Date of this Lease, above Area Manager or Area Engineer) shall be included in Operating Costs;

(b)all utilities and other costs related to provision of utilities supplied to the Property or the Common Areas of the Complex (exclusive of any services paid for by Tenant);

(c)all costs, including supplies, material and equipment costs, for landscaping and maintenance and repairs of exterior areas of the Property and the Complex (including, without limitation, trash removal and exterior window cleaning and exterior lighting);

(d)the cost of replacements for tools and other similar equipment used in the repair and maintenance of the Property, provided that, in the case of any such equipment used jointly on other property of Landlord, such costs shall be reasonably allocated among the Property and such other properties;

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(e)all costs and premiums for fire, casualty, rental income, liability and such other insurance as may be reasonably maintained from time to time by Landlord relating to the Property;

(f)subject to the limitation applicable to any capital expenditures, costs of compliance with any laws, rules, regulations, ordinances, agreements or standards applicable to the Building or the Property and costs of routine air and water testing for any toxic or hazardous material in the Building or Property; and

(g)a management fee of three (3%) percent of gross rental income from the Property.

If, during the term of this Lease, Landlord shall make any capital expenditure (including repairs and replacements that are capital expenses), the total cost thereof shall not be included in Operating Costs for the year in which it was made, but Landlord may include in Operating Costs for the year in which such expenditure was made and in Operating Costs for each succeeding year an annual charge off of such capital expenditure, provided such expenditure is (i) made to comply with any law, rule, regulation, order or ordinance enacted or becoming effective after the Commencement Date, or with any amendment or change in interpretation of any such law, rule, regulation, order or ordinance after the Commencement Date, or (ii) designed with a reasonable expectation of reducing Operating Costs over time. Annual charge offs shall be equal to the level payments of principal and interest necessary to amortize the original capital expenditure over the useful life of the improvement, repair, alteration or replacement made with the capital expenditure using an interest rate reasonably determined by Landlord as being the interest rate being charged at the time of the original capital expenditure for long-term mortgages by institutional lenders on like properties; and the useful life shall be determined reasonably by Landlord in accordance with its then prevailing customs and practices, provided however that with respect to expenditures designed to reduce Operating Costs, the annual charge-off may not exceed the yearly cost savings in Operating Costs achieved as reasonably determined or estimated by Landlord.

Notwithstanding anything to the contrary contained herein, the following shall be excluded from Operating Costs:

(1)the cost of improvements and/or renovations performed prior to the Commencement Date and costs of correcting defects in the design or construction of such improvements and/or renovations;

(2)costs and fees incurred in the sale or ground lease, or any financing or refinancing, of the Property 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;

(3)capital expenses or depreciation (except for the amortization of capital expenditures that are permitted to be included in Operating Costs);

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(4)general organizational, administrative and overhead costs of Landlord or any of its affiliates, including general corporate, legal and accounting expenses;

(5)costs (including attorneys' fees and costs of settlement, judgments and payments in lieu thereof) incurred in connection with disputes among partners or members of Landlord, or in connection with negotiations or disputes between Landlord and its brokers, lenders, architects, contractors, consultants, management agents, or any equity investor, purchaser or ground Landlord of the any portion of the Complex;

(6)costs incurred by Landlord due to any violation of applicable laws, ordinances, rules, regulations or recorded documents caused by acts or omissions of Landlord or any of its managers, members, agents, employees or contractors;

(7)except for the property management fee permitted above, any overhead or profit increment paid to any of the members or affiliates of Landlord for goods and/or services to the extent that the costs of such goods and/or services exceed the costs payable to unaffiliated third parties on a competitive basis;

(8)real estate brokerage and leasing commissions;

(9)any expenses otherwise includable within Operating Costs to the extent actually reimbursed by any insurance carrier or any other third party;

(10)rentals for equipment ordinarily considered to be of a capital nature except if such equipment is customarily leased in the operation of similar buildings in the San Diego market;

(11)replacement costs attributable to the structural components of the Building, including the load-bearing walls, foundations, concrete sub-flooring, and structural elements of the roof at the Property;

(12)costs of repairing or replacing the roof membrane attributable to any penetrations or other damage caused by the negligence or willful misconduct of Landlord or any of its agents, employees or contractors;

(13)costs incurred to remove, study, test, remediate or otherwise related to the presence of Hazardous Materials (as defined below) in or about the Building, the Property or the Complex that are not brought upon, kept used, stored, handled, treated, generated in, or disposed of from, the Premises by Tenant or any of its agents, employees or invitees other than routine air and water testing or filtering;  

(14)legal costs and fees relating to Landlord’s defense of its title to the Property or any portion thereof;

(15)reserves of any kind; and

(16)any other cost or expense that is expressly payable by Landlord, at its sole cost and expense, or otherwise expressly excluded from Operating Costs under this Lease.

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Further, in no event shall the amount of Controllable Operating Costs, as hereinafter defined, included in Operating Costs for any year exceed the Controllable Cost Cap, as hereinafter defined, for such year.  If, pursuant to the provisions of this paragraph, any Controllable Operating Costs are excluded from Operating Costs for such year, such amount shall accrue and shall be included in Operating Costs (as Controllable Operating Costs) with respect to the next following year(s), subject to the Controllable Cost Cap for any such year.  Such accrual shall continue until such amount has been fully included in Operating Costs.

“Controllable Operating Costs” shall mean all Operating Costs, except for the following, which shall not be subject to the limitations on increases described above: (i) the cost of utilities, (ii) insurance costs; and (iii) management fees described in clause (g) above.

The “Controllable Cost Cap” shall mean (i) for the calendar year which shall be the first full year following the Substantial Completion Date and the expiration of all warranties from the general contractor and all equipment suppliers, one hundred percent (100%) of Controllable Operating Costs (i.e. the amount thereof shall not be limited for such year or any preceding year), and (ii) for each succeeding year, one hundred five percent (105%) of the amount of the Controllable Cost Cap for the immediately preceding Operating Year.

Operating Costs attributable to the Common Areas or to all the properties in the Complex (for example, landscaping and insurance) may be allocated by Landlord among the Property and such other properties as Landlord may reasonably determine, whether by rentable square foot, acreage, value or other metric.  Landlord will keep and maintain records of Operating Costs and Taxes for a period of at least three (3) years from the date such Operating Costs and Taxes are incurred.  

No later than ninety (90) days after the end of the year, Landlord shall deliver to Tenant an itemized statement of Operating Costs for such year, prepared, allocated and computed in accordance with customs and practices of the real estate industry, consistently applied (“Final Statement”).  Provided Tenant shall have paid all amounts invoiced by Landlord on account of Operating Costs for the applicable year, and Tenant shall so request, Landlord shall provide Tenant with Landlord’s invoices and statements and other supporting documentation reasonable required to substantiate Operating Costs and Taxes for such year. If Tenant objects to Landlord’s accounting of any Operating Costs and Taxes, Tenant shall, on or before the date one hundred and eighty (180) days following receipt of the Final Statement, notify Landlord that Tenant disputes the correctness of such accounting, specifying the particular line items which Tenant claims are incorrect otherwise, Tenant shall be deemed to have waived any and all objections to such Final Statement. If such dispute has not been settled by agreement within two (2) months thereafter, either party may submit the dispute to arbitration by JAMS in accordance with its rules. The decision of the arbitrators shall be final and binding on Landlord and Tenant and judgment thereon may be entered in any court of competent jurisdiction.

If it should be agreed or decided that Operating Costs were overstated by three percent (3%) or more, then Landlord shall promptly reimburse Tenant for the reasonable costs incurred by Tenant in reviewing Landlord’s invoices and statements, including the cost of Tenant’s accountant, Tenant’s reasonable arbitration costs, plus any excess amount paid by Tenant on account of overstated Operating Costs with interest at the Default Rate. In the event of an

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overstatement which is less than three percent (3%), each party shall be responsible for its own costs incurred in connection with such dispute, and Landlord shall promptly reimburse Tenant for any excess amount paid by Tenant on account of overstated Operating Costs and Taxes. Tenant shall keep confidential all agreements involving the rights provided in this section and the results of any audits or arbitration conducted hereunder; provided, however, that such information may be disclosed by Tenant to those of its Affiliates and their respective officers, brokers, employees, attorneys, accountants, lenders and financial advisors who need to know such information and for financial reporting and credit related activities or in connection with any dispute with Landlord. As a condition to Landlord permitting the review described above,Tenant shall confirm to Landlord in writing that engagement by Tenant of any third party to make or to assist in any review hereunder shall be compensated at an hourly rate and not on any contingency basis.

If Tenant so requests, Landlord shall discuss with Tenant the possibility of Tenant assuming certain obligations of Landlord hereunder (such as, purely for example, interior cleaning, routine maintenance, and direct utility payment), and consequently removing such charges from Operating Costs on a going forward basis.

4.3Personal Property and Sales Taxes.  Tenant shall pay all taxes charged, assessed or imposed upon the personal property of Tenant and all taxes on the sales of services or inventory, merchandise and any other goods by Tenant in or upon the Premises.

4.4Insurance.  

4.4.1Insurance Policies.  Tenant shall, at its expense, take out and maintain, commencing on the Commencement Date and continuing throughout the term of this Lease, the following insurance:

4.4.1.1 Commercial general liability insurance (on an occurrence basis, including without limitation, contractual liability, bodily injury, and property damage) under which Tenant is named as an insured and Landlord and Landlord’s Agent (and the holder of any mortgage on the Premises or Property, as set out in a notice to Tenant from time to time) are named  as additional insureds, in an amount which shall, at the beginning of the term, be at least equal to the Commercial General Liability Insurance Limits (with any combination of commercial general liability insurance policy (or an equivalent), excess liability policy and/or umbrella liability policy), and, which, from time to time during the term, shall be for such higher limits, if any, as Landlord shall determine (not more than twice during the term) to be customarily carried in the area in which the Premises are located at property comparable to the Premises and used for similar purposes, which coverage may be provided through any combination of primary and excess policies;

4.4.1.2 Worker’s compensation insurance with statutory limits covering all of Tenant’s employees working on the Premises; and

4.4.1.3 Property insurance on a “replacement cost” basis with an agreed value endorsement covering all furniture, furnishings, fixtures and equipment and other personal property brought to the Premises by Tenant and anyone acting under Tenant and all

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improvements and betterments to the Premises performed at Tenant’s expense (other than Tenant’s Work); and

4.4.1.4 Business income and extra expense insurance covering twelve months loss of income.

4.4.2Requirements.  All policies of insurance maintained by Tenant shall contain deductibles and self-insured retentions not in excess of that reasonably approved by Landlord, shall contain a clause confirming that such policy and the coverage evidenced thereby shall be primary with respect to any insurance policies carried by Landlord and shall be obtained from insurers permitted to do business in the State of California having a rating by A.M. Best Company of at least A-VIII or otherwise be acceptable to Landlord.  Tenant shall, prior to the Commencement Date and thereafter, not less than five (5) days prior to any policy expiration, deliver to Landlord a certificate of insurance evidencing such coverages.  

4.4.3Waiver of Subrogation.  Landlord and Tenant shall each secure an appropriate clause in, or an endorsement upon, each property damage insurance policy obtained by it and covering the Building, the Premises or the personal property, fixtures and equipment located therein or thereon, pursuant to which the respective insurance companies waive subrogation and permit the insured, prior to any loss, to agree with a third party to waive any claim it might have against said third party.  Anything in this Lease to the contrary notwithstanding, each of Landlord and Tenant hereby waives any and all rights of recovery, claims, actions or causes of action against the other party, or such other party’s employees and affiliates, for any loss or damage to the Premises, the Property or the Complex, or to any personal property of the waiving party, whether or not covered by insurance.  This provision shall survive the expiration or earlier termination of the Lease.

4.5Utilities.  Tenant shall, commencing on the Commencement Date and thereafter throughout the term of this Lease, pay all electricity charges allocable to the Premises and all charges for telephone and other utilities or services not supplied by Landlord pursuant to Subsections 5.1.1 and 5.1.2, whether designated as a charge, tax, assessment, fee or otherwise, all such charges to be paid as the same from time to time become due.  Except as otherwise provided in this Subsection 4.5 or in Article 5, it is understood and agreed that Tenant shall make its own arrangements for the installation or provision of all utilities and services and that Landlord shall be under no obligation to furnish any utilities to the Premises.

Tenant acknowledges that Fixed Rent does not include the cost of supplying electricity to the Premises.  Such electricity usage is separately metered to the Premises and Tenant shall pay all bills therefor to the utility company furnishing the same before the date due, or to Landlord within thirty (30) days of invoice therefor.  

4.6Late Payment of Rent.  If any installment of Fixed Rent or any Additional Rent is not paid on or before the date the same is due, it shall bear interest (as Additional Rent) from the date due until the date paid at the Default Rate (as defined in Section 8.4).  In addition, if any installment of Fixed Rent or Additional Rent is unpaid for more than five (5) days after the date due, Tenant shall pay to Landlord a late charge equal to the greater of One Hundred Dollars ($100) or two percent (2%) of the delinquent amount.  Notwithstanding the foregoing (i) with

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respect to the first late payment of Fixed Rent or scheduled installment of Additional Rent on account of Taxes or Operating Costs in a twelve (12) month period, no such interest or late charge shall be imposed unless Tenant fails to pay the applicable amount due within five (5) Business Days after a Hard Copy Notice from Landlord that the same is past due, and (ii) with respect to any Additional Rent not due on account of a scheduled payment on account of Operating Costs and Taxes, no such late charge or interest shall be imposed unless Tenant fails to pay the applicable amount due within five (5) Business Days after a Hard Copy Notice from Landlord that the same is past due.  The parties agree that the amount of such late charge represents a reasonable estimate of the cost and expense that would be incurred by Landlord in processing and administration of each delinquent payment by Tenant, but the payment of such late charges shall not excuse or cure any default by Tenant under this Lease. Absent specific provision to the contrary, all Additional Rent shall be due and payable in full thirty (30) days after demand by Landlord.

4.7Security Deposit.  Upon execution of this Lease, unless Tenant elects to provide a cash Security Deposit, Tenant shall deposit the Letter of Credit with Landlord as the Security Deposit.  Tenant may, at any time, replace the Letter of Credit with a cash Security Deposit, in which case, Landlord shall immediately return any Letter of Credit to Tenant.  Tenant may also provide the Security Deposit by means of a combination of cash and Letter of Credit (in which case the limit of such Letter of Credit shall be reduced by the cash portion of the Security Deposit).  Tenant may also, at any time, replace any cash deposit with a Letter of Credit, in which case, Landlord shall immediately return the cash deposit to Tenant.  The “Letter of Credit” shall (a) be irrevocable and otherwise in form and substance reasonably satisfactory to Landlord; (b) permit multiple draws; (c) be issued by a commercial bank meeting the standards set forth below; (d) be in the face amount of the Security Deposit and name Landlord as a beneficiary; (e) be payable at sight upon presentment of a sight draft accompanied by a certificate of Landlord stating either that Tenant is in default under this Lease or that Landlord is otherwise permitted to draw upon such Letter of Credit under the express terms of this Lease, and the amount that Landlord is owed (or is permitted to draw) in connection therewith; and (f) expire not earlier than the forty-five (45) days following the expiration of the term of this Lease, provided however such Letter of Credit may expire one (1) year following date of issuance but in such case, unless the original Letter of Credit is renewed (whether automatically or otherwise), Tenant shall deliver a replacement Letter of Credit and subsequent replacement Letters of Credit not less than thirty (30) days prior to the expiration of any existing Letter of Credit so that the original Letter of Credit or a replacement thereof (each of whose expiration date shall be not earlier than one year from issuance) shall be in full force and effect throughout the term of this Lease and for a period of at least forty-five (45) days thereafter.  Tenant shall maintain the Letter of Credit in the amount of the Security Deposit and shall deliver to Landlord any replacement Letter of Credit not less than thirty (30) days prior to the expiration of the then current Letter of Credit.  Notwithstanding anything in this Lease to the contrary, any grace period or cure periods which are otherwise applicable under Section 8.1 hereof, shall not apply to any of the foregoing, and, specifically, if Tenant fails to comply with the requirements of subsection (f) above and if such failure continues for more than two (2) Business Days after delivery to Tenant of notice from Landlord, or if Tenant shall fail to maintain the Letter of Credit in the full amount of the Security Deposit after any draw thereon, Landlord shall have the immediate right to draw upon the Letter of Credit in full and hold the proceeds thereof as a cash security deposit.  Each Letter of Credit shall be issued by a commercial bank that has a credit rating with respect to certificates of

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deposit, short term deposits or commercial paper of at least P-2 (or equivalent) by Moody’s Investor Service, Inc., or at least A-2 (or equivalent) by Standard & Poor’s Corporation.  If the issuer’s credit rating is reduced below P-2 (or equivalent) by Moody’s Investor Service, Inc., or at least A-2 (or equivalent) by Standard & Poor’s Corporation, or if the financial condition of the issuer changes in any other materially adverse way, then Landlord shall have the right to require that Tenant obtain from a different issuer a substitute Letter of Credit that complies in all respects with the requirements of this Section, and Tenant’s failure to obtain such substitute Letter of Credit within ten (10) Business Days after Landlord’s demand therefor (with no other notice, or grace or cure period being applicable thereto) shall entitle Landlord immediately to draw upon the existing Letter of Credit in full, without any further notice to Tenant, and hold the proceeds thereof as a cash Security Deposit.  Landlord may use, apply or retain the proceeds of the Letter of Credit to the same extent that Landlord may use, apply or retain any cash security deposit, as set forth herein.  If Landlord is authorized by the express terms of this Lease to draw on the Letter of Credit, Landlord may draw on the Letter of Credit, in whole or in part, at Landlord’s election.  If Landlord draws against the Letter of Credit, Tenant shall, within five (5) days after notice from Landlord, provide Landlord with either an additional Letter of Credit in the amount so drawn or an amendment to the existing Letter of Credit restoring the amount thereof to the amount initially provided

If the Fixed Rent or Additional Rent payable hereunder shall be overdue and unpaid, or Tenant shall fail to perform any of the terms of this Lease, then Landlord may, at its option and without notice or prejudice to any other remedy which Landlord may have on account thereof, appropriate and apply the entire Security Deposit or so much thereof as may be necessary to compensate Landlord toward the payment of Fixed Rent, Additional Rent or other sums or loss or damage sustained by Landlord due to such breach by Tenant; and Tenant shall forthwith upon demand restore the Security Deposit to the amount stated in Section 1.1.

No later than forty-five (45) days after expiration or earlier termination of the term, Landlord shall return the Letter of Credit and any remaining cash Security Deposit to Tenant.

Article 5

Landlord’s Covenants

5.1Affirmative Covenants.  Landlord shall, during the term of this Lease provide the following:

5.1.1Mechanical Yard.  Landlord shall maintain the mechanical yard on the Property.

5.1.2Cleaning; Water.  Landlord shall provide cleaning, maintenance and landscaping to the Common Areas and the outside areas of the Property and provide cleaning and routine maintenance and repair of the Premises (excluding any areas not devoted to general office space) and stocking of lavatory supplies, all in accordance with standards generally prevailing throughout the term hereof in comparable buildings in the Torrey Pines market area of San Diego; and provide a connection for the supply of water and electrical power.

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The removal, disposal, or destruction of all Excepted Waste generated by Tenant or from the Premises during the term shall be exclusively the responsibility of Tenant under all circumstances, and their disposal shall not become the obligation of Landlord for any reason. All such disposals of Excepted Waste shall comply with all applicable laws.  Tenant agrees that Excepted Waste will be disposed of separately from the trash that is removed by Landlord.  Tenant also agrees that Tenant will not mix or place Excepted Waste in regular trash containers.  

“Excepted Waste” is

(a)any waste that is generated in the diagnosis, treatment, or immunization of human beings or animals, in research pertaining thereto, or in the production or testing of biologicals,

(b)any waste, device, instrument or item that comes in contact with bodily fluids, including, but not limited to, bandages, swabs, gauze, sponges, wraps, pads, paper, plastic, sutures, needles, scalpels, blades, or syringes,

(c)any medical device or paraphernalia that is utilized to treat any patient or other person for any medicinal, medical, diagnostic or therapeutic reason or purpose,

(d)any material of any type or nature whatsoever that is radioactive to any degree, whether as the result of its manufacture, use or application or any device, instrument or item that emits radiation,

(e)any waste that is considered a regulated medical waste, including, but not limited to, bio-hazardous waste or infectious waste, under any applicable laws, or

(f)any device, instrument or item that has become infected, contaminated, diseased, or otherwise exposed to harmful, contagious, or communicable organisms, bacteria, or other life form.

5.1.3Repairs.  Except as otherwise expressly provided herein, Landlord shall, as part of Operating Costs, to the extent permitted, make such maintenance, repairs and replacements to the roof, exterior walls, floor slabs and other structural components of the Building, and to the common areas and facilities of the Complex and all base building hot water, HVAC and life safety systems (including fire and other life safety systems) as may be necessary to keep them in good order, repair and condition (exclusive of equipment installed by Tenant and except for those repairs required to be made by Tenant pursuant to Subsection 6.1.3 hereof.  Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Tenant hereby waives and releases its right to make repairs at Landlord's expense under Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.

5.1.4Access to Building.  Landlord shall not interfere with Tenant’s and its agents’ and employees’ access to the Premises and the parking areas on a “24/7” basis.

5.1.5Hazardous Materials.  So long as the condition requiring removal or remediation of Hazardous Materials (as defined in Section 6.2.8) is not caused by Tenant or any

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party for which Tenant is responsible, Landlord shall, in a manner that complies with all applicable Environmental Laws (as defined in Section 6.2.8), remove and dispose of any Hazardous Materials, and perform all remediation of the Premises and Property necessary to cause the Property to comply in all material respects with Environmental Laws.  Landlord shall indemnify and defend Tenant from any third party tort claims and any liability for fines or penalties arising from a breach by Landlord of the forgoing obligation including but without limitation any liability for costs of removing or remediating Hazardous Materials which Landlord is obligated to remove or remediate pursuant to this paragraph.

5.2Interruption.  Except as expressly provided herein, Landlord shall have no responsibility or liability to Tenant for failure, interruption or unavailability of any services, facilities, utilities, repairs or replacements or for any failure or inability to provide access or to perform any other obligation under this Lease to the extent caused by breakage, accident, fire, flood or other casualty, strikes or other labor trouble, order or regulation of or by any governmental authority not in effect on the Commencement Date, unusually inclement weather, inability to obtain or shortages of utilities, supplies, labor or materials, war, civil commotion or other emergency, transportation difficulties or due to any wrongful act or neglect of Tenant or Tenant’s servants, agents, employees or licensees or for any other cause, and in no event shall Landlord be liable to Tenant for any indirect or consequential damages suffered by Tenant due to any such failure, interruption, inadequacy, defect or unavailability; and failure or omission on the part of Landlord to furnish any of same for any of the reasons set forth in this paragraph shall not be construed as an eviction of Tenant, actual or constructive, nor entitle Tenant to an abatement of rent, nor render the Landlord liable in damages, nor release Tenant from prompt fulfillment of any of its covenants under this Lease.

Landlord reserves the right to deny access to the Building and to interrupt the services of the HVAC, plumbing, electrical or other mechanical systems or facilities in the Building when necessary from time to time by reason of accident or emergency, or for repairs, alterations, replacements or improvements which in the reasonable judgment of Landlord are desirable or necessary, until such repairs, alterations, replacements or improvements shall have been completed.  Landlord shall use reasonable efforts to minimize the duration and effect of any such interruption and to give to Tenant at least three (3) days’ notice if service is to be interrupted, except in cases of emergency.  Except in the cases of emergency or as may be required by law or regulation, Landlord shall schedule and cause all such work to be performed during non-business hours.

Landlord shall use all reasonable efforts to minimize the duration of any interruption of any services or repairs to be performed or provided by Landlord.  Notwithstanding the foregoing, if due to Landlord’s default, (i) the Premises or any portion thereof are unusable by Tenant for a period of more than five (5) consecutive Business Days (or twenty-one (21) days in any calendar year) following notice from Tenant complying with the last sentence hereof due to the failure by Landlord to perform any maintenance or repairs which Landlord is obligated to perform pursuant to Section 5.1.4, and (ii) Tenant shall, concurrently with the giving of such notice, discontinue use of the Premises or the portion thereof which is unusable as a result (other than for purposes such as storage, salvage, security or retrieval of property), then as Tenant’s sole remedy (other than rights of equitable relief, the right of termination hereinafter provided (if applicable) and the exercise of such rights, if any, as may be provided in Section 8.9 hereof) the Fixed Rent and

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Additional Rent on account of Taxes and Operating Costs shall be equitably abated for such portion of the Premises rendered unusable for the period commencing on the expiration of the applicable period and ending on the date that the Premises (or such portion) is rendered usable.  If more than fifty percent (50%) of the Premises is rendered unusable and if Tenant shall vacate the entire Premises, then the aforesaid abatement shall be a full abatement.  In addition, if Tenant is entitled to a full abatement hereunder for a period in excess of one hundred and eighty (180) consecutive days, and if Tenant shall have discontinued the conduct of business in the entire Premises during all of such abatement period, Tenant thereafter shall have the right to terminate the term of this Lease by giving notice of such election to Landlord at any time before Landlord shall have remedied the condition giving rise to such abatement.Any notice from Tenant pursuant to the first sentence of this paragraph shall expressly state that the failure of Landlord to cure any claimed default timely shall give rise to Tenant’s rights of rent abatement and/or termination.

5.3Parking.  During the term of this Lease, Landlord shall make available to Tenant and its employees, contractors and invitees, at no additional charge, for their exclusive use (other than use by Landlord or its agents or contractors of up to two (2) spaces in performing its obligations under this Lease or exercising its rights hereunder) all of the striped parking spaces at the Property, and such parties may also use up to fifty (50) additional parking spaces at the 3040 Building for a total of two hundred twenty-six (226) spaces at all times (in the aggregate at both the Property and the 3040 Building).  All spaces at the 3040 Building to which Tenant shall be entitled shall be unreserved and available on a first-come, first-served basis. Tenant may not allow any parties, other than its employees, contractors and any invitees to the Premises, rights to use any of the parking spaces to which Tenant is entitled hereunder.  Tenant acknowledges that Landlord is not required to provide any security or security services for any of the parking facilities.

5.4Indemnification.  Subject to the provisions of Section 4.4.3 and the last sentence of Section 10.5, and to the extent not described in clause (i) of Section 6.1.5, Landlord shall defend and indemnify Tenant and its directors, officers, agents and employees against and from any and all claims, demands, causes of action, fines or penalties, damage, liabilities, judgments and expenses (including, without limitation, attorneys’ fees) or penalties asserted on account of bodily injury or damage to the property (excluding damage to the property of any subtenant or assignee of Tenant) arising out of the  negligence or other wrongful conduct of Landlord or its agents (including property managers), contractors or employees during the term of this Lease.  In case of any action or proceeding brought against Tenant by reason of any such claim, Landlord, upon notice from Tenant, shall resist or defend such action or proceeding and employ counsel therefor reasonably satisfactory to Tenant.

5.5Landlord’s Insurance.  At all times during the term, Landlord, as part of the Operating Costs, shall, so long as available at commercially reasonable rates and terms keep in full force and effect (i) standard form so-called extended coverage property insurance on the Building, in an amount not less than the full replacement value thereof (subject to customary deductibles and excluding footings and foundations and any leasehold improvements performed by tenants but including Tenant’s Work), and (ii) any combination of commercial general liability insurance policy (or an equivalent), excess liability policy and/or umbrella liability policy in the amount of Five Million Dollars ($5,000,000) combined single limit (on an

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occurrence basis, including broad form contractual liability, bodily injury and property damage) for injury to, or death of, one or more persons in an occurrence, and for damage to tangible property (including loss of use) in an occurrence.

5.6Estoppel.  Landlord shall, within twenty (20) days following written request by Tenant, execute and deliver to Tenant a statement confirming, (i) the Commencement Date, (ii) whether or not this Lease is in full force and effect, (iii) the amendments to this Lease, if any, (iv) the dates to which the Fixed Rent and Additional Rent and other charges have been paid, and (v) whether, to the actual conscious knowledge of the individual executing the same on behalf of Landlord, without inquiry, any default by Tenant then exists.  Any such statement delivered pursuant to this subsection may be relied upon by any prospective lender, assignee or subtenant of Tenant to whom such statement is addressed.

Article 6

Tenant’s Additional Covenants

6.1Affirmative Covenants.  Tenant shall do the following:

6.1.1Perform Obligations.  Tenant shall perform promptly all of the obligations of Tenant set forth in this Lease; and pay when due the Fixed Rent and Additional Rent and all other amounts which by the terms of this Lease are to be paid by Tenant.

6.1.2Use.  Tenant shall, during the term of this Lease, use the Premises only for office use for research and development and ancillary uses for (i) a cadaver lab and (ii) uses related to office purposes to the extent permitted by applicable zoning and other laws and from time to time, procure and maintain all licenses and permits necessary therefor and for any other use or activity conducted by Tenant at the Premises, at Tenant’s sole expense.  Landlord makes no express warranty or representation, and disclaims any implied warranty or representation, that the Permitted Uses are consistent or in compliance with any zoning or other land use ordinance, code or regulation.  Tenant acknowledges that it has performed such investigation as it deems appropriate to satisfy itself that the Premises are suitable for its purposes; and no limitation on the uses permitted by law shall entitle Tenant to an abatement of rent, nor release Tenant from the prompt compliance with any of its obligations under this Lease.  Tenant shall comply with the requirements recited in Exhibit F.  Landlord and Tenant shall, from time to time, provide to the other the name and contact information for a representative of such party with whom issues relating to sustainability and energy use may be communicated.  Such issues may include, but not be limited to, retrofitting projects, building issues, energy efficiency upgrades and data access.

6.1.3Repair and Maintenance and Janitorial Service.  Subject to Landlord’s obligations under this Lease, Tenant shall, during the term of this Lease, maintain the Premises in neat and clean order and condition and perform all repairs to the Premises and all fixtures, systems, and equipment therein (including Tenant’s equipment and other personal property and any HVAC Equipment serving the Premises) as are necessary to keep them in good working order and condition, reasonable use and wear thereof, condemnation, damage caused by Landlord or its employees or contractors and damage by fire or by casualty excepted and shall

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replace any damaged or broken glass in windows and doors of the Premises (except glass in the exterior walls of the Building) with glass of the same quality as that damaged or broken unless damaged or broken by Landlord.

Tenant shall, at its expense, keep in force contracts for janitorial services for the cadaver lab and any other portions of the Premises not to be cleaned by Landlord pursuant to Section 5.1.2 with a janitorial services provider reasonably acceptable to Landlord adequate to cause those areas to be cleaned in accordance with standards for similar space.

6.1.4Compliance with Law.  Tenant shall, during the term of this Lease, make all repairs, alterations, additions or replacements to the Premises required by any law or ordinance or any order or regulation of any public authority if required due to Tenant’s specific use of the Premises (as opposed to general office, lab and scientific uses) or out of any work performed by Tenant’ and comply with the orders and regulations of all governmental authorities with respect to zoning, building, fire, health and other codes, regulations, ordinances or laws applicable to the Premises or other portions of the Property due to Tenant’s specific use of the Premises (as opposed to general office, lab and research and development uses) or out of any work performed by Tenant.

6.1.5Indemnification.  Subject to the provisions of Section 4.4.3, Tenant shall neither hold, nor attempt to hold, Landlord or its employees or Landlord’s manager or its employees liable for, and Tenant shall indemnify and hold harmless Landlord, Landlord’s agents and their employees from and against, any and all demands, claims, causes of action, fines, penalties, damage, liabilities, judgments and expenses (including, without limitation, attorneys' fees) to the extent incurred or arising from:  (i) any occurrence in, or the use or occupancy or manner of use or occupancy of the Premises by Tenant or any person claiming under Tenant; and (ii) any damage to any property (excluding any property of Landlord) or death, bodily or personal injury to any person occurring in or about the Premises, to the extent caused by the negligence of Tenant or any person claiming under Tenant, or the contractors, employees, invitees or visitors of Tenant or any such person.  If any action or proceeding is brought against Landlord or its employees by reason of any such claim, Tenant, upon notice from Landlord, shall defend the same, at Tenant's expense, with counsel reasonably satisfactory to Landlord.  Notwithstanding the foregoing in no event shall this Section 6.1.5 require Tenant to indemnify, hold harmless or defend Landlord or its employees against any loss, cost, damage, liability, claim, or expense to the extent arising out of the negligence or willful misconduct of Landlord or its employees or Landlord’s agents or their employees, managers or contractors.

6.1.6Landlord’s Right to Enter.  Tenant shall, during the term of this Lease, permit Landlord and its agents and invitees to enter into the Premises to show the Premises to prospective lessees (during the last year of the term only), lenders, partners and purchasers and others having a bona fide interest in the Premises, and to make such repairs, alterations and improvements required by this Lease and to inspect the Premises, and, during the last six (6) months prior to the expiration of this Lease, to keep affixed in suitable places notices of availability of the Premises.  Except in instances posing an imminent threat to life or property, Landlord shall give Tenant reasonable notice prior to making any entry onto the Premises, provided, however, such notice may be made by email. In exercising its rights hereunder, Landlord shall use reasonable efforts to minimize, to the extent practicable, any interference with

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the conduct of Tenant’s business; and a representative of Tenant may accompany any such entry by Landlord and shall be entitled to verify the identity of the individuals gaining access.

6.1.7Yield Up.  In addition to Tenant’s obligations under Section 6.2.10, Tenant shall, at the expiration or earlier termination of the term of this Lease, or upon any earlier reentry or retaking of possession of the Premises by Landlord and/or termination of Tenant’s right of possession and/or occupancy of the Premises, as applicable, surrender all keys to the Premises; remove all of its trade fixtures and personal property in the Premises; remove such installations, alterations, signs and improvements made (or if applicable, restore any items removed) by or on behalf of Tenant as Landlord may request, wherever located and repair all damage caused by such removal; terminate any licenses or governmental approvals Tenant shall have obtained that relate to the conduct of its business at the Premises; and vacate and yield up the Premises (including all installations, alterations, signs and improvements made by or on behalf of Tenant except as Landlord shall request Tenant to remove), broom clean and in the same good order and repair in which Tenant is obliged to keep and maintain the Premises by the provisions of this Lease.  Notwithstanding the preceding provisions of this Section 6.1.7, Tenant shall properly cap or seal its wiring and cabling at each end, properly label such wiring and cabling for future use, and surrender such wiring and cabling in a good and safe condition on or before the earlier of (i) the expiration or earlier termination of the term of this Lease, or (ii) the date on which Tenant discontinues the use of such wiring and cabling, but shall not be required to remove such wiring and cabling, and Tenant shall not be required to remove such wiring and cabling or any other alterations made by it in the Premises if Tenant’s request for Landlord’s consent to make such alterations shall include a request for determination by Landlord as to whether Landlord shall require removal of such alterations at the end of the term and Landlord, at the time Landlord gives it consent thereto, shall not condition its consent on removal.  Further, Landlord shall not have the right to require removal of any of Tenant’s Work or any Tenant’s “work” as defined in Section 6.2.5 which is performed in compliance with this Lease except for (i) restoration to the condition existing as of the Date of this Lease of any area containing an internal stairwell (including restoration of flooring and removal of the stairs) and any area of the Building modified to accommodate a patio, and (ii) any alterations, installations or items that are not customary general office space improvements or which would have a demolition and/or removal (including repair or restoration of affected areas) cost that is materially in excess of the demolition and/or removal/restoration cost commonly associated with customary general office space improvements.  Any property not so removed shall be deemed abandoned and may be removed and disposed of by Landlord in such manner as Landlord shall determine.

6.1.8Rules and Regulations.  Tenant shall, during the term of this Lease, observe and abide by the Rules and Regulations of the Building set forth as Exhibit B, as the same may from time to time be reasonably amended, revised or supplemented (the “Rules and Regulations”).  Tenant shall further be responsible for compliance with the Rules and Regulations by the employees and visitors of Tenant.  The failure of Landlord to enforce any of the Rules and Regulations against Tenant, or against any other tenant or occupant of the Complex, shall not be deemed to be a waiver of such Rules and Regulations, but Landlord shall use reasonable efforts to enforce such Rules and Regulations against all tenants of the Complex in a nondiscriminatory manner, subject to such variances in application or enforcement as Landlord may elect in its good faith discretion.

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6.1.9Estoppel Certificate.  Tenant shall, within ten (10) Business Days’ following written request by Landlord, execute and deliver to Landlord a statement in form reasonably satisfactory to Tenant and Landlord in writing certifying that this Lease is unmodified and in full force and effect and that Tenant has no actual knowledge of any defenses, offsets or counterclaims against its obligations to pay the Fixed Rent and Additional Rent and to perform its other covenants under this Lease (or, if there have been any modifications, that this Lease is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets or counterclaims, setting them forth in reasonable detail), the dates to which the Fixed Rent and Additional Rent and other charges have been paid, and any other matter reasonably requested pertaining to this Lease.  Any such statement delivered pursuant to this subsection 6.1.9 may be relied upon by any prospective purchaser or mortgagee of the Property, or any prospective assignee of such mortgage, but shall not in any way modify this Lease.

6.1.10Landlord’s Expenses For Consents.  Tenant shall reimburse Landlord, as Additional Rent, promptly on demand for all actual and reasonable third party legal, engineering and other professional services expenses incurred by Landlord in connection with all requests by Tenant for consent or approval under Section 6.2.1 or 6.2.5 (excluding for clarity any request for approval of any Tenant’s Work).

6.1.11Financial Information.  Tenant shall, from and after the Date of this Lease and thereafter throughout the term of this Lease, provide Landlord with such information as to Tenant’s financial condition and/or organizational structure as Landlord or the holder of any mortgage of the Property requires, within fifteen (15) days of request; provided, however, that so long as stock or other securities issued by Tenant or its parent company are traded on a domestic national securities exchange and such filings have been timely and complete, such information shall be limited to public filings with the Securities and Exchange Commission plus any financials which Tenant or its parent maintains which apply to Tenant and are not consolidated with its parent.

6.1.12Data Obligations.  Only to the extent Tenant shall assume Landlord’s obligations with respect to the following as provided in the last sentence of Section 4.2, Tenant shall submit to Landlord, within thirty (30) days of request, but not more frequently than semi-annually, any waste management, recycling, energy and water consumption data readily available to Tenant, including usage and charges as they may appear on any utility bills received by Tenant, in a format and covering a period of time reasonably acceptable to Landlord.  Landlord shall provide such non-proprietary, current information relating to Property energy and water consumption, waste management and recycling as Landlord has readily available, within thirty (30) days of request by Tenant, not more frequently than semi-annually.

6.2Negative Covenants.  Tenant shall not do the following.

6.2.1Assignment and Subletting.  Tenant shall not assign, mortgage, pledge, hypothecate, encumber or otherwise transfer this Lease or any interest herein or sublease (which term shall be deemed to include the granting of licenses to occupy the Premises) all or any part of the Premises, whether voluntarily, involuntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Tenant, except as hereinafter provided.  Unless Tenant’s or its parent’s stock shall be traded on a domestic national securities exchange, any

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transfer in one or more related transactions of a controlling interest in Tenant to any party other than an Affiliate of Tenant shall be deemed to be an assignment of this Lease.The term “controlling interest” shall mean possession, direct or indirect, of the power to direct or cause the direction of the management and policies, whether through ownership of voting securities, by contract or otherwise, or the power to elect at least 51% or more of the directors, managers, general partners or persons exercising similar authority as applicable.

Notwithstanding the foregoing, Tenant may, without the need for Landlord’s consent, but only upon not less than ten (10) days prior notice to Landlord (except that such notice may be given within ten (10) days thereafter if prior notice shall be prohibited by applicable laws or confidentiality agreements), assign its interest in this Lease (a “Permitted Assignment”) to (i) any entity which shall be a successor to Tenant or any Affiliate of Tenant either by merger, consolidation or similar transaction (a “Merger”) or to a purchaser, directly or indirectly, of all or substantially all of Tenant’s assets in either case provided the successor or purchaser shall have a tangible net worth, after giving effect to the transaction, of not less than the greater of the net worth of Tenant named in Section 1.1 as of the Date of this Lease or the net worth of Tenant immediately prior to such Merger or sale (the “Required Net Worth”) or (ii) any entity (an “Affiliate”) which is a direct or indirect subsidiary or parent (or a direct or indirect subsidiary of a parent) of the named Tenant set forth in Section 1.1, or any assignee whose identity has been consented to by Landlord following request therefor by Tenant, in either case of (i) or (ii) only so long as (I) in case of (i) only, the principal purpose of such assignment is not the acquisition of Tenant’s interest in this Lease (except if such assignment is made for a valid business purpose to an Affiliate) in order to circumvent the provisions of this Section 6.2.1, (II) except if pursuant to a Merger permitted by clause (i) above, Tenant shall provide Landlord with a fully executed counterpart of any such assignment, which assignment shall comply with the provisions of this Section 6.2.1 and shall include an agreement by the assignee in form reasonably satisfactory to Landlord, to assume all of Tenant’s obligations under this Lease from and after the date of the assignment and be bound by all of the terms of this Lease from and after the date of the assignment, (III) in the case of an actual or deemed assignment pursuant to clause (i), Tenant shall provide Landlord, not less than ten (10) days after any such assignment, evidence reasonably satisfactory to Landlord of the Required Net Worth of the successor or purchaser, and (IV) there shall not be a Default of Tenant on the effective date of such assignment.  Tenant shall also be permitted, without the need for Landlord’s consent, but only upon not less than ten (10) days prior notice to Landlord, to enter into any sublease (a “Permitted Sublease”) with any Affiliate provided that such sublease shall expire upon any event pursuant to which the sublessee thereunder shall cease to be an Affiliate.  Any assignment to an Affiliate shall provide that it may, at Landlord’s election, be terminated and deemed void if during the term of this Lease such assignee or any successor to the interest of Tenant hereunder shall cease to be an Affiliate; and no assignment shall be binding on Landlord unless Landlord shall have actual notice thereof.

Tenant may enter into arrangements relating to occupancy of portions of the Premises with physicians or other consultants with whom or which Tenant has a business relationship (independent of such occupancy) and such arrangements shall not be deemed subleases for purposes of the consent or profit-sharing provisions of this Section 6.2.1 so long as (i) no such agreement shall vest in any party any rights or interest in this Lease or the Premises, and (ii) the aggregate square footage subject to any such agreements shall not exceed fifteen percent (15%) of the Premises.

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In the event that Tenant shall enter into any sublease or assignment other than a Permitted Sublease or Permitted Assignment, Tenant shall, not later than thirty (30) days prior to the proposed commencement of such sublease or assignment, give Landlord notice thereof, identifying the proposed subtenant or assignee, all of the material terms and conditions of the proposed sublease or assignment and such other information as the Landlord may reasonably request.  

Landlord shall not unreasonably delay, condition or withhold its consent to the applicable assignment or sublease, provided that, in addition to any other reasonable grounds for withholding of consent, Landlord may withhold its consent if in Landlord’s good faith and reasonable judgment:  (i) the proposed assignee or subtenant does not have a financial condition reasonably acceptable to Landlord; (ii) the business and operations of the proposed assignee or subtenant are not of comparable quality to the business and operations being conducted by the majority of other tenants in the Complex; (iii) the proposed assignee or subtenant is a business competitor of Landlord or is an affiliate of a business competitor of Landlord; (iv) the identity of the proposed assignee or subtenant is, or the intended use of any part of the Premises, would be, in Landlord’s determination, inconsistent with first-class office space or Landlord’s commitments to other tenants in the Building or any covenants, conditions or restrictions binding on Landlord or applicable to the Property; (v) at the time of the proposed assignment or subleasing Landlord is able to meet the space requirements of Tenant’s proposed assignee or subtenant by leasing available space in the Building to such person or entity and either (a) the proposed assignee or subtenant is a tenant or other occupant of the Building or any building in the Complex, or (b) the proposed assignee or subtenant is an entity, or is affiliated with any entity, which shall have entered into negotiation with Landlord for space in the Building or the Complex within the preceding twelve (12) months; or (vi) the use of the Premises or the Building by the proposed assignee or subtenant would cause the Building not to comply with applicable laws.

If this Lease is assigned or if the Premises or any part thereof are sublet (or occupied by any party other than Tenant and its employees) Landlord may collect the rents from such assignee, subtenant or occupant, as the case may be, and apply the net amount collected to the Fixed Rent and Additional Rent herein reserved, but no such collection shall be deemed a waiver of the provisions set forth in the first paragraph of this Subsection 6.2.1, the acceptance by Landlord of such assignee, subtenant or occupant, as the case may be, as a tenant, or a release of Tenant from the future performance by Tenant of its covenants, agreements or obligations contained in this Lease.

Any sublease of all or any portion of the Premises shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subject or subordinate, that other than the payment of Fixed Rent and Additional Rent due pursuant to Sections 4.1, 4.2.1 and 4.2.2 or any obligation to the extent relating to those portions of the Premises which are not part of the subleased premises, the subtenant shall comply with and be bound by all of the obligations of Tenant hereunder, excluding any obligations (other than obligations  under Sections 4.4 and 6.1.5) that Tenant agrees to retain in the Sublease, that unless Landlord waives such prohibition, the subtenant may not enter into any sub-sublease, sublease assignment, license or any other agreement granting any right of occupancy of any portion of the subleased premises; and that Landlord shall be an express beneficiary of any such obligations,

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and that in the event of termination of this Lease or reentry or dispossession of Tenant by Landlord under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor under such sublease (excluding any sublease to an Affiliate), and such subtenant shall, at Landlord’s option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that neither Landlord nor any mortgagee of the Property, as holder of a mortgage or as Landlord under this Lease if such mortgagee succeeds to that position, shall (a) be liable for any act or omission of Tenant under such sublease prior to such attornment, (b) be subject to any credit, counterclaim, offset or defense which theretofore accrued to such subtenant against Tenant, or (c) be bound by any previous modification of such sublease unless consented to by Landlord and such mortgagee or by any previous prepayment of more than one (1) month’s rent, (d) be bound by any covenant of Tenant to undertake or complete any construction of the Premises or any portion thereof, (e) be required to account for any security deposit of the subtenant other than any security deposit actually received by Landlord, (f) be bound by any obligation to make any payment to such subtenant or grant any credits unless specifically agreed to by Landlord and such mortgagee, (g) be responsible for any monies owing by Tenant to the credit of subtenant or (h) be required to remove any person occupying the Premises or any part thereof; and such sublease shall provide that the subtenant thereunder shall, at the request of Landlord, execute a suitable instrument in confirmation of such agreement to attorn.  To enable Landlord to confirm that any sublease which Tenant shall desire to enter into shall comply with the provisions of this Section 6.2.1 and/or otherwise be acceptable to Landlord, Tenant shall submit the final form of sublease to Landlord not less than thirty (30) days after its execution (or not less than thirty (30) days prior thereto where Landlord’s consent is required).  The provisions of this paragraph shall not be deemed a waiver of the provisions set forth in the first paragraph of this Subsection 6.2.1; and any breach of any obligation under this Lease by any subtenant of Tenant shall be attributable to Tenant and constitute a breach of this Lease by Tenant.

Tenant shall not enter into, nor shall it permit any person having an interest in the possession, use, occupancy or utilization of any part of the Premises to enter into, any sublease, license, concession, assignment or other agreement for occupancy of the Premises (i) which provides for rental or other compensation based on the income or profits derived by any person or on any other formula such that any portion of such sublease rental, or other consideration for a license, concession, assignment or other occupancy agreement, would fail to qualify as “rents from real property” within the meaning of Section 856(d) of the Internal Revenue Code or any similar or successor provision thereto, or (ii) under which fifteen percent (15%) or more of the total rent or other compensation received by Tenant is attributable to personal property and any such purported lease, sublease, license, concession or other agreement shall be absolutely void and ineffectual as a conveyance of any right or interest in the possession, use, occupancy or utilization of such part of the Premises.

No subletting or assignment shall in any way impair the continuing primary liability of the Tenant named in Section 1.1, and any immediate or remote successor in interest, and no consent to any subletting or assignment in a particular instance shall be deemed to be a waiver of the obligation to obtain the Landlord’s written approval in the case of any other subletting or assignment.  The joint and several liability of Tenant named herein and any immediate and remote successor in interest (by assignment or otherwise) for the payment of Fixed Rent and Additional Rent, and the timely performance of all non-monetary obligations on Tenant’s part to

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be performed or observed, shall not in any way be discharged, released or impaired by any (a) agreement which modifies any of the rights or obligations of the parties under this Lease, (b) stipulation which extends the time within which an obligation under this Lease is to be performed, (c) waiver of the performance of an obligation required under this Lease, or (d) failure to enforce any of the obligations set forth in this Lease.  No assignment, subletting or occupancy shall affect the Permitted Uses.  Any subletting, assignment or other transfer of Tenant’s interest in this Lease in contravention of this Section 6.2.1 shall be voidable at Landlord’s option.  

If the rent and other sums (including, without limitation, all monetary payments plus the reasonable value of any services performed or any other thing of value given by any assignee or subtenant in consideration of such assignment or sublease), either initially or over the term of any assignment or sublease (other than a Permitted Assignment or a Permitted Sublease), payable by such assignee or subtenant shall exceed the Fixed Rent plus Additional Rent called for hereunder (or in the case of a sublease of a portion of the Premises, shall exceed the Fixed Rent plus Additional Rent attributable to the space so sublet) (“Excess Rent”), Tenant shall pay fifty percent (50%) thereof to Landlord, as Additional Rent, monthly at the time for payment of Fixed Rent; however no such payment shall be due from Tenant until payment received by Tenant on account of Excess Rent shall have equaled Tenant’s Costs.  “Tenant’s Costs” mean (i) the cost of alterations or improvements made or reimbursed by Tenant to the Premises in order to consummate an assignment or to the portion of Premises that is subleased in order to consummate a sublease, (ii) reasonable brokerage commissions or fees paid on account of such sublease or assignment, and (iii) reasonable fees reimbursed by Tenant which have been incurred by the subtenant or assignee to move to the Premises, and (iv) reasonable attorneys’ fees incurred by Tenant with respect to such sublease or assignment, and Tenant shall provide substantiation of such Tenant Costs to Landlord within thirty (30) days of the commencement of such sublease or assignment.  Nothing in this paragraph shall be deemed to abrogate the provisions of this Subsection 6.2.1 and Landlord’s acceptance of any sums pursuant to this paragraph shall not be deemed a granting of consent to any assignment of the Lease or sublease of all or any portion of the Premises.

6.2.2Nuisance.  Tenant shall not commit any nuisance; nor make any use of the Premises which is in violation of any law or ordinance or which will invalidate the premiums for any of Landlord’s insurance; nor conduct any auction, fire, “going out of business” or bankruptcy sales.

6.2.3Floor Load; Heavy Equipment.  Tenant shall not place a load upon any floor of the Premises exceeding the lesser of the floor load capacity which such floor was designed to carry or which is allowed by law after giving effect to any reinforcements to such floor performed by Tenant.  

6.2.4Electricity.  Tenant shall not connect to the electrical distribution system serving the Premises a total load exceeding the lesser of the capacity of such system or the maximum load permitted from time to time under applicable governmental regulations.

6.2.5Installation, Alterations or Additions.  Tenant shall not make any installations, alterations, or improvements (collectively and individually referred to in this

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paragraph as “work”) in, to or on the Premises without on each occasion obtaining the prior consent of Landlord, and then only pursuant to plans and specifications approved by Landlord in advance in each instance.  Landlord’s approval shall not be unreasonably withheld or delayed with respect to work that does not affect the structural elements of the Building, equals or exceeds Building standards in quality, does not directly affect or require any modifications to the mechanical, electrical, plumbing, HVAC or life-safety systems of the Building, is not visible from outside of the Premises and shall not require Landlord to perform any work to the Property. All work to be performed to the Premises by Tenant shall (i) be performed in a good and workmanlike manner by contractors reasonably approved in advance by Landlord and in compliance with the provisions of Exhibit C and Exhibit Eand all applicable zoning, building, fire, health and other codes, regulations, ordinances and laws and in compliance with the U.S. Environmental Protection Agency’s Energy Star tenant space criteria, (ii) be made at Tenant’s sole cost and expense except for work for which Landlord’s Contribution shall be applied, and (iii) be free of liens and encumbrances and become part of the Premises and the property of Landlord (other than personal property, including equipment and fixtures) without being deemed additional rent for tax purposes, Landlord and Tenant agreeing that Tenant shall be treated as the owner of the work for tax purposes until the expiration or earlier termination of the term hereof, subject to Landlord’s rights pursuant to Section 6.1.9 to require Tenant to remove the same at or prior to the expiration or earlier termination of the term hereof and, to the extent Landlord shall make such election, title thereto shall remain vested in Tenant at all times.  Tenant shall pay promptly when due the entire cost of any work to the Premises so that the Premises, Building and Property shall at all times be free of liens, and, at Landlord’s request (which Landlord may only make if the cost of such work together with any related project shall cost in excess of $1,000,000 and shall be undertaken after the completion of Tenant’s Work, i.e. this requirement shall not apply to Tenant’s Work), Tenant shall furnish to Landlord a bond or other security reasonably acceptable to Landlord assuring that any such work will be completed in accordance with the plans and specifications theretofore approved by Landlord and assuring that the Premises will remain free of any mechanics’ lien or other encumbrances that may arise out of such work.  Prior to the commencement of any such work, Tenant shall cause its general contractor to deliver to Landlord evidence that it and such subcontractors as Landlord may reasonably request shall maintain insurance as shall be reasonably required by Landlord.  Whenever and as often as any mechanic’s or materialmen’s lien shall have been filed against the Property based upon any act of Tenant or of anyone claiming through Tenant, Tenant shall within ten (10) days after notice from Landlord to Tenant take such action by bonding, deposit or payment as will remove or satisfy the lien.  Tenant shall, upon request of Landlord, execute and deliver to Landlord a bill of sale covering any work Tenant shall be required to surrender hereunder.Without limiting the terms in this Section  6.2.5, upon Landlord’s obtaining knowledge of the commencement of any work in or to the Premises, Landlord shall be permitted to post a timely Notice of Non-Responsibility at the Premises, which shall also be recorded in the office of the Recorder of the County in which the Property is located, all in accordance with the terms of Sections 8444 and 8060 of the California Civil Code.  Upon the completion of any work in or to the Premises which together with any related project shall cost in excess of $100,000, Tenant shall cause a timely Notice of Completion to be recorded in the office of the Recorder of the County in which the Property is located in accordance with the terms of Section 8182 of the California Civil Code, and Tenant shall deliver to Landlord a conformed copy of such Notice of Completion.

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Tenant shall not, at any time, directly or indirectly, engage or employ any contractor, mechanic or laborer in the Premises, if such engagement or employment might reasonably be expected to interfere with the maintenance of a stable, harmonious and cooperative labor environment among all parties providing labor at the Complex.

6.2.6Abandonment.  Tenant shall not abandon (as defined in the California Civil Code) the Premises during the term.

6.2.7Signs.  So long as this Lease is still in full force and effect and the Conditions are met: (i) Tenant may, at its sole cost and expense (subject to Landlord’s Contribution), install and maintain a sign on the pylon adjacent to the entrance to the Property, and (ii) Tenant may, at its sole cost and expense (subject to Landlord’s Contribution), install and maintain a sign adjacent to the main entrance to the Building, and (iii) Tenant shall have the right, subject to applicable legal requirements, at Tenant’s sole cost and expense (subject to Landlord’s Contribution), to install and maintain a single building-mounted sign (hereinafter, “Tenant’s Sign”) on the top of the Building. The size, construction, location and design of Tenant’s pylon sign, Tenant’s entry sign and Tenant’s Sign shall be consistent with Landlord’s established sign criteria as provided to Tenant prior to the Date of this Lease and otherwise shall be subject to Landlord’s approval, not to be unreasonably withheld, conditioned or delayed. Without limiting the foregoing, Landlord may refuse to approve any sign that is not consistent with the architecture and general appearance of the Building and Property, will cause undue damage to the Building, or which is otherwise inconsistent with first-class office building signage. The content of any such signs shall be limited to Tenant’s name or trade name or business logo. Tenant, at its expense (subject to Landlord’s Contribution), shall obtain all permits and approvals required for the installation of any such signs prior to the installation thereof (but shall not be permitted to seek any zoning amendment or variance for Tenant’s Sign without Landlord’s consent, which may be withheld in Landlord’s sole discretion), and shall keep all such permits and approvals in full force and effect throughout the term. Tenant shall maintain all such signs in good condition. The installation, repair, maintenance and removal of all such signs shall be subject to the provisions of Section 6.2.5 of this Lease as if the area affected were part of the Premises and Landlord’s other reasonable requirements.  Prior to the expiration or earlier termination of the term of this Lease, Tenant shall remove all such signs (and all associated hardware) from the Property and shall restore the affected areas to the condition existing prior to installation.  Landlord agrees that, except as may be required by law, Tenant’s right to install signs at the Property shall be exclusive during the term of the Lease insofar as parties unrelated to Landlord or its manager or broker.  Tenant may install signage within the Building, including directory signage, without Landlord’s consent.

6.2.8Oil and Hazardous Materials.  Except as hereinafter provided, Tenant shall not dump, flush or otherwise dispose of any Hazardous Materials into the drainage, sewage or waste disposal systems serving the Premises or Property; nor generate, store, use, release, spill or dispose of any Hazardous Materials in or on the Premises or the Property, or transport any Hazardous Materials from the Premises to any other location in any manner that would require any reporting or filing of any notice with any governmental agency pursuant to any statutes, laws, codes, ordinances, rules or regulations, present or future, applicable to such Hazardous Materials.

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Tenant agrees that if it shall generate, store, release, spill, dispose of or transport to the Premises or Property any Hazardous Materials, it shall, at its sole cost and expense, do so in the manner provided by all applicable Environmental Laws (as hereinafter defined), regardless of when such Hazardous Materials shall be discovered.  Furthermore, Tenant shall pay any fines, penalties or other assessments imposed by any governmental agency with respect to any such Hazardous Materials and shall forthwith repair any damage to any portion of the Premises or Property which it shall cause in so removing any such Hazardous Materials.

Tenant agrees to deliver promptly to Landlord any notices, orders or similar documents received from any governmental agency or official concerning any violation of any Environmental Laws or with respect to any Hazardous Materials affecting the Premises or Property.  In addition, Tenant shall, within forty-five (45) days of receipt, accurately complete any reasonable questionnaires from Landlord or other reasonable informational requests relating to Tenant’s use, generation, storage and/or disposal of Hazardous Materials at, to, or from the Premises.

Tenant shall indemnify, defend (by counsel reasonably satisfactory to Landlord), protect, and hold Landlord free and harmless from and against any and all claims, or threatened claims, including without limitation, claims for death of or injury to any person or damage to any property, actions, administrative proceedings, whether formal or informal, judgments, damages, punitive damages, liabilities, penalties, fines, costs, taxes, assessments, forfeitures, losses, expenses, attorneys’ fees and expenses, consultant fees, and expert fees to the extent caused in whole or in part, by (i) Tenant’s use, storage, transportation, disposal, release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises, or (ii) Tenant’s failure to comply with any Environmental Laws.  Tenant’s obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs (including, without limitation, capital, operating and maintenance costs) incurred in connection with any investigation or monitoring required under applicable Environmental Laws of site conditions, repair, cleanup, containment, remedial, removal or restoration work, or detoxification or decontamination of the Premises, and the preparation and implementation of any closure, remedial action or other required plans in connection therewith to the extent caused by Tenant’s use, storage, transportation, disposal, release, discharge or generation of Hazardous Materials to, in, on, under, about or from the Premises.  Notwithstanding anything to the contrary contained in this Lease, Tenant shall not have any obligations or liabilities, including any obligations to indemnify, defend, protect, and hold Landlord free and harmless from, with respect to either (i) any Hazardous Materials existing in, on, under, about or from the Premises, the Property or the Complex prior to the Commencement Date which Tenant does not negligently release into the environment or occupiable space in the Building, or (ii) any Hazardous Materials brought in, on, under, about, from or to the Premises, the Property or the Complex by any parties other than Tenant, its assignees or subtenants, or their respective employees, contractors or invitees.

The term “Hazardous Materials” shall mean and include any oils, petroleum products, asbestos, radioactive, biological, medical or infectious wastes or materials, and any other toxic or hazardous wastes, materials and substances which are defined, determined or identified as such in any Environmental Laws, or in any judicial or administrative interpretation of Environmental Laws.

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The term “Environmental Laws” shall mean any and all federal, state and municipal statutes, laws, regulations, ordinances, rules, judgments, orders, decrees or codes relating to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, medical, biological, infectious, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, medical, biological, infectious, toxic or hazardous substances or wastes or the cleanup or other remediation thereof.

6.2.9Hazardous Materials Documents.  Landlord acknowledges and agrees that neither Section 6.2.8 nor this Section 6.2.9 shall prohibit Tenant from operating its business for the Permitted Uses.  Tenant may operate its business and use Hazardous Materials in connection therewith (including materials used in research and development, materials used in the operation, maintenance and use of the building systems, materials used in the construction of any work, cleaning supplies, office supplies and equipment and petroleum products used in motor vehicles or equipment), so long as the use or presence of Hazardous Materials is conducted or monitored in accordance with Environmental Laws.  As a material inducement to Landlord to allow Tenant to use Hazardous Materials in connection with its business, Tenant agrees to deliver to Landlord (a) a list identifying each type of Hazardous Material to be used by Tenant at the Premises that is subject to regulation under any Environmental Laws, (b) a list of any and all approvals or permits from governmental authorities required in connection with the presence of such Hazardous Material at the Premises and (c) correct and complete copies of (i) notices of violations of Environmental Laws related to such Hazardous Materials and (ii) plans relating to the installation of any storage tanks to be installed in, on, under or about the Property (provided that installation of storage tanks shall only be permitted after Landlord has given Tenant its written consent to do so, which consent Landlord may withhold in its sole and absolute discretion) and closure plans or any other documents required by any and all governmental authorities for any storage tanks installed in, on, under or about the Property by a Tenant Party for the closure of any such storage tanks (collectively, “Hazardous Materials Documents”).  Tenant shall deliver to Landlord updated Hazardous Materials Documents (d) fifteen (15) days prior to the initial occupancy of any portion of the Premises or the initial placement of equipment anywhere at the Property, (e) if there are any material changes to the Hazardous Materials Documents, annually thereafter no later than December 31 of each year, and (f) thirty (30) days prior to the initiation by Tenant of any Alterations that involve any material increase in the types or amounts of Hazardous Materials other than materials normally used in construction activities.  For each type of Hazardous Material (other than materials typically used for office uses, including materials used in the operation, maintenance and use of the building systems, materials used in the construction of any work, cleaning supplies, office supplies and equipment and petroleum products used in motor vehicles or equipment) listed, the Hazardous Materials Documents shall include, to the extent applicable and reasonably available to Tenant, (g) the chemical name, (h) the material state (e.g., solid, liquid, gas or cryogen), (i) the concentration, (j) the storage amount and storage condition (e.g., in cabinets or not in cabinets), (k) the use amount and use condition (e.g., open use or closed use), (l) the location (e.g., room number or other identification) and (m) if known, the chemical abstract service number.  Notwithstanding anything in this Section to the contrary, Tenant shall not be required to provide Landlord with any Hazardous Materials Documents containing information of a proprietary nature.  Landlord may, at Landlord’s expense, cause the Hazardous Materials Documents to be reviewed by a

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person or firm qualified to analyze Hazardous Materials to confirm compliance with the provisions of this Lease and with Environmental Laws.  In the event that a review of the Hazardous Materials Documents shows non-compliance with this Lease or Environmental Laws, Tenant shall, at its expense, diligently take steps to bring its storage and use of Hazardous Materials into compliance.

6.2.10Exit Survey.  At least five (5) Business Days (and not more than sixty (60) days) prior to the expiration or earlier termination of the term of this Lease, Tenant shall provide Landlord with a facility decommissioning and Hazardous Materials closure plan for the Premises (“Exit Survey”) prepared by an independent third party reasonably acceptable to Landlord but only to the extent such an Exit Survey shall be customarily provided in connection with the turn-over of premises containing any facilities similar to those in the Premises.  The Exit Survey shall comply with the American National Standards Institute’s Laboratory Decommissioning guidelines (ANSI/AIHA Z9.11-2008) or any successor standards published by ANSI or any successor organization (or, if ANSI and its successors no longer exist, a similar entity publishing similar standards).  In addition, at least ten (10) days (and not more than sixty (60) days) prior to the expiration or earlier termination of the term of this Lease, Tenant shall provide Landlord with written evidence of all governmental releases required to be obtained by Tenant as a result of cessation of operations at the Premises in accordance with applicable Environmental Laws.  Tenant’s obligations under this Section shall survive the expiration or earlier termination of the Lease.

Article 7

Casualty or Taking

7.1Termination.  In the event that the Premises or the Property, or any material part thereof shall be destroyed or damaged by fire or casualty, shall be taken by any public authority or for any public use or shall be condemned by the action of any public authority, then the term of this Lease may be terminated at the election of Landlord.  Such election, which may be made notwithstanding the fact that Landlord’s entire interest may have been divested, shall be made by the giving of notice by Landlord to Tenant by the date not later than ninety (90) days after the date of the taking or casualty (such ninetieth day being the “Casualty Notice Date”).  Notwithstanding anything to the contrary contained herein, Landlord shall not have the right to terminate this Lease and shall be required to repair the Premises and the Property (including parking areas located within other parts of the Complex) to the Required Condition so long as the estimated repair period does not exceed nine (9) months from the date of the damage or destruction and the damage or destruction is an event that is covered by insurance maintained or required to be maintained by Landlord.

In the event any material part of the Premises (which solely for purpose of this paragraph shall include the parking structure on the Property and other Tenant parking spaces and areas required for access to the Property and the Building) shall be destroyed or damaged or shall be made inaccessible or untenantable by fire or other casualty (and Landlord has not elected to terminate the term of this Lease pursuant to the preceding paragraph), then no later than the Casualty Notice Date, Landlord shall give Tenant a notice (the “Restoration Notice”) advising Tenant whether or not Landlord intends to restore the Premises, parking and access thereto to a

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condition substantially the same as existed immediately prior to such damage (subject to any modification required by then current laws, rules, regulations and ordinances and including Tenant’s Work, but excluding any other improvements to the Premises made by or on behalf of Tenant, the “Required Condition”) and if Landlord intends to so restore, of the time required to substantially complete such work, as reasonably estimated by an architect or general contractor selected by Landlord. If the Restoration Notice indicates either that (a) Landlord shall not restore to the Required Condition, or (b) the estimated time required for Landlord to attain the Required Condition shall exceed one hundred and eighty (180) days from the occurrence of such casualty damage or the number of days which as of the date of the casualty constitutes more than half of the then remainder of the term, whichever period is shorter, Tenant may elect to terminate the term of this Lease by giving notice to Landlord not later than thirty (30) days after the Restoration Notice. Tenant may also elect to terminate the term of this Lease by notice to Landlord if Landlord shall not have caused the restoration work to have been substantially completed on or before the date thirty (30) days after the date identified therefor in the Restoration Notice, subject to extension for force majeure events not exceeding ninety (90) days, whereupon the term of this Lease shall terminate thirty (30) days following the date of such notice, unless Landlord substantially completes such restoration work with such thirty-day period, in which case such notice of termination shall be a nullity.  If access to any spaces in the Property’s parking structure is temporarily (before restoration work which Landlord shall have committed to Tenant to perform is completed) affected and Landlord can provide Tenant an equal number of parking spaces elsewhere on the Complex, such condition shall be disregarded for purposes of this paragraph, insofar as Tenant’s termination right is concerned.

7.2Restoration.  If neither Landlord nor Tenant shall elect to so terminate, this Lease shall continue in force and an equitable proportion of the Fixed Rent and Additional Rent reserved, according to the nature and extent of the damages to the Premises and Tenant’s rights to parking shall be suspended or abated (i) for the remainder of the term with respect to any taking, or (ii) until the Required Condition is achieved.

7.3Award.  Irrespective of the form in which recovery may be had by law, all rights to seek reimbursement for damages or compensation to the Premises arising from fire or other casualty or any taking by eminent domain or condemnation (other than proceeds of any insurance attributable to Tenant’s property) shall belong to Landlord in all cases.  Tenant hereby grants to Landlord all of Tenant’s rights to such claims for damages and compensation and covenants to deliver such further assignments thereof as Landlord may from time to time reasonably request.  Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for relocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority.

7.4Waiver of Statutory Provisions. The provisions of this Lease, including this Section 7, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Property, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties.

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Article 8

Defaults

8.1Default of Tenant.  The occurrence of any of the following shall constitute a default of this Lease by Tenant (collectively and individually, a “Default of Tenant”): (a) (I) If Tenant shall default in its obligations to pay the Fixed Rent or Additional Rent or any other charges or amounts under this Lease when due or shall default in complying with its obligations under Sections 4.4 or 6.1.11 of this Lease and if any such default shall continue for five (5) Business Days after notice from Landlord designating such default, or (II) if within thirty (30) days after notice from Landlord to Tenant specifying any default or defaults other than those set forth in clause (I) Tenant has not cured the default or defaults so specified, provided that, if not curable with reasonable diligence within thirty (30) days but curable within one hundred twenty (120) days and Tenant has exercised reasonable diligence to cure such failure, no Default of Tenant shall exist as long as Tenant shall in fact remedy such failure within such 120-day period; or (b) if any assignment shall be made by Tenant for the benefit of creditors and is not discharged within sixty (60) days; or (c) if a lien or other involuntary encumbrance shall be filed against Tenant’s leasehold interest due to Tenant’s acts, and shall not be discharged within sixty (60) days thereafter; or (d) if a voluntary petition shall be filed by Tenant for liquidation, or for reorganization or an arrangement under any provision of any bankruptcy law or code as then in force and effect; or (e) if an involuntary petition under any of the provisions of any bankruptcy law or code shall be filed against Tenant and such involuntary petition shall not be dismissed within one hundred twenty (120) days thereafter; or (f) if a receiver shall be authorized or appointed to take charge of all or substantially all of the assets of Tenant and is not discharged within ninety (90) days; or (g) if Tenant dissolves or shall be dissolved or shall liquidate or shall adopt any plan or commence any proceeding, the result of which is intended to include dissolution or liquidation; or (h) if any order shall be entered in any proceeding by or against Tenant decreeing or permitting the dissolution of Tenant or the winding up of its affairs and is not discharged within ninety (90) days.  The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

8.2Remedies.  Upon the occurrence of any Default of Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim for damages therefor; and Landlord may recover from Tenant the following:

(a)The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

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(b)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 Tenant proves could have been reasonably avoided; plus

(c)The worth at the time of award of the amount by which the unpaid rent for the balance of what would have been the term of this Lease after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(d)Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant, all of which cost shall be amortized over the term of the lease with the new tenant and shall only be included in damages hereunder to the extent applicable to what would otherwise be the remaining term of this Lease; and

(e)At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term “rent” as used in this Section 8.2.1 shall be deemed to be and to mean Fixed Rent and Additional Rent.  As used in Sections 8.2.1(a) and (b), above, the “worth at the time of award” shall be computed by allowing interest at the Interest Rate.  As used in Section 8.2.1(c), above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations).  Accordingly, if Landlord does not elect to terminate this Lease on account of any Default of Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 8.2.1 and 8.2.2, above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.

If Landlord elects to terminate this Lease on account of any Default of Tenant, as set forth in this Section 8.2, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements.  In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant

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shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

Nothing contained in this Lease shall, however, limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater than, equal to, or less than the amount of the loss or damages referred to above.

No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord’s interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant.  If Landlord is required by applicable laws to mitigate its damages under this Lease:  (i) Landlord shall be required only to use reasonable efforts to mitigate, which shall not exceed such efforts as Landlord generally uses to lease other space at the Property; (ii) Landlord will not be deemed to have failed to mitigate if Landlord leases any other portions of the Property before reletting all or any portion of the Premises; (iii) Landlord shall not be obligated to lease the Premises to a replacement tenant who does not, in Landlord’s good faith opinion, have sufficient financial resources to operate the Premises in a first‑class manner and to fulfill all of the obligations in connection with the lease as and when the same become due; and (iv) any failure to mitigate as required herein with respect to any period of time shall only reduce the Rent and other amounts to which Landlord is entitled hereunder.  To the fullest extent permitted by law, Tenant hereby expressly waives any and all rights of redemption granted under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Premises, by reason of the Default of Tenant.

8.3Remedies Cumulative.  Except as expressly provided otherwise in Section 8.2, any and all rights and remedies which Landlord may have under this Lease, and at law and equity (including without limitation actions at law for direct, indirect, special and consequential (foreseeable and unforeseeable) damages), for Tenant’s failure to comply with its obligations under this Lease shall be cumulative and shall not be deemed inconsistent with each other, and any two or more of all such rights and remedies may be exercised at the same time insofar as permitted by law.  Notwithstanding anything to the contrary in this Lease, Landlord hereby waives, and Tenant shall not be liable to Landlord for, any claim for special or consequential losses or damages (excluding, for purposes of clarity, damages to which Landlord may be entitled under Section 8.2, and excluding damages for breach of Sections 6.2.8-6.2.10) or punitive damages arising out of any breach of this Lease by Tenant; provided, however, (i) the foregoing waiver shall not apply to claims asserted by a third party for which Landlord may be liable as a result, in whole or part, of conduct constituting a breach by Tenant of any of the terms of this Lease, or claims arising due to breach of Tenant’s obligations under Sections 6.2.8-6.2.10, (ii) if Tenant fails to vacate and surrender possession of the Premises, in the condition required by this Lease, or to comply with its obligations under Section 6.2.10, within forty-five (45) days following the expiration or sooner termination of the term of this Lease, or (iii) if Tenant fails to

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comply with its obligations under Section 6.1.9 and Tenant fails to remedy such breach within three (3) Business Days following a Hard Copy Notice of default from Landlord, then Tenant shall be liable for all lost profits, loss of income, economic loss and other special or consequential losses or damages which Landlord may incur as a result of such breach.

8.4Landlord’s Right to Cure Defaults. At any time with or without notice, Landlord shall have the right, but shall not be required, to pay such sums or do any act which requires the expenditure of monies which may be necessary or appropriate by reason of the failure or neglect of Tenant to comply with any of its obligations under this Lease (provided Landlord shall not exercise such right until there is a Default of Tenant unless earlier action by Landlord is necessary to prevent injury or damage to persons or property, as determined by Landlord in good faith), and in the event of the exercise of such right by Landlord, Tenant agrees to pay to Landlord forthwith upon demand, as Additional Rent, all such sums including reasonable attorneys fees, together with interest thereon at a rate (the “Default Rate”) equal to the lesser of six hundred basis points above the Prime Rate or the maximum rate allowed by law.  “Prime Rate” shall mean the annual floating rate of interest, determined on the first day of each calendar month and expressed as a percentage from time to time announced by Bank of America as its “prime” or “base” rate, so-called, or if at any time Bank of America ceases to announce such a rate, as announced by the largest national or state-chartered banking institution then having an office in the City of Boston and announcing such a rate.  If at any time neither Bank of America nor the largest national or state-chartered banking institution having an office in the City of Boston is announcing such a floating rate, “Prime Rate” shall mean a rate of interest, determined daily, which is two hundred basis points above the yield of 90-day U.S. Treasury Bills.

8.5Holding Over.  Any failure by Tenant to comply timely with its obligations under Section 6.1.9, as to all or any portion of the Premises, shall constitute a holding over of the entire Premises and be treated as a daily tenancy at sufferance at a rental rate equal to 150% of the sum of Fixed Rent plus Additional Rent on account of Operating Costs and Taxes in effect immediately prior to the expiration or earlier termination of the term (prorated on a daily basis) (except that for the first thirty (30) days of an such holding over such rental rate shall be 125%).  Tenant shall also pay to Landlord all damages, direct and/or consequential (foreseeable and unforeseeable), sustained by reason of any such holding over to the extent exceeding forty-five (45) days.  Otherwise, all of the covenants, agreements and obligations of Tenant applicable during the term of this Lease shall apply and be performed by Tenant during such period of holding over as if such period were part of the term of this Lease.

8.6Effect of Waivers of Default.  Any consent or permission to any act or omission shall not be deemed to be consent or permission by Landlord to any other similar or dissimilar act or omission and any such consent or permission in one instance shall not be deemed to be consent or permission in any other instance.

8.7No Waiver, etc.  The failure of Landlord or Tenant to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease shall not be deemed a waiver of such violation nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation.  The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed to have been a waiver of such breach by Landlord, or by Tenant, unless such waiver be

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in writing signed by the party to be charged.  No consent or waiver, express or implied, by Landlord or Tenant to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty.

8.8No Accord and Satisfaction.  No acceptance by Landlord of a lesser sum than the Fixed Rent, Additional Rent or any other charge then due shall be deemed to be other than on account of the earliest installment of such rent or charge due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent or other charge be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such installment or pursue any other remedy in this Lease provided.

8.9Tenant’s Self-Help Remedies.  If Landlord defaults in the performance of any obligation on its part under Section 5.1 or 5.3 to such an extent that, despite the use of reasonable efforts to mitigate the effect of such default, Tenant is unable to use a material portion of the Premises for the operation of its business in the ordinary course, and Landlord shall not cure such default within thirty (30) days (or within such longer period as may be necessary if such cure cannot be completed within thirty (30) days, provided Landlord shall have commenced such cure within thirty (30) days and is diligently prosecuting such cure to completion) after notice thereof from Tenant complying with the provisions of the following paragraph then Tenant, at its option, may, subject to the provisions of the last paragraph of this Section 8.9 but in addition to Tenant’s remedy under Section 5.2 and its right to an action for specific performance of such obligation by Landlord, in a commercially reasonable fashion, cure such default for the account of Landlord. Any reasonable amount paid or any contractual liability reasonably incurred by Tenant in curing such Landlord default shall be deemed paid or incurred for the account of Landlord and provided there shall exist no Default of Tenant, Landlord agrees to reimburse Tenant therefor within thirty (30) days after Tenant gives Landlord notice thereof (which shall include appropriate documentation describing, in reasonable detail, any work or services provided by Tenant for the account of Landlord, together with supporting invoices therefor), and if Landlord shall fail to reimburse Tenant within such thirty-day period, said amount may together with interest thereon at the Default Rate (subject to the provisions of the following paragraph) be deducted by Tenant from the next or any succeeding payment of installments of Fixed Rent hereunder until the amount due has been paid in full; provided, however, that in no event shall Tenant be permitted to deduct as to any single monthly installment of Fixed Rent an amount in excess of twenty percent (20%) of each monthly installment.

Any notice given by Tenant pursuant to the first sentence of the preceding paragraph shall expressly state that the failure of Landlord to cure any such default timely shall give rise to Tenant’s right to cure pursuant to this Section 8.9.

If Landlord shall dispute the existence of a Landlord default, the effect on Tenant of such default, or the amount that Tenant shall claim to be due hereunder, Landlord may, at any time within the applicable 30-day period following notice from Tenant, by notice to Tenant and the nearest office of JAMS (or any other nationally recognized arbitration organization having an office near the San Diego metropolitan area, if the nearest JAMS office shall be materially further from San Diego, California) refer the dispute to arbitration.  The arbitration decision shall be binding on both Landlord and Tenant.  If arbitration shall be instituted, Tenant may not exercise its rights under this Section 8.9 unless and until there shall be an award in favor of Tenant.

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Tenant shall indemnify Landlord and hold it harmless from and against claims of tenants of the Complexfor personal injury or damage to property arising out of Tenant’s exercise of its rights under this Section 8.9.

Article 9

Rights of Holders

9.1Rights of Mortgagees or Ground Lessor.  At the election of any Superior Lessor or Superior Mortgagee as hereinafter defined, and subject to the conditions set forth in the following paragraph, this Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate to any ground or master lease, and all renewals, extensions, modifications and replacements thereof, and to all mortgages, which may hereafter affect the Building or the Property and/or any such lease, whether or not such mortgages shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such mortgages, and to all renewals, modifications, replacements and extensions of such leases and such mortgages and all consolidations of such mortgages.  In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any instrument that Landlord, but subject to the condition set forth below, the lessor under any such lease or the holder of any such mortgage or any of their respective successors in interest may reasonably request to evidence such subordination.  Any lease to which this Lease is subject and subordinate is herein called “Superior Lease” and the lessor of a Superior Lease or its successor in interest, at the time referred to, is herein called “Superior Lessor”; and any mortgage to which this Lease is subject and subordinate, is herein called “Superior Mortgage” and the holder of a Superior Mortgage is herein called “Superior Mortgagee”.

Tenant’s subordination of its leasehold interest under this Lease to any Superior Lessor or Superior Mortgagee shall be subject to and conditioned upon such Superior Lessor or Superior Mortgagee or the designee thereof or successor thereto (“Successor Landlord”) entering into an agreement with Tenant on such Successor Landlord’s commercially reasonable form or otherwise on a form containing commercially reasonable terms and conditions required by institutional lenders having loans secured by like properties which provides in substance that if any such Successor Landlord shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, or otherwise, this Lease shall continue in full force and effect as a direct lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease and Successor Landlord shall recognize Tenant’s leasehold interest and possessory rights hereunder.  Tenant agrees at any time and from time to time to execute a suitable instrument in confirmation of Tenant’s agreement to attorn, as aforesaid.

9.2Representation.  Landlord represents that as of the Date of this Lease it holds fee title to the Complex and that no Superior Mortgage constitutes a lien thereon.

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Article 10

Miscellaneous Provisions

10.1Notices.  Except as may be expressly provided herein otherwise, all notices, requests, demands, consents, approval or other communications to or upon the respective parties hereto shall be in writing, shall be delivered by hand or mailed by certified or registered mail, return receipt requested, or by a nationally recognized so-called overnight service that provides a receipt for delivery such as Federal Express, United Parcel Service or U.S. Postal Service Express Mail and shall be addressed as follows:  If intended for Landlord, to the Original Address of Landlord set forth in Section 1.1 of this Lease with a copy to Landlord c/o The RMR Group LLC, 255 Washington Street, Suite 300, Newton, Massachusetts  02458, Attn:  Jennifer B. Clark (or to such other address or addresses as may from time to time hereafter be designated by Landlord by notice to Tenant); and if intended for Tenant, addressed to Tenant at the Original Address of Tenant set forth in Section 1.1 of this Lease until the Rent Commencement Date and thereafter to the Property (or to such other address or addresses as may from time to time hereafter be designated by Tenant by notice to Landlord).  Notices shall be effective on the date delivered to (or the first date such delivery is attempted and refused by) the party to which such notice is required or permitted to be given or made under this Lease.  Notices from Landlord may be given by Landlord’s Agent, if any, or Landlord’s attorney; and any bills or invoices for Fixed Rent or Additional Rent may be given by mail (which need not be registered or certified) and, if so given, shall be deemed given on the third Business Day following the date of posting, or email, but a “Hard Copy Notice” may only be given by one of the means set forth above, and not by email. Notices from Tenant may be given by Tenant’s Agent, if any, or Landlord’s attorney.

10.2Quiet Enjoyment; Landlord’s Right to Make Alterations, Etc.  Landlord agrees that upon Tenant’s paying the rent and performing and observing the agreements, conditions and other provisions on its part to be performed and observed, Tenant shall and may peaceably and quietly have, hold and enjoy the Premises during the term hereof without any manner of hindrance or molestation from Landlord or anyone claiming under Landlord, subject, however, to the terms of this Lease.

10.3Lease not to be Recorded; Press Releases.  Tenant agrees that it will not record this Lease.  Both parties shall, upon the request of either (and at the expense of the requesting party), execute and deliver a notice or short form of this Lease in such form, if any, as may be acceptable for recording with the land records of the governmental entity responsible for keeping such records for the City of San Diego.  In no event shall such document set forth the rent or other charges payable by Tenant pursuant to this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease and is not intended to vary the terms and conditions of this Lease.

Tenant shall not make or permit to be made any press release or other similar public statement regarding this Lease without the prior approval of Landlord, which approval shall not be unreasonably withheld; provided, however, that Tenant may make any such press release or other similar public statement as required by any applicable laws, ordinances, orders, rules or regulations, including the rules of any stock exchange, or to announce Tenant’s new location without such consent of Landlord so long as such press release or other public statement does not

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contain rental information or information relating to Landlord’s Contribution except to the extent required by applicable law.

10.4Transfer of Title; Limitation of Landlord’s Liability.  The term “Landlord”, so far as covenants or obligations to be performed by Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of Landlord’s interest in the Property, and in the event of any transfer or transfers of such title to said property, provided that the new owner of the Property assumes all of Landlord’s covenants and obligations thereafter arising under this Lease pursuant to a written assumption reasonably acceptable to Tenant, Landlord (and in case of any subsequent transfers or conveyances, the then grantor) shall be concurrently freed and relieved from and after the date of such transfer or conveyance, of all liability with respect to the performance of any covenants or obligations on the part of Landlord contained in this Lease arising after the date thereof, it being intended hereby that the covenants and obligations contained in this Lease on the part of Landlord, shall, subject as aforesaid, be binding on Landlord, its successors and assigns, only during and in respect of their respective period of ownership of such interest in the Property.

Tenant shall not assert nor seek to enforce any claim for breach of this Lease against any of Landlord’s assets other than Landlord’s interest in the Complex (including, without limitation, Landlord’s interest in the income derived therefrom and sale, condemnation awards and insurance proceeds with regard thereto), and Tenant agrees to look solely to such interest for the satisfaction of any liability or claim against Landlord under this Lease, it being specifically agreed that in no event whatsoever shall Landlord ever be personally liable for any such liability except to the extent of such interest.  Landlord and Tenant furthermore agree that no trustee, officer, director, general or limited partner, member, shareholder, beneficiary, employee or agent of Landlord or Tenant (including any person or entity from time to time engaged to supervise and/or manage the operation of Landlord or Tenant) shall be held to any liability, jointly or severally, for any debt, claim, demand, judgment, decree, liability or obligation of any kind against or with respect to any breach or default under this Lease by Landlord or Tenant.

10.5Landlord’s Default.  Landlord shall not be deemed to be in breach of, or in default in the performance of, any of its obligations under this Lease unless it shall fail to perform such obligation(s) and such failure shall continue for a period of thirty (30) days, or such additional time as is reasonably required to correct any such breach or default, after written notice has been given by Tenant to Landlord specifying the nature of Landlord’s alleged breach or default so long as Landlord shall diligently and continuously use all reasonable efforts to pursue remedy of any such breach.  Except as expressly provided in this Lease, Tenant shall have no right to terminate this Lease for any breach or default by Landlord hereunder and no right, for any such breach or default, to offset or counterclaim against any rent due hereunder except as expressly permitted by this Lease.  In no event shall Landlord ever be liable to Tenant, and Tenant hereby waives any claim against Landlord, for any punitive damages or for any loss of business or any other indirect, special or consequential damages suffered by Tenant from whatever cause.  

10.6Notice to Mortgagee and Ground Lessor.  After Tenant receives notice from any party that it holds a mortgage which includes the Premises as part of the mortgaged premises, or that it is the ground lessor under a lease with Landlord, as ground lessee, which includes the Premises as part of the demised premises, no notice from Tenant to Landlord shall be effective

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unless and until a copy of the same is given to such holder or ground lessor, and the curing of any of Landlord’s defaults by such holder or ground lessor shall be treated as performance by Landlord.

10.7Brokerage.  Tenant warrants and represents that it has dealt with no broker in connection with the consummation of this Lease, other than Savills, Inc. and Jones Lang LaSalle, and in the event of any brokerage claims or liens, other than by Savills, Inc. or Jones Lang LaSalle, against Landlord or the Property predicated upon or arising out of prior dealings with Tenant, Tenant agrees to defend the same and indemnify and hold Landlord harmless against any such claim, and to discharge any such lien.  Unless Landlord shall have entered into a separate agreement with Savills, Inc., Landlord shall pay all amounts due from it relating to this Lease pursuant to its agreement with Jones Lang LaSalle, which agreement provides for payment to Savills, Inc.

10.8Intentionally Deleted.

10.9Applicable Law and Construction.  This Lease shall be governed by and construed in accordance with the laws of the State of California and if any provisions of this Lease shall to any extent be invalid, the remainder of this Lease shall not be affected thereby.  Each party expressly acknowledges and agrees that the other has not made and is not making, and in executing and delivering this Lease, neither party is relying upon, any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease or in any other written agreement which may be made between the parties concurrently with the execution and delivery of this Lease and which shall expressly refer to this Lease.  All understandings and agreements heretofore made between the parties are merged in this Lease and any other such written agreement(s) made concurrently herewith, which alone fully and completely express the agreement of the parties and which are entered into after full investigation, neither party relying upon any statement or representation not embodied in this Lease or any other such written agreement(s) made concurrently herewith.  This Lease may be amended, and the provisions hereof may be waived or modified, only by instruments in writing executed by Landlord and Tenant.  The titles of the several Articles and Sections contained herein are for convenience only and shall not be considered in construing this Lease.  The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and Tenant shall have no right to the Premises hereunder until the execution and delivery hereof by both Landlord and Tenant.  Except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant.  Time is of the essence with respect to the exercise of any of Tenant’s rights under this Lease.  The reference contained to successors and assigns of Tenant is not intended to constitute a consent to assignment by Tenant.  This Lease may be executed in multiple counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement. The exchange of executed copies of this Lease and of signature pages by email or other electronic means shall constitute effective execution and delivery of this Lease as to the parties and may be used in lieu of the original Lease for all purposes.  Signatures of the parties transmitted by email or other electronic means shall be deemed to be their original signatures for all purposes.

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10.10Prevailing Party Rights.  If Landlord or Tenant brings an action or proceeding in a court of law to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as defined below) in any such proceeding shall be entitled to recover from the other party its reasonable attorneys' fees and costs, expert fees and costs and court costs.  The term “Prevailing Party” includes, without limitation, a party which substantially obtains or defeats the relief sought.  Landlord shall be entitled to attorneys' fees, costs, and expenses incurred in connection with the pursuit of remedies following the occurrence of a Default by Tenant, whether or not a legal action is subsequently commenced in connection therewith.

10.11Evidence of Authority.  Each person signing on behalf of Landlord or Tenant warrants and represents that she or he is authorized to execute and deliver this Lease and to make it a binding obligation of Landlord or Tenant.  Each of Landlord and Tenant represents and warrants that each individual executing this Lease on its behalf is authorized to do so on its behalf and that no consent or approval of any person or entity is necessary for the consummation by such party of this Lease that has not been obtained prior to the execution and delivery of this Lease.  Tenant shall deliver to Landlord a fully executed Secretary’s Certificate substantially in the form attached hereto as Exhibit D, contemporaneously with the execution of this Lease.  

WITNESS the execution hereof under seal on the day and year first above written.

Landlord:
SNH Medical Office Properties Trust
By:	The RMR Group LLC, its agent
	By:
		Jennifer F. Francis
		Executive Vice President
Tenant:
Surgalign Spine Technologies, Inc.
By:
	Terry Rich
	President and Chief Executive Officer

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EXHIBIT A-1

EXHIBIT B

RULES AND REGULATIONS

1.The sidewalks adjacent to the Building shall not be obstructed by Tenant.

2.Tenant shall not place objects against glass partitions, doors or windows which would be unsightly from the exterior of the Building.  

3.Tenant shall return all keys to Landlord upon termination of Tenant’s lease.  Tenant shall not allow peddlers, solicitors or beggars in the Building and shall report such persons to the Landlord’s agent.

4.No bicycles, vehicles or animals (other than licensed service dogs) of any kind shall be brought into or kept in or about the Premises.

5.Tenant shall not engage or pay any employees of Landlord’s management company without approval from Landlord.

6.The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were designed and constructed and no sweepings, rubbish, rags, acid or like substance shall be deposited therein.  All damages resulting from any misuse of the fixtures shall be borne by Tenant.

7.Landlord reserves the right to establish, modify and enforce reasonable parking rules and regulations.

EXHIBIT C

ALTERATIONS REQUIREMENTS

A.General

1. All alterations, installations or improvements (“Alterations”) to be made by Tenant in, to or about the Premises, including any Alterations to be made prior to Tenant’s occupancy of the Premises for the Permitted Use, shall be made in accordance with the requirements of this Exhibit and with any additional requirements stated in the Lease.

2. All submissions, inquiries approvals and other matters shall be processed through Landlord’s Building manager or regional property manager.

3. Additional and differing provisions in the Lease, if any, will be applicable and will take precedence over the terms of this Exhibit.

B.Plans

1. Before commencing construction of any Alterations, Tenant shall submit for Landlord’s written approval either a description of the Alterations or drawings and specifications for the Alterations, as follows:

(i) If applicable, Tenant shall submit drawings and written specifications (collectively, “Plans”) for all of Tenant’s Alterations, including mechanical, electrical and cabling, plumbing and architectural drawings. Drawings are to be complete, with full details and finish schedules, and shall be stamped by an AIA architect or engineer licensed in the state or district in which the Property is located.

(ii) Tenant may submit a complete description of Tenant’s Alterations (including sketches or diagrams as necessary) in lieu of submitting Plans if the proposed Alterations meet all of the following criteria: (1) they are cosmetic in nature (e.g. painting, wallpapering, installation of floor coverings, etc.),  (2) they do not require a building permit, (3) they do not require work to be performed inside walls or above the ceiling of the Premises, and (4) they will not materially affect the structure or the mechanical, plumbing, HVAC, electrical or life safety systems of the Building (collectively, the “Building Systems”).

2. Landlord shall review the description or Plans submitted by Tenant (“Tenant’s Design Submission”) and notify Tenant of approval or disapproval. If Landlord disapproves Tenant’s Design Submission, Landlord shall specify the reasons for its disapproval and Tenant shall revise Tenant’s Design Submission to meet Landlord’s objections, and shall resubmit the same to Landlord as so revised until Tenant’s Design Submission is approved by Landlord. No approval by Landlord of Tenant’s Design Submission shall constitute a waiver of any of the requirements of this Exhibit or the Lease. Tenant shall not make any material changes to Tenant’s Design Submission after approval by Landlord, including changes required to obtain governmental permits, without obtaining Landlord’s written approval in each instance.

3. All mechanical, electrical, structural and floor loading requirements shall be subject to approval of Landlord’s engineers.

C.Selection of Contractors and Subcontractors

Before commencing construction of any Alterations, Tenant shall submit to Landlord the names of Tenant’s general contractor (the “General Contractor”) and subcontractors for Landlord’s approval. If Landlord shall reject the General Contractor or any subcontractor, Landlord shall advise Tenant of the reasons(s) in writing and Tenant shall submit another selection to Landlord for Landlord’s approval.

D.Insurance

Before commencing construction of any Alterations, Tenant will deliver to Landlord evidence of commercial general liability insurance from the general contractor and, if requested by Landlord, from the subcontractors, with coverage of at least $1,000,000 per occurrence and general aggregate.

E.Building Permit and Other Legal Requirements

1. Before commencing construction of any Alterations, Tenant shall furnish Landlord with a valid permit for the construction of the Alterations from the building department or other agency having jurisdiction in the municipality in which the Building is located (unless the Alterations are of a nature not requiring a building permit). If required by law, Tenant shall keep the original building permit posted on the Premises during the construction of the Alterations.

2. Tenant Design Submission, the Alterations, and the construction of the Alterations shall each be in compliance with (i) all applicable laws, codes, rules and regulations, including, without limitation, the Americans with Disabilities Act, state and local health department requirements, and occupational health and safety laws and regulations (and no approval of Tenant’s Design Submission shall relieve Tenant of this obligation or invest Landlord with any responsibility for ensuring such compliance), and (ii) all building permits, consents, licenses, variances, and approvals issued in connection with the Alterations. Tenant shall ensure that the General Contractor and all subcontractors have the requisite licenses to perform their work. Tenant shall procure all permits, governmental approvals, licenses, variances and consents required for the Alterations and shall provide Landlord with a complete copy thereof promptly upon receipt of same by Tenant.

F.Materials and Workmanship

1. All materials shall be new, commercial grade and of first-class quality or otherwise consistent with practices for similar improvements in similar buildings. Any deviation from these requirements will be permitted only if clearly indicated or specified on Tenant’s Design Submission and approved by Landlord.

2. Alterations shall be constructed in a professional, first-class and workmanlike manner, in substantial accordance with Tenant’s Design Submission.

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3. The General Contractor shall guaranty all materials and workmanship against defects for a period of not less than one (1) year from installation to the extent such guaranty is generally provided for similar projects and is available on commercially reasonable terms. Notwithstanding any limitations contained in such guaranty or in any contract, purchase order or other agreement, during the entire term of the Lease, Tenant shall maintain and repair, at Tenant’s cost, the Alterations in accordance with the terms of the Lease.

4. Alterations must be compatible with the existing Building Systems.

G.Prosecution of the Work

1. Elevator cabs shall be properly padded and no material or equipment shall be carried under or on top of elevators. If an operating engineer is required by any union rules, such engineer shall be paid for by Tenant.

2. If shutdown of risers and mains for electrical, HVAC, sprinkler or plumbing work is required, such work shall be supervised by Landlord’s representative at Tenant’s expense. No work will be performed in Building mechanical equipment rooms except under Landlord’s supervision.

3. Alterations shall be performed under the supervision of a superintendent, project manager or foreman of the General Contractor at all times.

4. All floors shall be protected from the construction process.

5. The General Contractor or HVAC subcontractor shall block off supply and return grilles, diffusers and ducts to keep dust from entering into the Building HVAC system and thoroughly clean all HVAC units in the work area at the completion of the Alterations.

6. Construction debris shall be removed from the construction area daily and the construction area shall be kept neat and reasonably clean at all times. All construction debris is to be discarded in waste containment provided by the General Contractor only. No material or debris shall be stored outside the Building except in trash containers without the prior written approval of the Landlord’s representative.

7. Landlord shall have the right to instruct the General Contractor to deliver to Landlord any items to be removed from the Premises during the construction of the Alterations excluding any items owned by Tenant.

8. Tenant, either directly or through the General Contractor, will promptly notify Landlord, in writing, of any material damage to the Building caused by the General Contractor or any subcontractors.  Such damage shall be repaired promptly.

9. Construction personnel shall use the restrooms located within the Premises only or facilities provided by the General Contractor.

10. Landlord shall have the right at reasonable times and with prior notice to Tenant to inspect the Alterations as the work progresses and to require Tenant to remove or correct any

3

aspect of the Alterations that does not materially conform to Tenant’s Design Submission approved by Landlord.  Tenant shall pay Landlord’s reasonable charges for such supervision and inspection if any corrective action of Tenant shall be required as a result.

H.Documents to Be Furnished to Landlord Upon Completion of Tenant’s Work

1. Within fifteen (15) days (or such longer period as may be reasonably necessary) after construction of the Alterations has been completed, except for so-called punch list items, Tenant shall furnish Landlord with the following documents but only to the extent such documents are typically required for similar alterations in San Diego County:

(i) record “as built” drawings in paper and electronic (CADD) format showing all of the Alterations as actually constructed for all portions of the Alterations for which drawings were submitted;

(ii) if Plans for the Alterations were prepared by an architect, a written certification from the architect confirming that the Alterations were completed substantially in accordance with the Plans;

(iii) full and final lien waivers and releases executed by the General Contractor and all subcontractors and suppliers, in the form required under California Civil Code Section 8138;

(iv) if the Alterations include any HVAC work, a properly executed air balancing report signed by a professional engineer showing that the HVAC system is properly balanced for the season;

(v) copies of all warranties and guarantees received from the General Contractor, subcontractors and materials suppliers or manufacturers;

(vi) copies of all maintenance manuals, instructions and similar information pertaining to the operation and maintenance of equipment and fixtures installed in the Premises as part of the Alterations;

(vii) a copy of a Notice of Completion for the Alterations, which has been recorded in the office of the recorder in the county where the Property is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute;  and

(viii) a copy of the certificate of occupancy or amended certificate of occupancy for the Premises.

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EXHIBIT D

SECRETARY’S CERTIFICATE

I, , the duly elected and acting Secretary of , a corporation (the “Corporation”), hereby certify that:

(A) at a meeting of the board of directors of the Corporation held on in accordance with law and the Bylaws of the Corporation the following resolutions were duly adopted:

VOTED: a.To approve a lease of approximately square feet of space for terms of years with respect to in the building commonly known as in , which lease grants the Corporation an option to extend the term for ___________ terms of years each, substantially in the form of the draft presented at this meeting, a copy of which shall be placed on file in the office of the [Secretary/Clerk] and be incorporated by reference in this vote;

a.To authorize and , or any one of them (each hereinafter referred to as a “Signatory”), to execute and deliver in the name and on behalf of the Corporation the above‑described lease and to execute and deliver all other documents, agreements and instruments, including, without limitation, notices of lease, and to take all other actions with respect to the foregoing which any Signatory, in such Signatory’s discretion, shall determine to be necessary or appropriate to effect or secure the transactions contemplated herein, the execution and delivery of any of the foregoing or the taking of any such action to be conclusive evidence of such Signatory’s determination and of the Signatory’s authority so to do granted by this vote;

(B) as of this date the following individuals are duly elected and qualified officers of the Corporation holding at this date, the offices specified next to their names and the signature next to each such name is such individual’s true signature.

NAME OFFICE SIGNATURE

(C) The form of lease attached to this Certificate is the form referred to in the foregoing vote.

(D) The resolutions set forth above are unmodified and continue to be in full force and effect and the Corporation has adopted no other resolutions in respect of the subject matter thereof.

In witness whereof, I have hereunto set my hand and affixed the seal of the Corporation this day of , 20__.

Secretary

EXHIBIT E

LEED Requirements

1.Tenant agrees to provide to Landlord, no less than quarterly, information showing Tenant’s monthly energy and water consumption data and monthly waste and recycle volumes in connection with Tenant’s use of the Premises, to be used by Landlord for purposes of monitoring and improving building efficiencies, and pursuant to reporting requirements of the USGBC, Energy Star and other sustainability reporting programs.  From time to time, Landlord may require that Tenant disclose employee commuting methods and complete and return promptly tenant satisfaction surveys.  Tenant shall not be required to prepare or furnish any information that is not otherwise maintained by Tenant in the ordinary course of business.

2.Plumbing Fixtures.  For new installations and whenever plumbing fixtures are being replaced, Tenant shall install fixtures according to the following specifications or code minimum requirements, whichever is more stringent:

(a)Water closets with a flush volume not to exceed 1.28 gallons per flush and be WaterSense labelled for tank-type fixtures.

(b)Urinals not to exceed 0.125 gallons per flush and be WaterSense labelled.

(c)Lavatory faucets with a flow rate not to exceed 0.35 gallons per minute.

(d)Break room and kitchen type faucets with a flow rate not to exceed 1.5 gallons per minute.

(e)Showerheads with a flow rate not to exceed 1.5 gallons per minute and be WaterSense labelled.

3.Appliances.  All Tenant installed dishwashers, ice makers and refrigerators shall be Energy Star certified.

4.Lighting.  For new lighting system installation and whenever lighting systems are being replaced, Tenant shall install lighting systems that are at least 15% more efficient than ASHREA 90.1-2010 requirements on a watt per square foot basis or meet the minimum code requirements, whichever is more stringent.

5.Refrigerants.  For new installations of HVAC equipment and any other equipment that contains more than 0.5 pounds of refrigerant, Tenant shall install mechanical cooling equipment free of ozone depleting substances.  No use of CFC-based refrigerants is permitted.  Tenant is not permitted to install fire suppression systems with CFCs or HCFCs.

6.Ongoing Consumables Recycling.  Tenant agrees to recycle the following items:  (i) Paper; (ii) Cardboard; (iii) Plastics; (iv) Aluminum Cans/Metals; and (v) Glass.  Additionally, Tenant will have access to the Base Building’s battery and electronic waste recycling programs.

7.Ventilation.  Mechanical ventilation systems must be designed using the ventilation rate procedure as defined by ASHRAE 62.1-2010.  Meet the minimum requirements of Sections 4 through 7 of ASHRAE Standard 62.1-2007, Ventilation for Acceptable Indoor Air Quality (with errata but without addenda) or meet the minimum code requirements, whichever is more stringent.

8.Smoking.  Smoking is prohibited within the Building and within 25 feet of entries, outdoor air intakes, and operable windows.

9.CO₂ Sensors.  Tenant shall install monitor CO₂ concentrations within all densely occupied spaces, those spaces having more than 25 occupants per 1,000 square feet.

10.Cross-Contamination Prevention.  Tenant shall design exhaust system of each space where hazardous gases or chemicals may be present using a minimum 0.50 cfm per square foot rate and provide self-closing doors and deck-to-deck or hard-lid ceiling.

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EXHIBIT F

Landlord’s Work

See attached.

BUILDING SHELL DEFINITION

3030 Science Park Drive, San Diego, CA 92121

GENERAL BASE BUILDING INFORMATION

Square Footage

3030: 94,457 RSF

PROJECT DATA

Item	3030 Building
Delivery Condition	Cold Shell
Construction Type	Type V-A Fully Sprinklered
Number of Stories	3 over subterranean parking
Control Areas	Up to code maximum
Floor to Floor Height	12’-6” all floors
Structural Loading	Allowable Floor Loading 80-125psf
Shipping/Receiving	Grade Level (Level 1)

All systems and the building are provided as-is serving a cold shell condition. Connectivity and further modifications shall be incorporated into the Tenant Improvements

DESIGN

Design, grading permits, construction permits, and all associated fees in connection with the core and shell are included in the Landlord Improvements.

SITE WORK

A. All site redevelopment scope including asphalt paving where applicable, curb and gutter, concrete walkways, parking deck/garage in its as-is condition, landscaping, storm drains, exterior lighting including code required egress lighting, and any code required ADA parking or path of travel to the right of way will be provided with the building shell.  Outdoor furnishings will be provided at the 3040 amenities areas and at select locations on the site.

B. All existing server, gas, water, and electrical services as follows:

1. Fire Service

3030: 1 (one) 6” service

2. Sanitary Sewer

3030: 1 (one) 4” and 2 (two) 6” mains

3. Industrial Waste – branch tee off of sanitary main to a sampling port stubbed into the building for future connection of Tenant Improvement branch lines and fixtures.

4. Domestic Water

3030: 1 (one) 4” main service and 1 (one) 2-1/2” main service (capped and not used)

5. Natural Gas

3030: One 3-inch service and meter

6. Electrical

3030: 480/277V, 3 phase 4000A

7. Landscape: irrigation service and associated meter(s) or backflow devices tied into campus service.

8. Low Voltage 2 ea - 4” underground conduit raceways for incoming cabling from communication utility providers and additional conduits interconnecting the buildings.

APPLICABLE CODES

The shell condition deliverable of the project was designed to comply with all applicable Codes and Regulations, enforced by the Authority Having Jurisdiction (AHJ), that were in effect on 26 November 2019.

SHELL OUTLINE SPECIFICATIONS

BUILDING ENVELOPE

The building envelope will be in compliance with the applicable energy standards.

BUILDING SKIN

New aluminum curtainwall with insulated high performance low ‘E’ glass and curved vertical accent fins.

STAIRWAYS

Existing exit stairs to remain.

RESTROOMS

New restrooms, and their associated utilities, are to be installed as part of the Tenant Improvements.

COMMON AREAS

The main lobby will be provided in its as-is condition with additional improvements to be part of the Tenant Improvements.

FINISHES

None, interior perimeter wall furring and all other finishes to be provided as part of the Tenant Improvements.

CONVEYING SYSTEMS

The following elevators are existing:

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Hydraulic Elevators (125 fpm):

-One (1) 2500#passenger

-One (1) 4,000#service.

Cab finishes upgrades will be part of the Tenant Improvements

FIRE PROTECTION

Fire protection – A full building shell fire sprinkler system meeting Ordinary Hazard Group 2 density per the CBC, CFC and NFPA requirements is provided with the branch mains run within the rate floor assembly.  

Fire Alarm System- A new fully functional Notifier fire alarm system monitoring elevators and fire protection flow switches is provided and the system may be expandable to incorporate future Tenant Improvements.

Fireproofing and Horizontal Separations ^sep Structural - Fireproofing and firesafing is included as required to comply with Building Type V A (3030) including horizontal control area separation for each floor, which could be further subdivided into different control areas. Vertical control area walls and separation will be part of the Tenant Improvements.

CENTRAL PLANT

The existing chilled water plant may be utilized to serve general office HVAC loads. The plant will consist of water-cooled chillers and associated cooling towers with a combined maximum capacity of up to 1150 tons (170 sf/ton) to serve the Complex.

HVAC

The existing parking garage exhaust system will remain.

Shell Ventilation – Ducted ventilation of service areas.  The existing electrical, elevator machine and other utility room will be served by their existing ventilation systems as required to meet code and necessary for equipment or environmental conditions.

HVAC – The following HVAC infrastructure is available for re-use as part of the Tenant Improvement:

Four(4) Energy Labs existing air handlers (AHU 2-1, 2-2, 2-3, 2-4) total 130,000 CFM and 12(twelve) Strobic exhaust fans total 168,000 CFM are available for re-use.

Boiler: None, shall be included as part of the Tenant Improvement Allowance and in accordance with final mechanical and HVAC spec.

ELECTRICAL

Primary power services and associated switchgear are existing as follows:

3030: 480/277v 3 phase 4000A

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Tenant Improvement Electrical – Existing electrical distribution to Tenant Improvement HVAC is available for re-use as part of the Tenant Improvements:

Emergency Power - The following emergency generators and UPS system are available for potential use by Tenant:

- A dedicated existing 800KW generator can be utilized with the serviced areas to be included as part of the Tenant Improvement Allowance.

Security - A card access system serving main building entry points and the campus amenities spaces will be managed by the Landlord.

PLUMBING

See site utilities section above for main plumbing services provide.

Tenant Improvement Plumbing - The following existing plumbing and lab utility equipment are available for re-use as part of the Tenant Improvements:

3030:

Laboratory Vacuum Skid/System (Duplex, rotary vane)

Laboratory Compressed Air System (Duplex, rotary screw system with dryer)

Laboratory RO DI water skid

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

EXCHANGE ACT RULES 13a-14(a)/15d-14(a) AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Terry M. Rich, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Surgalign 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 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 controls over financial reporting.

/s/ Terry M. Rich	Dated: May 10, 2021
Terry M. Rich
President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

EXCHANGE ACT RULES 13a-14(a)/15d-14(a) AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jonathon M. Singer, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of Surgalign 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 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 controls over financial reporting.

/s/ Jonathon M. Singer	Dated: May 10, 2021
Jonathon M. Singer
Chief Financial and Operating Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of RTI Surgical Holdings, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Terry M. Rich, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §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.

/s/ Terry M. Rich	Dated: May 10, 2021
Terry M. Rich
President and Chief Executive Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of this Report or as a separate disclosure document.  A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of RTI Surgical Holdings, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jonathon M. Singer, Chief Financial and Operating Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §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.

/s/ Jonathon M. Singer	Dated: May 10, 2021
Jonathon M. Singer
Chief Financial and Operating Officer

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of this Report or as a separate disclosure document.  A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2021	May 03, 2021
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2021
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Trading Symbol	SRGA
Entity Registrant Name	SURGALIGN HOLDINGS, INC.
Entity Central Index Key	0001760173
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		110,365,085
Entity File Number	001-38832
Entity Tax Identification Number	83-2540607
Entity Address, Address Line One	520 Lake Cook Road
Entity Address, Address Line Two	Suite 315
Entity Address, City or Town	Deerfield
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60015
City Area Code	224
Local Phone Number	303-4651
Document Quarterly Report	true
Document Transition Report	false
Entity Incorporation, State or Country Code	DE
Entity Interactive Data Current	Yes
Security Exchange Name	NASDAQ
Title of 12(b) Security	common stock, $0.001 par value

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Current Assets:
Cash and cash equivalents	$ 63,763	$ 43,962
Accounts receivable - less allowances of $10,183 at March 31, 2021 and $8,203 at December 31, 2020	29,325	27,095
Inventories - current	22,852	22,841
Prepaid and other current assets	5,001	10,284
Total current assets	120,941	104,182
Non-current inventories	10,378	7,856
Property and equipment - net	526	521
Other assets - net	12,398	10,145
Total assets	144,243	122,704
Current Liabilities:
Accounts payable	13,140	13,418
Accrued expenses	30,816	21,644
Accrued income taxes	12,061	11,761
Total current liabilities	56,017	46,823
Acquisition contingencies	37,726	47,519
Other long-term liabilities	4,116	4,192
Total liabilities	97,859	98,534
Commitments and contingencies (Note 16)
Stockholders' equity:
Common stock, $.001 par value: 150,000,000 shares authorized; 110,305,246 and 81,678,179 shares issued and outstanding, as of March 31, 2021 and December 31, 2020, respectively	110	81
Additional paid-in capital	554,537	517,123
Accumulated other comprehensive loss	(2,345)	(2,416)
Accumulated deficit	(500,152)	(484,962)
Less treasury stock, 1,491,461 and 1,444,578 shares, as of March 31, 2021 and December 31, 2020, respectively, at cost	(5,766)	(5,656)
Total stockholders' equity	46,384	24,170
Total liabilities and stockholders' equity	$ 144,243	$ 122,704

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Statement Of Financial Position [Abstract]
Accounts receivable, allowances	$ 10,183	$ 8,203
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	110,305,246	81,678,179
Common stock, shares outstanding	110,305,246	81,678,179
Treasury stock, shares	1,491,461	1,444,578

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Condensed Consolidated Statements of Comprehensive Income / (Loss) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Statement [Abstract]
Revenues	$ 23,291	$ 27,102
Cost of goods sold	6,238	9,224
Gross profit	17,053	17,878
Expenses:
Marketing, general and administrative	25,943	37,193
Research and development	2,875	4,282
Severance and restructuring costs	218
Gain on acquisition contingency	(51)
Asset impairment and abandonments	2,176	1,879
Transaction and integration expenses	322	2,409
Total operating expenses	31,483	45,763
Operating loss	(14,430)	(27,885)
Other income (expense):
Interest income	4	50
Foreign exchange loss	(545)	(244)
Total other expense - net	(541)	(194)
Loss before income tax benefit	(14,971)	(28,079)
Income tax (expense) benefit	(219)	3,539
Net loss from continuing operations	(15,190)	(24,540)
Discontinued operations (Note 3)
Income from operations of discontinued operations		6,677
Net income from discontinued operations		6,677
Net loss applicable to common shares	(15,190)	(17,863)
Other comprehensive gain (loss):
Unrealized foreign currency translation gain (loss)	71	(370)
Comprehensive loss	$ (15,119)	$ (18,233)
Net loss from continuing operations per common share - basic	$ (0.15)	$ (0.34)
Net loss from continuing operations per common share - diluted	$ (0.15)	(0.34)
Net income from discontinued operations per common share - basic		0.09
Net income from discontinued operations per common share - diluted		$ 0.09
Weighted average shares outstanding - basic	98,109,900	72,864,390
Weighted average shares outstanding - diluted	98,109,900	72,864,390

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Condensed Consolidated Statement of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Loss [Member]	Accumulated Deficit [Member]	Treasury Stock [Member]
Beginning Balance at Dec. 31, 2019	$ 34,564	$ 75	$ 498,438	$ (7,629)	$ (451,179)	$ (5,141)
Net loss	(17,863)				(17,863)
Foreign currency translation adjustment	(370)			(370)
Exercise of common stock options	20		20
Stock-based compensation	1,310		1,310
Purchase of treasury stock	(193)					(193)
Amortization of preferred stock series A issuance costs	(44)		(44)
Ending Balance at Mar. 31, 2020	17,424	75	499,724	(7,999)	(469,042)	(5,334)
Beginning Balance at Dec. 31, 2020	24,170	81	517,123	(2,416)	(484,962)	(5,656)
Net loss	(15,190)				(15,190)
Foreign currency translation adjustment	71			71
Exercise of common stock options	23		23
Stock-based compensation	936		936
Purchase of treasury stock	(110)					(110)
Share offering	36,484	29	36,455
Ending Balance at Mar. 31, 2021	$ 46,384	$ 110	$ 554,537	$ (2,345)	$ (500,152)	$ (5,766)

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Cash flows from operating activities:
Net loss	$ (15,190)	$ (17,863)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense	520	2,239
Provision for bad debts and product returns	1,978	406
Provision for inventory write-downs	2,754	517
Revenue recognized due to change in deferred revenue		(1,188)
Deferred income tax benefit		(383)
Stock-based compensation	936	1,310
Asset impairment and abandonments	2,176	1,879
Gain on acquisition contingency	(51)
Paid in kind interest expense		1,415
Other	58	277
Change in assets and liabilities:
Accounts receivable	(4,280)	3,853
Inventories	(5,636)	(2,706)
Accounts payable	(238)	9,437
Accrued expenses	9,659	4,412
Deferred revenue		4,161
Other operating assets and liabilities	(7,212)	(1,250)
Net cash (used in) provided by operating activities	(14,526)	6,516
Cash flows from investing activities:
Purchases of property and equipment	(2,321)	(5,084)
Patent and acquired intangible asset costs	(161)	(286)
Net cash used in investing activities	(2,482)	(5,370)
Cash flows from financing activities:
Proceeds from exercise of common stock options	23	20
Payments for treasury stock	(110)	(193)
Share offering proceeds, net	36,484
Net cash provided by (used in) financing activities	36,397	(173)
Effect of exchange rate changes on cash and cash equivalents	412	(24)
Net increase in cash and cash equivalents	19,801	949
Cash and cash equivalents, beginning of period	43,962	5,608
Cash and cash equivalents, end of period	63,763	6,557
Supplemental cash flow disclosure:
Cash paid for interest		2,081
Net income tax payments (refunds)	7	(1,695)
Non-cash acquisition of property and equipment	$ 397	$ 247

XML

Business

3 Months Ended

Mar. 31, 2021

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Business

1. Business

Surgalign Holdings, Inc. (the “Company”), (formerly known as RTI Surgical Holdings, Inc. (“RTI”)) is a global medical technology company committed to the promise of digital surgery and is building out its digital surgery platform to drive transformation across the surgical landscape. The Company has a broad portfolio of spinal hardware implants, including solutions for fusion procedures in the lumbar, thoracic, and cervical spine, motion preservation solutions for the lumbar spine, and a minimally invasive surgical implant system for fusion of the sacroiliac joint. The Company also has a portfolio of advanced and traditional orthobiologics, or biomaterials. In addition to its spinal hardware and biomaterials portfolios, the Company is developing an Augmented Reality and Artificial Intelligence digital surgery platform called ARAI^TM   (referred to “ARAI”) to enable digital spine surgery, which the Company believes is one of the most advanced artificial intelligence technologies being applied to surgery. ARAI is designed to automatically segment, identify, and recognize patient anatomy to autonomously assist the surgeon throughout the surgical procedure. This proprietary artificial intelligence-based platform system is an intelligent anatomical mapping technology designed to assist surgeons by allowing them to remain in safe anatomical zones, and to enhance surgical performance. The Company plans to leverage its digital surgery platform to improve patient outcomes and drive adoption of its spinal hardware implants and biomaterials products. The Company is developing a pipeline of new innovative technologies that it plans to integrate with its digital surgery platform. The Company currently markets and sells products to hospitals, ambulatory surgery centers, and healthcare providers in the United States and in more than 40 countries worldwide. The Company is headquartered in Deerfield, Illinois, with commercial, innovation and design centers in San Diego, CA; Wurmlingen, Germany; and Warsaw, Poland.

OEM Disposition

On July 20, 2020, pursuant to the Equity Purchase Agreement, dated as of January 13, 2020 (as amended from time to time, the “OEM Purchase Agreement”), by and between the Company and Ardi Bidco Ltd. (the “Buyer”), the Company completed the sale of its former original equipment manufacturing business and business related to processing donated human musculoskeletal and other tissue and bovine and porcine animal tissue in producing allograft and xenograft implants using BIOCLEANSE®, TUTOPLAST® and CANCELLE®SP sterilization processes (collectively, the “OEM Businesses”) to Buyer and its affiliates for a purchase price of $440 million of cash, subject to certain adjustments (the “Transactions”). More specifically, pursuant to the terms of the OEM Purchase Agreement, the Company sold to the Buyer and its affiliates all of the issued and outstanding shares of RTI OEM, LLC (which, prior to the Transactions, was converted to a corporation and changed its name to “RTI Surgical, Inc.”), RTI Surgical, LLC (which, prior to the Transactions, was converted to a corporation and changed its name to “Pioneer Surgical Technology, Inc.”), Tutogen Medical, Inc.(United States) and Tutogen Medical GmbH. The Transactions were previously described in the Proxy Statement filed by the Company with the SEC on June 18, 2020. Subsequent to the Transactions, the Company changed its name to Surgalign Holdings, Inc, operating through its primary subsidiary, Surgalign Spine Technologies, Inc. Where obvious and appropriate from the context, references herein to Surgalign or the Company refer to the Company including the disposed OEM Businesses.

Prior to the sale of the OEM Businesses, the Company operated two reportable segments: Spine and OEM.  Subsequent to the sale of the OEM Businesses, the Company operates only one reportable segment. Refer to Note 3 for further discussion on Discontinued Operations.

COVID-19

The coronavirus (COVID-19) pandemic, as well as the corresponding governmental response and the Company’s management of the crisis has had a significant impact on the Company’s business. The consequences of the outbreak and impact on the economy continues to evolve and the full extent of the impact is uncertain as of the date of this filing. The outbreak has brought a significant disruption to the operations of the Company.

Beginning in 2020, many hospitals and other medical facilities canceled elective surgeries, reduced and diverted staffing and diverted other resources to patients suffering from the infectious disease and limited hospital access for non-patients, including the Company’s direct and indirect sales representatives. Because of the COVID-19 pandemic, surgeons and their patients have been required, or are choosing, to defer procedures in which the Company’s products would be used, and many facilities that specialize in the procedures in which the Company’s products would be used have closed or reduced operating hours. These circumstances have negatively impacted the ability of the Company’s employees and distributors to effectively market and sell its products. In addition, even after the pandemic has subsided and/or governmental orders no longer prohibit or recommend against performing such procedures, patients may continue to defer such procedures out of concern of being exposed to coronavirus for other reasons.

The COVID-19 pandemic has also caused adverse effects on general commercial activity and the global economy, which has led to an economic slowdown or recession, and which has adversely affected the Company’s business, operating results or financial condition. The adverse effect of the pandemic on the broader economy has also negatively affected demand for procedures using the Company’s products, and could cause one or more of the Company’s distributors, customers, and suppliers to experience financial distress, cancel, postpone or delay orders, be unable to perform under a contract, file for bankruptcy protection, go out of business, or suffer disruptions in their business. This could impact the Company’s ability to provide products and otherwise operate its business, as well as increase its costs and expenses.

The COVID-19 pandemic has also led to and could continue to lead to severe disruption and volatility in the global capital markets, which could increase the Company’s cost of future capital and adversely affect its ability to access the capital markets in the future.

The Company cannot predict when its operations will return to pre-pandemic levels and will continue to carefully monitor the situation and the needs of the business.

The above and other continued disruptions to the Company’s business as a result of COVID-19 has resulted in a material adverse effect on its business, operating results and financial condition. Although vaccines have recently been made available, it remains uncertain when our business will return to normal operations. The full extent to which the COVID-19 pandemic will impact the Company’s business will depend on future developments that are highly uncertain and cannot be accurately predicted, including the possibility that new adverse information may emerge concerning COVID-19 and additional actions to contain it or treat its impact may be required.

Going Concern

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with generally accepted accounting principles in the United States of America. The going concern basis of presentation assumes that we will continue in operation one year after the date these unaudited condensed consolidated financial statements are issued, and we will be able to realize our assets and discharge our liabilities and commitments in the normal course of business.

As of March 31, 2021, we had cash of $63,763 and an accumulated deficit of $500,152. For the three months ended March 31, 2021, we had a loss from continuing operations of $15,190. We have incurred losses from operations in the previous two fiscal years and did not generate positive cash flows from operations in fiscal year 2020 or for the three months ended March 31, 2021.    

On February 1, 2021, we closed a public offering and sold a total 28,700,000 shares of our common stock at a price of $1.50 per share, less the underwriter discounts and commissions. We received net proceeds of $40,467 from the offering after deducting the underwriting discounts and commission of $3,983.

The Company is projecting it will continue to generate significant negative operating cash flows over the next 12-months and beyond.  In consideration of i) COVID-19 uncertainties, ii) negative cash flows that are projected over the next 12-month period, iii) the $14,860 of Federal income tax liability paid in April 2021 related to the gain on sale of the OEM Businesses, and iv) approximately $8,993 of the total contingent consideration of $50,632 are expected to become due to the former owners of Holo Surgical if regulatory approval in the US is obtained in 2021, which would be paid through combination of common stock and cash; the Company has forecasted the need to raise  additional capital in order to continue as a going concern.  The Company’s operating plan for the next 12-month period also includes continued investments in its product pipeline which will necessitate additional debt and/or equity financing in addition to the funding of future operations through 2021 and beyond. The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If cash resources are insufficient to satisfy the Company’s on-going cash requirements through 2021, the Company will be required to scale back operations, reduce research and development expenses, and postpone, as well as suspend capital expenditures, in order to preserve liquidity. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

In consideration of the inherent risks and uncertainties and the Company’s forecasted negative cash flows as described above, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one year after the date the unaudited condensed consolidated financial statements are issued. Management continually evaluates plans to raise additional debt and/or equity financing and will attempt to curtail discretionary expenditures in the future, if necessary; however, in consideration of the risks and uncertainties mentioned, such plans cannot be considered probable of occurring at this time.  

The recoverability of a major portion of the recorded asset amounts shown in the Company’s accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its funding requirements on a continuous basis, to maintain existing financing and to succeed in its future operations. The Company’s unaudited condensed consolidated financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

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Basis of Presentation

3 Months Ended

Mar. 31, 2021

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the results of operations for the periods shown.  The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, therefore, do not include all information and footnotes necessary for a fair presentation of the unaudited condensed consolidated financial position, results of operations, comprehensive loss and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP often requires us to make estimates and judgments that affect reported amounts. These estimates and judgments are based on historical experience and assumptions that we believe to be reasonable under the circumstances. Assumptions and judgments based on historical experience may provide reported results which differ from actual results; however, these assumptions and judgments historically have not varied significantly from actual experience and we therefore do not expect them to vary significantly in the future. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. The Company includes acquisition, disposal, integration and separation related costs, which are predominantly composed of legal, consulting, advisor fee expenses, within the “Transaction and integration expense” line on the condensed consolidated comprehensive loss.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Surgalign Spine Technologies, Inc., Paradigm Spine, LLC (“Paradigm”), Pioneer Surgical Technology, Inc. (“Pioneer Surgical”), Zyga Technology, Inc. (“Zyga”) and Holo Surgical Inc. (“Holo Surgical”). The operating results of the disposed OEM Businesses have been reported as discontinued operations in the unaudited condensed consolidated financial statements in the prior comparative periods.

For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Immaterial restatement of earnings per share (EPS)

The Company identified errors in the calculation of its historical basic and diluted EPS.  In the historical periods presented in the filing, the weighted average basic and diluted shares incorrectly included treasury stock, restricted stock awards, and restricted stock units.  The weighted average shares used in the restated basic and diluted EPS from continuing operations and discontinued operation has been corrected.

Significant New Accounting Policies

Internal use Software- The Company accounts for its costs to develop computer software for internal use in accordance with Accounting Standards (“ASC”) 350-40, Internal use Software. These costs are directly attributable to the development and implementation of the new ERP system.  The Company capitalizes the costs incurred during the application development stage, which generally include costs to design the software configuration and interfaces, coding, installation and testing.

The Company begins capitalizing qualifying costs when both the preliminary project stage is complete, and management has authorized further funding.  Costs incurred during the preliminary project stage along with post implementation stages of internal use software are expensed as incurred. Capitalized development costs are currently being accumulated within CIP and are evaluated for impairment on a quarterly basis.

Liquidity      

As the global outbreak of COVID-19 continues to rapidly evolve, it could continue to materially and adversely affect our revenues, financial condition, profitability, and cash flows for an indeterminate period of time.

As discussed in Note 18, the Securities and Exchange Commission (“SEC”) has an active investigation that remains ongoing.  The Company continues to cooperate with the SEC in relation to the investigation. Based on current information available to the Company, the impact associated with SEC investigation and related shareholder and derivative litigation may have on the Company cannot be reasonably estimated.

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Discontinued Operations

3 Months Ended

Mar. 31, 2021

Discontinued Operations And Disposal Groups [Abstract]

Discontinued Operations

3. Discontinued Operations

In connection with the Transactions, on July 20, 2020, the Company completed the disposition of its OEM Businesses. Accordingly, the OEM Businesses are reported as discontinued operations in accordance with ASC 205-20, Discontinued Operations (“ASC 205-20”). The results of operations from the OEM Businesses are classified as discontinued operations in the condensed consolidated statements of comprehensive income/(loss). There were no assets or liabilities of the OEM Businesses as of December 31, 2020 or March 31, 2021 due to the transaction occurring on July 20, 2020. Applicable amounts in prior years have been recast to conform to this discontinued operations presentation.  

The following table presents the financial results of the discontinued operations:

	Three Months Ended March 31,
	2020
Major classes of line items constituting net income from discontinued operations
Revenues	$	46,625
Costs of processing and distribution		24,049
Gross profit		22,576
Expenses:
Marketing, general and administrative		5,460
Transaction and integration expenses		6,872
Total expenses		12,332
Operating income		10,244
Other expense:
Interest expense		(3,565	)
Foreign exchange loss		(2	)
Total other expense - net		(3,567	)
Income from discontinued operations		6,677
Income tax provision		—
Net Income from discontinued operations	$	6,677

In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations. As such, the marketing and general and administrative expenses in discontinued operations include corporate costs incurred directly to solely support the Company’s OEM Businesses.

Pursuant to the OEM Purchase Agreement, The Company and the Buyer have also entered into a Transition Services Agreement, through which the disposed OEM Businesses will provide to the Company transitional services related to IT support, customer and vendor management, procurement and other services for periods ranging from 3 to 12 months after the disposal.   

The Company applied the “Intraperiod Tax Allocation” rules under ASC 740, Income Taxes (“ASC 740”), which requires the allocation of an entity’s total annual income tax provision among continuing operations and, in the Company’s case, discontinued operations.

On December 1, 2020, pursuant to the OEM Purchase Agreement, the Company received a notice from the Buyer indicating that a post-closing adjustment in an amount of up to $14 million may be owed in respect of the working capital adjustment paid at closing. The Company disagrees with Buyer’s proposed post-closing adjustment and is disputing the adjustment in accordance with the terms of the OEM Purchase Agreement. The Company updated the working capital adjustment for $1.4 million which was agreed with the Buyer as part of the adjustment report and recorded the amount in Q4 2020 in the discontinued operations.

Total operating and investing cash flows of discontinued operations for the three months ended March 31, 2020 is comprised of the following, which exclude the effect of income taxes:

	Three Months Ended
	March 31,
	2020
Significant operating non-cash reconciliation items:
Depreciation and amortization	$	941
Provision for bad debt and products returns	$	6
Revenue recognized due to change in deferred revenue	$	(1,188	)
Stock-based compensation	$	124
Paid in kind interest expense	$	1,415
Significant investing items:
Purchases of property and equipment	$	(1,459	)
Patent and acquired intangible asset costs	$	(286	)

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Revenue from Contracts with Customers

3 Months Ended

Mar. 31, 2021

Revenue From Contract With Customer [Abstract]

Revenue from Contracts with Customers

4. Revenue from Contracts with Customers

The Company recognizes revenue upon transfer of control of promised products in an amount that reflects the consideration it expects to receive in exchange for those products. The Company typically transfers control at a point in time upon shipment or delivery of the implants for direct sales, or upon implantation for sales of consigned inventory. The customer is able to direct the use of, and obtain substantially all of the benefits from, the implant at the time the implant is shipped, delivered, or implanted, respectively based on the terms of the contract.

Disaggregation of Revenue

The Company’s entire revenue for the three months ended March 31, 2021 and 2020 were recognized at a point in time. The following table represents total revenue by geographical region for the three months ended March 31, 2021 and 2020, respectively:   

	For the Three Months Ended
	March 31,
	2021		2020
Revenues:
Domestic	$	19,849	$	22,272
International		3,442		4,830
Total revenues from contracts with customers	$	23,291	$	27,102

The Company’s performance obligations consist mainly of transferring control of implants identified in the contracts. Some of the Company’s contracts offer assurance-type warranties in connection with the sale of a product to a customer. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation and are not material to the unaudited condensed consolidated financial statements.

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Holo Surgical Acquisition

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

Holo Surgical Acquisition

5. Holo Surgical Acquisition

On September 29, 2020, the Company entered into a Stock Purchase Agreement (the “Holo Purchase Agreement”), with Roboticine, Inc, a Delaware corporation (the “Seller”), Holo Surgical S.A., a Polish joint-stock company (“Holo S.A.”), Pawel Lewicki, PhD (“Lewicki”), and Krzysztof Siemionow, MD, PhD (“Siemionow”), which provides for the Company to acquire all of the issued and outstanding equity interests in Holo Surgical Inc., a Delaware corporation and a wholly owned subsidiary of the Seller (“Holo Surgical”). The Seller, Holo S.A., Lewicki and Siemionow are together referred to herein as the “Seller Group Members”. The Acquisition was closed on October 23, 2020.

As consideration for the Holo Acquisition, the Company paid to the Seller $30,000 in cash and issued to the Seller 6,250,000 shares of common stock, par value $0.001 of the Company (“Common Stock”). In addition, the Seller is entitled to receive contingent consideration from the Company valued in an aggregate amount of up to $83 million, to be paid through the issuance of Common Stock or the payment of cash, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing. The Purchase Agreement provides that the Company will issue Common Stock to satisfy any contingent consideration payable to the Seller, until the total number of shares of Common Stock issued to the Seller pursuant to the Purchase Agreement (including the 6,250,000 shares of Common Stock issued

at closing) is equal to 14,900,000 shares of Common Stock. Following the attainment of that limitation, the post-closing contingent payments would be payable in cash. The number of shares of Common Stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the Common Stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone. The Purchase Agreement also includes certain covenants and obligations of the Company with respect to the operation of the business of Holo Surgical that apply during the period in which the milestones may be achieved.

The Company determined that substantially all of the fair value was concentrated in the acquired in-process research and development (“IPR&D”) asset in accordance with the guidance of ASC 805, Business Combinations. As such, the acquisition was accounted for as an asset acquisition. The total consideration of the asset acquisition was determined to be $94,999, which consisted of a cash consideration of $30,000, $12,250 of the 6,250,000 shares of Common Stock issued to the Seller, direct and incremental costs of $2,117 incurred for the Holo Acquisition, and an estimated fair value of $50,632 related to the contingent consideration. The Company has determined that the contingent consideration was part of the consideration of the asset acquisition and was accounted for as a liability at fair value on the acquisition date of October 23, 2020 in accordance with ASC 480, Distinguishing Liabilities from Equity. Subsequently, the liability shall be marked to market at the end of each reporting period with any change recognized in current earnings. The fair value of the liability was $56,464 as of March 31, 2021 with $18,738 classified as current liabilities within accrued expenses while $37,726 is included as other long-term liabilities. The change in the fair value of the liability of $51 since December 31, 2020 was recognized in the gain (loss) on acquisition contingency line of the condensed consolidated statements of comprehensive income/(loss). 

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2021

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

6. Stock-Based Compensation

In the first three months of 2021, the Company granted 173,683 stock options, and 78,084 restricted stock awards under its 2018 Incentive Compensation Plan.     

For the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation as follows:

	For the Three Months Ended
	March 31,
	2021		2020
Stock-based compensation:
Costs of goods sold	$	21	$	36
Marketing, general and administrative		889		1,135
Research and development		26		15
Total	$	936	$	1,186

For the three months ended March 31, 2021 and 2020, the Company incurred $0 and $124, respectively, of stock-based compensation expense related to the disposed OEM Businesses. These expenses have been presented in the results from discontinued operations.

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Net Loss Per Common Share

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Net Loss Per Common Share

7. Net Loss Per Common Share

A reconciliation of the number of shares of common stock used in the calculation of basic and diluted net income per common share is presented below:

	For the Three Months Ended
	March 31,
	2021		2020
Weighted average basic and dilutive shares		98,109,900		72,864,390

For the three months ended March 31, 2021 and 2020, the Company has recorded a net loss from its continuing operations. As a result, the Company has excluded all potential dilutive shares from the computation of the diluted net loss per common share to avoid the anti-dilutive effect.

The following table includes the number of potential dilutive shares that were excluded due to the anti-dilutive effect:

	For the Three Months Ended
	March 31,
	2021		2020
Stock Option		781,144		484,518
RSU and RSA		886,434		1,119,133
Convertible Series A Preferred Stock		—		15,152,761
Total		1,667,578		16,756,412

For the three months ended March 31, 2021 and 2020, respectively, 4,264,055 and 2,837,404 of issued stock options were not included in the computation of diluted net loss per common share because their exercise price exceeded the average market price during the period.

On October 23, 2020, the Company completed the acquisition of Holo and became obligated for a contingent consideration in an aggregate amount of $50,632, which must be first paid in shares of the Company’s common stock (in an amount up to 8,650,000 shares) and then paid in cash thereafter, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing. The number of shares of common stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the common stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone. As of March 31, 2021, none of the contingent events have occurred. See Note 5 for further discussion of the Holo Acquisition.

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Inventories

3 Months Ended

Mar. 31, 2021

Inventory Disclosure [Abstract]

Inventories

8. Inventories

The inventory balances as of March 31, 2021 and December 31, 2020 consist entirely of finished goods and are stated on a consistent basis using the first-in, first-out method.

For the three months ended March 31, 2021 and 2020, the Company had inventory write-downs of $2,754  and $1,177, respectively.  

In January 2021, the Company received notice that the CervAlign ACP system (“CervAlign”) was recalled. As the Company was made aware of the recall in December 2020, all the product was reserved at December 31, 2020 and continues to be fully reserved for as of March 31, 2021.

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Prepaid and Other Current Assets

3 Months Ended

Mar. 31, 2021

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Prepaid and Other Current Assets

9. Prepaid and Other Current Assets

Prepaid and other current assets are as follows:

	March 31,		December 31,
	2021		2020
Income tax receivable	$	2,299	$	4,836
Prepaid expenses		1,931		1,543
Other receivable		625		3,795
Other		146		110
	$	5,001	$	10,284

Other receivable as of December 31, 2020 included fees and expenses of $3,208 related to the Company’s public offering in January 2021, which was recorded as a reduction of Additional paid-in-capital upon the receipt of the proceeds from the offering.

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Property, Plant and Equipment

3 Months Ended

Mar. 31, 2021

Property Plant And Equipment [Abstract]

Property, Plant and Equipment

10. Property and Equipment

The net book value of property and equipment after accumulated depreciation and all impairment is as follows:

	March 31,		December 31,
	2021		2020
Processing equipment	$	28	$	35
Surgical instruments		454		440
Office equipment, furniture and fixtures		29		34
Computer equipment and software		12		12
Construction in process		3		—
	$	526	$	521

For the three months ended March 31, 2021 and 2020, the Company had depreciation expense in connection with property and equipment of $520 and $935, respectively using the straight line method of depreciation.  

For the three months ended March 31, 2021 and 2020, the Company recorded asset impairment and abandonment charges of $2,176 and $1,879. The fair value of property and equipment was measured utilizing an orderly liquidation value of each of the underlying assets.

As of March 31, 2021 and December 31, 2020, the Company capitalized a total of $310 and $0 of internal software related to the implementation of a new ERP system.  These costs have been recorded within construction in process as the development is still on going.  As part of the quarterly impairment analysis the Company impaired $307 in March 2021.  In addition, the Company expensed $126 and $0 related to ERP implementation costs that were not capitalizable for the three-month periods ended March 31, 2021 and 2020 which are recorded in the “Marketing, general, and administrative” line on the condensed consolidated statements of comprehensive income/(loss).

The Company does not have any finance leases and the Company’s operating leases do not have any residual value guarantees, restrictions or covenants. The Company’s leases have remaining lease terms of 1 to 9 years, some of which include options to extend or terminate the leases. The option to extend is only included in the lease term if the Company is reasonably certain of exercising that option. Operating lease ROU assets are presented within other assets-net on the condensed consolidated balance sheets and are $1,251 and $1,425 as of March 31, 2021 and December 31, 2020, respectively.  The current portion of operating lease liabilities are presented within accrued expenses (see Note 12), and the non-current portion of operating lease liabilities are presented within other long-term liabilities (see Note 13) on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively.

Operating lease costs for the three-month periods ended March 31, 2021 and 2020 was $183 and $376, respectively. The company does not have any variable lease costs.

As of March 31, 2021, the weighted-average remaining lease term was 5.84 years. The Company’s lease agreements do not provide a readily determinable implicit rate nor is it available to the Company from its lessors. Instead, the Company estimates its incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value. The weighted-average discount rate of the Company’s operating leases was 4.93%, as of March 31, 2021.

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Fair Value Information

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Information

11. Fair Value Information

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for classification and disclosure of fair value measurements as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Acquisition Contingencies

Zyga - On January 4, 2018, the Company acquired Zyga Technology, Inc. (“Zyga”) as further explained in Note 16 below. As of March 31, 2020, and December 31, 2019, based on a probability weighted model, the Company estimated a contingent liability related to the clinical and revenue milestones of $1,130. The fair value of the contingent liability was measured using Level 3 inputs. As of December 31, 2020, the Company determined that Zyga was not expected to meet the clinical milestone to earn the contingent consideration. As such, the liability for the milestone payment was reduced to zero as of December 31, 2020.

Holo - On October 23, 2020, the Company acquired Holo Surgical as previously explained in Note 5 above. A portion of the consideration is contingent upon the achievement of certain regulatory, commercial and utilization milestones (the “milestone payment”). The contingent consideration is evaluated quarterly, or more frequently, if circumstances dictate. Changes in the fair value of contingent consideration are recorded in the loss (gain) on acquisition contingency line item in the condensed consolidated statements of income/(loss). Significant changes in unobservable inputs, mainly the probability of success and cash flows projected, could result in material changes to the contingent consideration liabilities.

The Company determined the fair value of each milestone payment to be the present value of the future payment amount estimated using a probability weighted model. As of March 31, 2021 and December 31, 2020, a probability of success factor ranging from 40% to 90%, and 60% to 90%, respectively, was used in the fair value calculation to reflect inherent regulatory, development and commercial risk of the contingent payments. As of March 31, 2021 and December 31, 2020, the discount rate applied ranged from 0.06% to 9.39%, and 0.11% to 16.86%, respectively. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the milestone payments is based on several factors, such as: the probability of expected achievement of the specific milestones, including risks associated with uncertainty regarding achievement and payment of milestones; obtaining regulatory approvals in the United States and Europe; development of new features used with the product; adaption of the new technology by surgeons; and placement of the devices within the field.

As of December 31, 2020, the fair value of the contingent liability was $56,515 with $8,996 classified current liability included within the accrued expenses line and $47,519 as long-term liability included within other long-term liabilities. As of March 31, 2021, the fair value of the contingent liability was $56,464 with $18,738 classified current liability included within the accrued expenses line and $37,726 as long-term liability included within other long-term liabilities. A reconciliation of the Company’s acquisition contingencies is as follows (in thousands):

Impairment	2021			2020
Beginning balance as of January 1	$	56,515		$	1,130
(Gain) loss		(51	)		—
Purchases (settlement)		—			—
Ending balance as of March 31	$	56,464		$	1,130

Property and Equipment, Intangibles and Other Assets

Fair value is measured using Level 3 inputs for property and equipment, other intangible assets, and other assets. As of March 31, 2021, the Level 3 fair value was measured based on orderly liquidation value for the property and equipment and other assets. Other intangible assets Level 3 fair value was measured based on the income approach. Because the Company’s forecasted cash flow is negative, any intangible assets acquired during the period were immediately impaired, as the underlying business could not support the asset value.

Unobservable inputs for the orderly liquidation value included replacement costs (unobservable), physical deterioration estimates (unobservable) and market sales data for comparable assets and unobservable inputs for the income approach included forecasted cash flows generated from use of the intangible assets (unobservable).

Property and equipment, other intangibles and other assets were impaired and written down to their estimated fair values during the three months ended March 31, 2021 and year ended December 31, 2020. As a result of impairments recognized, the following table summarizes the fair value of assets subject to fair value measured using Level 3 inputs for the periods presented:

	March 31,		December 31,
Fair Value	2021		2020
Property and equipment - net	$	526	$	521
Other intangibles - net		—		—
Other assets - net (1)		12,398		10,145
	$	12,924	$	10,666

(1) Other assets subject to fair value impairment under ASC 350 and ASC 360 are a subset of Other Assets – net, as presented on the Balance Sheet

Property and equipment was impaired and written down to their estimated fair values during the three months ended March 31, 2021 and 2020. Other intangible assets and other assets were impaired and written down to their estimated fair values during the three months ended March 31, 2021. The following table summarizes the impairment of assets subject to fair value measured using Level 3 inputs for the periods presented (in thousands):

	For the Three Months Ended
	March 31,
	2021		2020
Property and equipment - net	$	1,778	$	1,879
Other intangibles - net		161		—
Other assets - net		237		—
	$	2,176	$	1,879

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Accrued Expenses

3 Months Ended

Mar. 31, 2021

Other Liabilities Disclosure [Abstract]

Accrued Expenses

12. Accrued Expenses

Accrued expenses are as follows:

	March 31,		December 31,
	2021		2020
Accrued compensation	$	2,798	$	2,268
Accrued severance and restructuring costs		218		—
Accrued distributor commissions		3,476		4,113
Accrued leases		532		650
Accrued acquisition contingency - Holo		18,738		8,996
Other		5,054		5,617
	$	30,816	$	21,644

During the first quarter of 2021, management implemented a plan as part of its reorganization which resulted in $218 of accrued severance and restructuring expense for the three months ended March 31, 2021 included in severance and restructuring costs within the condensed consolidated statements of comprehensive income/(loss). The severance plan is the transition of certain employees’ responsibilities from Marquette, MI to Chicago, IL or San Diego, CA and is composed of payroll and related healthcare expenses. The total severance and restructuring costs are anticipated to be paid in full by the third quarter of 2021 and are not expected to have a material impact on cash flows of the Company in any quarterly period. No related cash payments have been made as of March 31, 2021.

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Other long-term liabilities

3 Months Ended

Mar. 31, 2021

Other Liabilities Noncurrent [Abstract]

Other long-term liabilities

13. Other long-term liabilities

Other long-term liabilities are as follows:

	March 31,		December 31,
	2021		2020
Lease obligations	$	1,125	$	1,200
Acquisition contingencies		37,726		47,519
Other		2,991		2,991
	$	41,842	$	51,710

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Income Taxes

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

14. Income Taxes

The Company evaluates the need for deferred tax asset valuation allowances based on a more likely than not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company has evaluated all evidence, both positive and negative, and determined that its deferred tax assets are not more likely than not to be realized. In making this determination, numerous factors were considered including the Company’s cumulative losses in recent years.

For the three months ended March 31, 2021 and 2020, the Company recorded $0.2 million income tax expense and $3.5 million income tax benefit, respectively in continuing operations. The March 31, 2021 income tax provision was primarily a result of federal interest liability as a result of timing of payments. The March 31, 2020 income tax benefit was primarily impacted by the CARES Act tax benefit referenced below.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. As a result of the enactment of the CARES Act, net operating losses (“NOL’s”) can now be carried back for five years, which resulted in the Company recognizing a benefit during the first quarter of 2020 of approximately $3.5 million.

On July 20, 2020, the Company completed the disposition of its OEM Businesses and recognized a tax gain related to the OEM sale. In April 2021, the Company paid $14.9 million of Federal tax liability related to the sale of the OEM Businesses.

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Preferred Stock

3 Months Ended

Mar. 31, 2021

Equity [Abstract]

Preferred Stock

15. Preferred Stock

Preferred stock is as follows:

	Preferred Stock Liquidation		Preferred Stock Issuance			Net
	Value		Costs			Total
Balance at January 1, 2021	$	—	$	—		$	—
Amortization of preferred stock issuance costs		—		—			—
Balance at March 31, 2021		—		—			—
	Preferred Stock Liquidation		Preferred Stock Issuance			Net
	Value		Costs			Total
Balance at January 1, 2020	$	66,519	$	(109	)	$	66,410
Amortization of preferred stock issuance costs		—		46			46
Balance at March 31, 2020		66,519		(63	)		66,456

On July 17, 2020, the Company received a notification from Water Street Healthcare Partners (“WSHP”) seeking redemption on or before September 14, 2020 of all of the outstanding shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”), all of which are held by WSHP. On July 24, 2020, the Company redeemed the Series A Preferred Stock for approximately $66,519 and Certificate of Retirement was filed with the Delaware Secretary of State retiring the Series A Preferred Stock.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2021

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

16. Commitments and Contingencies

Acquisition of Paradigm – On March 8, 2019, pursuant to the Master Transaction Agreement, the Company acquired Paradigm in a cash and stock transaction valued at up to $300,000, consisting of $150,000 on March 8, 2019, plus potential future milestone payments. Paradigm’s primary product is the coflex® Interlaminar Stabilization® device, a minimally invasive motion preserving stabilization implant that is FDA premarket approved for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression.

Under the terms of the agreement, the Company paid $100,000 in cash and issued 10,729,614 shares of the Company’s common stock. The shares of Company common stock issued on March 8, 2019, were valued based on the volume weighted average closing trading price for the five trading days prior to the date of execution of the definitive agreement, representing $50,000 of value.  In addition, under the terms of the agreement, the Company may have been required to pay up to an additional $150,000 in a combination of cash and Company common stock based on a revenue earnout consideration.  The first potential earnout payment of $20,000 was based on revenues achieved during any twelve-month period ending on December 31, 2020.  As the revenue milestone was not achieved, there was no consideration due with respect to the first earnout period and the Company has no further liability with respect thereto. Based on a probability weighted model, the Company estimates a contingent liability related to the revenue based earnout of zero utilizing a Monte-Carlo simulation model. A Monte-Carlo simulation is an analytical method used to estimate fair value by performing a large number of simulations or trial runs and thereby determining a value based on the possible outcomes. Accounted for as a liability to be revalued at each reporting period, the fair value of the contingent liability was measured using Level 3 inputs, which includes weighted average cost of capital and projected revenues and costs.    

Acquisition of Zyga – On January 4, 2018, the Company acquired Zyga, a spine-focused medical device company that develops and produces innovative minimally invasive devices to treat underserved conditions of the lumbar spine. Zyga’s primary product is the SImmetry® Sacroiliac Joint Fusion System. Under the terms of the merger agreement dated January 4, 2018, the Company acquired Zyga for $21,000 in consideration paid at closing (consisting of borrowings of $18,000 on its revolving credit facility and $3,000 cash on hand), $1,000 contingent upon the successful achievement of a clinical milestone, and a revenue based earnout consideration of up to an additional

$35,000.  As of March 31, 2021, the Company determined that Zyga was not expected to meet the clinical milestone to earn the contingent consideration.

Aziyo – On August 1, 2018, the Company and Aziyo Biologics, Inc. entered into a Distribution Agreement which was subsequently amended on December 3, 2018, and November 15, 2020 (the “Distribution Agreement”).  Pursuant to the Distribution Agreement, the Company has exclusive distribution rights to certain biologic implants manufactured by Aziyo and marketed under the ViBone trade name (“ViBone”).  The Distribution Agreement provides for minimum purchases of ViBone implants on an annual basis through calendar 2025.  If the minimum purchase obligations for a particular year are not fulfilled, the Distribution Agreement provides various options for the Company to satisfy such obligations (“Shortfall Obligations”) in subsequent years, including a combination of payments and/or providing purchase orders for the amount the shortfall in a given year.  For calendar years 2022 and beyond, if the Company does not satisfy the Shortfall Obligations using one of the methods specified in the Distribution Agreement, the Company can continue to market the ViBone implants on a non-exclusive basis. In January 2021, the Company issued a purchase order to Aziyo for $12,361 relating to the 2020 Shortfall Obligation.

Acquisition of Holo – As discussed in Note 5, pursuant to the terms of the Holo Purchase Agreement, the Seller will be entitled to receive contingent consideration from the Company valued in an aggregate amount of up to $83 million, to be paid through the issuance of Common Stock or the payment of cash, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing. The Holo Purchase Agreement provides that the Company will issue Common Stock to satisfy any contingent consideration payable to the Seller, until the total number of shares of Common Stock issued to the Seller pursuant to the Purchase Agreement (including the 6,250,000 shares of Common Stock issued at closing) is equal to 14,900,000 shares of Common Stock. Following the attainment of that limitation, the post-closing contingent payments would be payable in cash. The number of shares of Common Stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the Common Stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone. The Purchase Agreement also includes certain covenants and obligations of the Company with respect to the operation of the business of Holo Surgical that apply during the period in which the milestones may be achieved. Based on a probability weighted model, the Company estimated a total contingent liability of $50,632 with $8,993 classified as current liabilities and $41,639 classified as long-term liabilities on the acquisition date of October 23, 2020. The fair value of the liability was subsequently changed to $56,515  on December 31, 2020 with $8,996  classified as current liabilities within accrued expenses while $47,519 classified as other long-term liabilities. The fair value of the liability was $56,464 as of March 31, 2021 with $18,738 classified as current liabilities within accrued expenses while $37,726 is included as other long-term liabilities. The change in the fair value of the liability of $51 since December 31, 2020 was recognized in the gain (loss) on acquisition contingency line of the condensed consolidated statements of comprehensive income/(loss).

Manufacturing Agreements with Former OEM Affiliates – In connection with the closing of the OEM Transaction, on July 20, 2020 the Company entered into three manufacturing and distribution agreements with affiliates of Montague Private Equity:  (i) a Manufacture and Distribution Agreement (the “Hardware MDA”) with Pioneer Surgical Technology, Inc. (“Pioneer”) pursuant to which Pioneer will manufacture certain hardware implants for the Company; (ii) a Processing and Distribution Agreement with RTI Surgical, Inc. (“RTI”), an affiliate of Pioneer, pursuant to which RTI would process certain biologic implants for the Company (the “PDA”); and (ii) a Manufacture and Distribution Agreement (NanOss) pursuant to which Pioneer would manufacture certain synthetic implants for the Company (the “NanOss MDA”, and together with the Hardware MDA and the PDA, the “OEM Distribution Agreements”. The OEM Distribution Agreements contain aggregate minimum purchase obligations for each of the first three years of the agreements as follows:

• Year 1: $24,201

• Year 2: $25,767

• Year 3: $27,158

The OEM Distribution Agreements contain provisions whereby the minimum purchase obligations are reduced under certain circumstances, including certain force majeure events and termination of the agreements for certain specified reasons.  

In addition, on July 20, 2020, the Company entered into a Design and Development Agreement with Pioneer pursuant to which Pioneer will provide certain design and development services with respect to certain implants (the “Design and Development Agreement”).  The Design and Development Agreement contains a provision whereby the Company will pay Pioneer a minimum of $1.7 million for direct labor costs and certain services with respect to maintaining design history files in each of the first two years under the Design and Development Agreement.   

OPM Agreement – On January 20, 2021, the Company and Oxford Performance Materials, Inc. (“Oxford”) entered into an Amended and Restated License and Supply Agreement (the “Oxford Supply Agreement”) pursuant to which Oxford licenses certain intellectual property to the Company and supplies the Company on an exclusive basis in the United States with PEKK material for use

in spinal implants.  In addition to certain royalties under the Oxford Supply Agreement the Company is obligated to issue binding purchase orders in each quarter of 2021 of at least $150, or $600 in the aggregate.  Although the contract extends through 2025, there are no minimum purchase obligations beyond 2021.

San Diego Lease – On March 12, 2021, the Company entered into a Lease (the “Lease”) with SNH Medical Office Properties Trust, a Maryland real estate investment trust (the “Landlord”), to house the Company’s offices, lab and innovation space (the “Building”) in San Diego, California. The initial term of the Lease is twelve (12) years, with one (1) extension option for a period of seven (7) years.

Under the terms of the Lease, the Company will lease an aggregate of approximately 94,457 rentable square feet building located at 3030 Science Park Road, San Diego, California (the “Premises”).  The Landlord will make improvements over the next 12 months, after which occupancy is expected to be delivered to the Company.

Aggregate payments towards base rent for the Premises over the term of the lease will be approximately $64.6 million, including 13-months of rent abatement. The Company will recognize the lease assets and liabilities when the Landlord makes the underlying asset available to the Company. Concurrent with the Company’s execution of the Lease, as a security deposit, the Company delivered to the Landlord a payment in the amount of $2.5 million.

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Legal Actions

3 Months Ended

Mar. 31, 2021

Commitments And Contingencies Disclosure [Abstract]

Legal Actions

17. Legal Actions

The Company is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary course of business. Based on the information currently available to the Company, including the availability of coverage under its insurance policies, the Company does not believe that any of these claims that were outstanding as of March 31, 2021 will have a material adverse impact on its financial position or results of operations. The Company’s accounting policy is to accrue for legal costs as they are incurred.

OEM Purchase Agreement Working Capital Dispute — On December 1, 2020, pursuant to the OEM Purchase Agreement, we received a notice from the Buyer indicating that a post-closing adjustment in an amount of up to $14 million may be owed in respect of the working capital adjustment paid at closing. We disagree with Buyer’s proposed post-closing adjustment and are disputing the adjustment in accordance with the terms of the OEM Purchase Agreement. The Company updated the working capital adjustment for $1.4 million which was agreed with the Buyer as part of the adjustment report and recorded the amount in Q4 2020 in the discontinued operations. The Company expects the matter to be resolved in the second quarter.

Coloplast — RTI Surgical, Inc., as a predecessor to the Company, is presently named as co-defendant along with other companies in a small percentage of the transvaginal surgical mesh (“TSM”) mass tort claims being brought in various state and federal courts. The TSM litigation has as its catalyst various Public Health Notifications issued by the FDA with respect to the placement of certain TSM implants that were the subject of 510k regulatory clearance prior to their distribution. The Company does not process or otherwise manufacture for distribution in the U.S. any implants that were the subject of these FDA Public Health Notifications. The Company denies any allegations against it and intends to continue to vigorously defend itself.

In addition to claims made directly against the Company, Coloplast, a distributor of TSM’s and certain allografts processed and private labeled for them under a contract with the Company, has also been named as a defendant in individual TSM cases in various federal and state courts.  Coloplast requested that the Company indemnify or defend Coloplast in those claims which allege injuries caused by the Company’s allograft implants, and on April 24, 2014, Coloplast sued RTI Surgical, Inc. in the Fourth Judicial District of Minnesota for declaratory relief and breach of contract.  On December 11, 2014, Coloplast entered into a settlement agreement with RTI Surgical, Inc. and Tutogen Medical, Inc. (the “Company Parties”) resulting in dismissal of the case.  Under the terms of the settlement agreement, the Company Parties are responsible for the defense and indemnification of two categories of present and future claims:  (1) tissue only (where Coloplast is solely the distributor of Company processed allograft tissue and no Coloplast-manufactured or distributed synthetic mesh is identified) (“Tissue Only Claims”), and (2) tissue plus non-Coloplast synthetic mesh (“Tissue-Non-Coloplast Claims”) (the Tissue Only Claims and the Tissue-Non-Coloplast Claims being collectively referred to as “Indemnified Claims”).  As of March 31, 2021, there are a cumulative total of 1,157 Indemnified Claims for which the Company Parties are providing defense and indemnification. In connection with the Transactions, liabilities related to these claims remained a liability retained by the Company The defense and indemnification of these cases are covered under the Company’s insurance policy subject to a reservation of rights by the insurer.

Based on the current information available to the Company, the impact that current or any future TSM litigation may have on the Company cannot be reasonably estimated.

LifeNet — On June 27, 2018, LifeNet Health, Inc. (“LifeNet”) filed a patent infringement lawsuit in the United States District Court for the Middle District of Florida (since moved to the Northern District of Florida) claiming infringement of five of its

patents by the Company’s predecessor RTI Surgical, Inc. The suit requests damages, enhanced damages, reimbursement of costs and expenses, reasonable attorney fees, and an injunction. The asserted patents are expired. On April 7, 2019, the Court granted the Company’s request to stay the lawsuit pending the U.S. Patent Trial and Appeal Board’s (PTAB) decision whether to institute review of the patentability of LifeNet’s patents. On August 12, 2019 the PTAB instituted review of three LifeNet patents, and on September 3, 2019 the PTAB instituted review of the remaining two. On August 4,2020 and August 26, 2020, the PTAB issued final written decisions finding that certain claims were shown to be unpatentable and others not. Neither party appealed the PTAB’s decisions with respect to the three LifeNet patents on which the PTAB instituted review on August 12, 2019.  With respect to the remaining two LifeNet patents, Surgalign filed Notices of Appeal with the Federal Circuit on October 27, 2020 and LifeNet filed a Notice of Cross-appeal on November 9, 2020. The briefings related to these appeals were filed in March and April respectively. In connection with the Transactions, liabilities related to these claims remained a liability retained by the Company. The Company continues to believe the suit is without merit and will vigorously defend its position. Based on the current information available to the Company, the impact that current or any future litigation may have on the Company cannot be reasonably estimated.

Securities Class Action— There is currently ongoing stockholder litigation related to the Company’s Investigation (as defined below).  A class action complaint was filed by Patricia Lowry, a purported shareholder of the Company, against the Company, and certain current and former officers of the Company, in the United States District Court for the Northern District of Illinois on March 23, 2020 asserting claims under Sections 10(b) and 20(a) the Securities Exchange Act of 1934 (the “Exchange Act”) and demanding a jury trial (“Lowry Action”).   The court appointed a different shareholder as Lead Plaintiff and she filed an amended complaint on August 31, 2020.  On October 15, 2020, the Company and the other-named defendants moved to dismiss the amended complaint. In April 2021, the court denied the defendants’ motions to dismiss. The case will now move to the discovery phase.

Derivative Lawsuits—Three derivative lawsuits have also been filed on behalf of the Company, naming it as a nominal defendant, and demanding a jury trial.  On June 5, 2020, David Summers filed a shareholder derivative lawsuit (“Summers Action”) against certain current and former directors and officers of the Company (as well as the Company as a nominal defendant), in the United States District Court for the Northern District of Illinois asserting statutory claims under Sections 10(b), 14(a) and 20(a) of the Exchange Act, as well as common law claims for breach of fiduciary duty, unjust enrichment and corporate waste.  Thereafter, two similar shareholder derivative lawsuits asserting many of the same claims were filed in the same court against the same current and former directors and officers of the Company (as well as the Company as a nominal defendant).  The three derivative lawsuits have been consolidated into the first-filed Summers Action.  On September 6, 2020 the court entered an order staying the Summers Action pending resolution of the motions to dismiss in the Lowry Action. The court has not yet taken action regarding the derivative actions.

In the future, we may become subject to additional litigation or governmental proceedings or investigations that could result in additional unanticipated legal costs regardless of the outcome of the litigation. If we are not successful in any such litigation, we may be required to pay substantial damages or settlement costs.  Based on the current information available to the Company, the impact that current or any future stockholder litigation may have on the Company cannot be reasonably estimated.

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Regulatory Actions

3 Months Ended

Mar. 31, 2021

Text Block [Abstract]

Regulatory Actions

18. Regulatory Actions

SEC Investigation— As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2020, and the Form 10-K filed with the SEC on June 8, 2020, the Audit Committee of the Board of Directors, with the assistance of independent legal and forensic accounting advisors, conducted an internal investigation of matters relating to the Company’s revenue recognition practices for certain contractual arrangements, primarily with customers of the Company’s formerly-owned OEM Businesses, including the accounting treatment, financial reporting and internal controls related to such arrangements (the “Investigation”). The Investigation also examined transactions to understand the practices related to manual journal entries for accrual and reserve accounts.  As a result of the Investigation, the Audit Committee concluded that the Company would restate its previously issued audited financial statements for fiscal years 2018, 2017 and 2016, selected financial data for fiscal years 2015 and 2014, the unaudited condensed consolidated financial statements for the quarterly periods within these years commencing with the first quarter of 2016, as well as the unaudited condensed consolidated financial statements for the quarterly periods within the 2019 fiscal year.  The Investigation was precipitated by an investigation by the U.S. Securities and Exchange Commission initially related to the periods 2014 through 2016 (the “SEC Investigation”). The SEC Investigation is ongoing and the Company is cooperating with the SEC.  The Company has contacted the SEC regarding a potential settlement of the SEC Investigation and is awaiting a response.  Based on the current information available to the Company the financial or other impact of the SEC Investigation cannot be reasonably determined.

Environmental Protection Agency—On January 28, 2020, RTI, as predecessor to the Company, received an Opportunity to Show Cause letter from the United States Environmental Protection Agency (“EPA”). The letter alleged potential violations of hazardous waste regulations at the Company’s Alachua, Florida facilities based on a November 20, 2019 inspection conducted by EPA, and offered the Company the opportunity to meet with EPA to explain why EPA should not take any formal enforcement action.  The Company held a virtual meeting with EPA on May 19, 2020 to respond to EPA’s allegations.  During subsequent discussions, EPA indicated that it intended to impose a penalty on the Company related to the allegations in the letter. The Company subsequently recorded a liability for the amount the EPA communicated it intended to impose on the Company related to the allegations in the letter.  Subsequently, the Company provided additional information demonstrating its compliance with State and

Federal requirements related to hazardous waste management.  In January 2021, the EPA notified the Company that it would not be bringing an enforcement action against the Company at this time.  As a result of this notice, the Company reversed the accrued liability relating to this matter, resulting in no impact on the Company’s consolidated statement of comprehensive loss for the year ended December 31, 2020.  

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Related Party Transactions

3 Months Ended

Mar. 31, 2021

Related Party Transactions [Abstract]

Related Party Transactions

19. Related Party Transactions

The Company’s related parties include: i) a person who is or was (since the beginning of the last fiscal year for which the Company has filed a Form 10-K and proxy statement, even if he or she does not presently serve in that role) an executive officer, director or nominee for election as a director; ii) granter than five percent beneficial owner of the Company’s common stock; or iii) immediate family member of any of the foregoing. The Company did not enter into any related party transactions in 2018 and 2019. In 2020, the Company has entered into the following related party transactions:

The Holo Surgical Acquisition

As discussed in Note 5, on September 29, 2020, the Company entered into the Holo Purchase Agreement, pursuant to which, among other things, the Company consummated the Acquisition on October 23, 2020. As consideration for the Acquisition, the Company paid to Seller $30,000 in cash and issued to Seller 6,250,000 shares of its common stock with a fair value of $12,250. In addition, the Seller will be entitled to receive contingent consideration from the Company valued at $50,632 as of October 23, 2020, which must be first paid in shares of our common stock (in an amount up to 8,650,000 shares) and then paid in cash thereafter, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the Closing Date. Dr. Pawel Lewicki, a member of the Company’s board of directors, indirectly owns approximately 57.5% of the outstanding ownership interests in the Seller. Dr. Lewicki was appointed to the Company’s board of directors on November 23, 2020.

Simpson Consulting Agreement

On July 15, 2020, the Board appointed Stuart F. Simpson to serve as the Chairman of the Board, effective immediately upon consummation of the transactions contemplated by the Holo Surgical Purchase Agreement. On July 20, 2020, Mr. Simpson entered into a consulting agreement (“the Consulting Agreement”) with the Company, pursuant to which he will provide consulting services to the Company. The Consulting Agreement has an initial term of three years, but may be extended with the mutual agreement of the parties. Mr. Simpson will be entitled to an annual consulting fee of $275 per year during the term of the Consulting Agreement, payable in 12 equal monthly installments, and the Company agreed to enter into a restricted stock award agreement, pursuant to which the Company will grant to Mr. Simpson a restricted stock award equal to $825. The restricted stock grant shall vest in three equal amounts on the first, second and third anniversaries of the grant date. These amounts are in lieu of any amounts Mr. Simpson would otherwise receive as a director.

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Subsequent Events

3 Months Ended

Mar. 31, 2021

Subsequent Events [Abstract]

Subsequent Events

20. Subsequent Events

The Company evaluated subsequent events as of the issuance date of the unaudited condensed consolidated financial statements as defined by FASB ASC 855, Subsequent Events.

On April 30, 2021, the Company and Surgalign Spine Technologies, Inc., a Delaware corporation and wholly owned subsidiary, entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), with a fully capable machine shop (“the Shop”, which provides for the Company to acquire all property, plant and equipment of the Shop. The shop designs and manufactures products for the medical device and aerospace industries.

Pursuant to the terms of the Asset Purchase Agreement, the Company agreed to pay an aggregate amount $1,100, subject to certain purchase price adjustments. The acquisition was closed on April 30, 2021. At the closing, the Company paid $330 and issued restricted shares with an aggregate fair market value of $220 to the seller.

The initial accounting for the Asset Purchase Agreement is incomplete as the Company is in the process of obtaining and reviewing additional information related to the acquisition, including an analysis of the estimated fair value of assets acquired and liabilities assumed. Such information will be subsequently disclosed.

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2021

Accounting Changes And Error Corrections [Abstract]

Immaterial restatement of earnings per share (EPS)

Immaterial restatement of earnings per share (EPS)

The Company identified errors in the calculation of its historical basic and diluted EPS.  In the historical periods presented in the filing, the weighted average basic and diluted shares incorrectly included treasury stock, restricted stock awards, and restricted stock units.  The weighted average shares used in the restated basic and diluted EPS from continuing operations and discontinued operation has been corrected.

Significant New Accounting Policies

Significant New Accounting Policies

Internal use Software- The Company accounts for its costs to develop computer software for internal use in accordance with Accounting Standards (“ASC”) 350-40, Internal use Software. These costs are directly attributable to the development and implementation of the new ERP system.  The Company capitalizes the costs incurred during the application development stage, which generally include costs to design the software configuration and interfaces, coding, installation and testing.

The Company begins capitalizing qualifying costs when both the preliminary project stage is complete, and management has authorized further funding.  Costs incurred during the preliminary project stage along with post implementation stages of internal use software are expensed as incurred. Capitalized development costs are currently being accumulated within CIP and are evaluated for impairment on a quarterly basis.

Liquidity

Liquidity      

As the global outbreak of COVID-19 continues to rapidly evolve, it could continue to materially and adversely affect our revenues, financial condition, profitability, and cash flows for an indeterminate period of time.

As discussed in Note 18, the Securities and Exchange Commission (“SEC”) has an active investigation that remains ongoing.  The Company continues to cooperate with the SEC in relation to the investigation. Based on current information available to the Company, the impact associated with SEC investigation and related shareholder and derivative litigation may have on the Company cannot be reasonably estimated.

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Discontinued Operations (Tables)

3 Months Ended

Mar. 31, 2021

Discontinued Operations And Disposal Groups [Abstract]

Schedule of Financial Results and Operating and Investing Cash Flows of Discontinued Operations

The following table presents the financial results of the discontinued operations:

	Three Months Ended March 31,
	2020
Major classes of line items constituting net income from discontinued operations
Revenues	$	46,625
Costs of processing and distribution		24,049
Gross profit		22,576
Expenses:
Marketing, general and administrative		5,460
Transaction and integration expenses		6,872
Total expenses		12,332
Operating income		10,244
Other expense:
Interest expense		(3,565	)
Foreign exchange loss		(2	)
Total other expense - net		(3,567	)
Income from discontinued operations		6,677
Income tax provision		—
Net Income from discontinued operations	$	6,677

Total operating and investing cash flows of discontinued operations for the three months ended March 31, 2020 is comprised of the following, which exclude the effect of income taxes:

	Three Months Ended
	March 31,
	2020
Significant operating non-cash reconciliation items:
Depreciation and amortization	$	941
Provision for bad debt and products returns	$	6
Revenue recognized due to change in deferred revenue	$	(1,188	)
Stock-based compensation	$	124
Paid in kind interest expense	$	1,415
Significant investing items:
Purchases of property and equipment	$	(1,459	)
Patent and acquired intangible asset costs	$	(286	)

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Revenue from Contracts with Customers (Tables)

3 Months Ended

Mar. 31, 2021

Revenue From Contract With Customer [Abstract]

Schedule of Total Revenue by Geographical Region

The Company’s entire revenue for the three months ended March 31, 2021 and 2020 were recognized at a point in time. The following table represents total revenue by geographical region for the three months ended March 31, 2021 and 2020, respectively:

	For the Three Months Ended
	March 31,
	2021		2020
Revenues:
Domestic	$	19,849	$	22,272
International		3,442		4,830
Total revenues from contracts with customers	$	23,291	$	27,102

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2021

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation Recognized

For the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation as follows:

	For the Three Months Ended
	March 31,
	2021		2020
Stock-based compensation:
Costs of goods sold	$	21	$	36
Marketing, general and administrative		889		1,135
Research and development		26		15
Total	$	936	$	1,186

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Net Loss Per Common Share (Tables)

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Reconciliation of Common Stock used in Calculation of Basic and Diluted Earnings Per Share

A reconciliation of the number of shares of common stock used in the calculation of basic and diluted net income per common share is presented below:

	For the Three Months Ended
	March 31,
	2021		2020
Weighted average basic and dilutive shares		98,109,900		72,864,390

Schedule of Number of Potential Dilutive Shares that Excluded Due to Anti-dilutive Effect

The following table includes the number of potential dilutive shares that were excluded due to the anti-dilutive effect:

	For the Three Months Ended
	March 31,
	2021		2020
Stock Option		781,144		484,518
RSU and RSA		886,434		1,119,133
Convertible Series A Preferred Stock		—		15,152,761
Total		1,667,578		16,756,412

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Prepaid and Other Current Assets (Tables)

3 Months Ended

Mar. 31, 2021

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Schedule of Prepaid and Other Current Assets

Prepaid and other current assets are as follows:

	March 31,		December 31,
	2021		2020
Income tax receivable	$	2,299	$	4,836
Prepaid expenses		1,931		1,543
Other receivable		625		3,795
Other		146		110
	$	5,001	$	10,284

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Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2021

Property Plant And Equipment [Abstract]

Schedule of Net Book Value of Property and Equipment after Accumulated Depreciation and Impairment

The net book value of property and equipment after accumulated depreciation and all impairment is as follows:

	March 31,		December 31,
	2021		2020
Processing equipment	$	28	$	35
Surgical instruments		454		440
Office equipment, furniture and fixtures		29		34
Computer equipment and software		12		12
Construction in process		3		—
	$	526	$	521

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Fair Value Information (Tables)

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Summary of Reconciliation of Acquisition Contingencies

A reconciliation of the Company’s acquisition contingencies is as follows (in thousands):

Impairment	2021			2020
Beginning balance as of January 1	$	56,515		$	1,130
(Gain) loss		(51	)		—
Purchases (settlement)		—			—
Ending balance as of March 31	$	56,464		$	1,130

Summary of Fair Value Assets Subject to Fair Value Measured Using Level 3 Inputs

As a result of impairments recognized, the following table summarizes the fair value of assets subject to fair value measured using Level 3 inputs for the periods presented:

	March 31,		December 31,
Fair Value	2021		2020
Property and equipment - net	$	526	$	521
Other intangibles - net		—		—
Other assets - net (1)		12,398		10,145
	$	12,924	$	10,666

(1) Other assets subject to fair value impairment under ASC 350 and ASC 360 are a subset of Other Assets – net, as presented on the Balance Sheet

Summary of Impairments of Assets Subject to Fair Value Measured Using Level 3 Inputs

The following table summarizes the impairment of assets subject to fair value measured using Level 3 inputs for the periods presented (in thousands):

	For the Three Months Ended
	March 31,
	2021		2020
Property and equipment - net	$	1,778	$	1,879
Other intangibles - net		161		—
Other assets - net		237		—
	$	2,176	$	1,879

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Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2021

Other Liabilities Disclosure [Abstract]

Accrued Expenses

Accrued expenses are as follows:

	March 31,		December 31,
	2021		2020
Accrued compensation	$	2,798	$	2,268
Accrued severance and restructuring costs		218		—
Accrued distributor commissions		3,476		4,113
Accrued leases		532		650
Accrued acquisition contingency - Holo		18,738		8,996
Other		5,054		5,617
	$	30,816	$	21,644

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Other long-term liabilities (Tables)

3 Months Ended

Mar. 31, 2021

Other Liabilities Noncurrent [Abstract]

Summary of Other long-term liabilities

Other long-term liabilities are as follows:

	March 31,		December 31,
	2021		2020
Lease obligations	$	1,125	$	1,200
Acquisition contingencies		37,726		47,519
Other		2,991		2,991
	$	41,842	$	51,710

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Preferred Stock (Tables)

3 Months Ended

Mar. 31, 2021

Equity [Abstract]

Schedule of Preferred Stock

Preferred stock is as follows:

	Preferred Stock Liquidation		Preferred Stock Issuance			Net
	Value		Costs			Total
Balance at January 1, 2021	$	—	$	—		$	—
Amortization of preferred stock issuance costs		—		—			—
Balance at March 31, 2021		—		—			—
	Preferred Stock Liquidation		Preferred Stock Issuance			Net
	Value		Costs			Total
Balance at January 1, 2020	$	66,519	$	(109	)	$	66,410
Amortization of preferred stock issuance costs		—		46			46
Balance at March 31, 2020		66,519		(63	)		66,456

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Business - Additional Information (Detail) $ / shares in Units, $ in Thousands				1 Months Ended	3 Months Ended
	Feb. 01, 2021 USD ($) $ / shares shares	Jul. 21, 2020 Segment	Jul. 20, 2020 USD ($) Segment	Apr. 30, 2021 USD ($)	Mar. 31, 2021 USD ($) Country	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($)
Business [Line Items]
Number of reportable segments | Segment		1	2
Cash and cash equivalents					$ 63,763		$ 43,962
Accumulated deficit					(500,152)		$ (484,962)
Net loss from continuing operations					(15,190)	$ (24,540)
Subsequent Event [Member]
Business [Line Items]
Federal income tax liability paid				$ 14,860
COVID-19 [Member]
Business [Line Items]
Contingent consideration amounts					8,993
Expected contingent consideration amounts					$ 50,632
Public Offering [Member]
Business [Line Items]
Common stock sold | shares	28,700,000
Common stock price per share | $ / shares	$ 1.50
Net proceeds from issuance of common stock	$ 40,467
Underwriting discounts and commission	$ 3,983
Ardi Bidco Ltd. [Member] | Discontinued Operations, Held-for-sale [Member]
Business [Line Items]
Consideration received or receivable for disposal of assets			$ 440,000
Minimum [Member]
Business [Line Items]
Number of countries that receive distribution | Country					40

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Discontinued Operations - Schedule of Financial Results of Discontinued Operations (Detail) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Discontinued Operations And Disposal Groups [Abstract]
Revenues	$ 46,625
Costs of processing and distribution	24,049
Gross profit	22,576
Expenses:
Marketing, general and administrative	5,460
Transaction and integration expenses	6,872
Total expenses	12,332
Operating income	10,244
Interest expense	(3,565)
Foreign exchange loss	(2)
Total other expense - net	(3,567)
Income from discontinued operations	6,677
Net Income from discontinued operations	$ 6,677

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Discontinued Operations - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020	Dec. 01, 2020
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Maximum working capital adjustment amount		$ 1.4	$ 14.0
Minimum [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Transitional services period related to it support, customer and vendor management, and procurement	3 months
Maximum [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Transitional services period related to it support, customer and vendor management, and procurement	12 months

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Discontinued Operations - Summary of Operating and Investing Cash Flows of Discontinued Operations (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Significant operating non-cash reconciliation items:
Stock-based compensation	$ 936	$ 1,310
Paid in kind interest expense		1,415
Significant investing items:
Purchases of property and equipment	$ (397)	(247)
Discontinued Operations [Member]
Significant operating non-cash reconciliation items:
Depreciation and amortization		941
Provision for bad debt and products returns		6
Revenue recognized due to change in deferred revenue		(1,188)
Stock-based compensation		124
Paid in kind interest expense		1,415
Significant investing items:
Purchases of property and equipment		(1,459)
Patent and acquired intangible asset costs		$ (286)

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Revenue from Contracts with Customers - Schedule of Total Revenue by Geographical Region (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Disaggregation Of Revenue [Line Items]
Revenues	$ 23,291	$ 27,102
Transferred At Point In Time [Member]
Disaggregation Of Revenue [Line Items]
Revenues	23,291	27,102
Transferred At Point In Time [Member] | Domestic [Member]
Disaggregation Of Revenue [Line Items]
Revenues	19,849	22,272
Transferred At Point In Time [Member] | International [Member]
Disaggregation Of Revenue [Line Items]
Revenues	$ 3,442	$ 4,830

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Holo Surgical Acquisition - Additional Information (Detail) - USD ($)			3 Months Ended	12 Months Ended
	Oct. 23, 2020	Sep. 29, 2020	Mar. 31, 2021	Dec. 31, 2020
Business Combinations [Line Items]
Common stock, par value			$ 0.001	$ 0.001
Stock Purchase Agreement [Member] | Holo Surgical Inc. [Member]
Business Combinations [Line Items]
Business acquisition, contingent consideration arrangements, description			On October 23, 2020, the Company completed the acquisition of Holo and became obligated for a contingent consideration in an aggregate amount of $50,632, which must be first paid in shares of the Company’s common stock (in an amount up to 8,650,000 shares) and then paid in cash thereafter, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing.
Business acquisition, contingent consideration arrangements, basis for amount			The number of shares of common stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the common stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone.
Stock Purchase Agreement [Member] | Holo Surgical Inc. [Member] | Roboticine, Inc. [Member]
Business Combinations [Line Items]
Business acquisition, cash to be paid at closing	$ 30,000,000	$ 30,000,000
Common stock, par value		$ 0.001
Business acquisition, contingent consideration payable upon achievement of post-closing milestones	50,632,000	$ 83,000,000
Business acquisition, contingent consideration arrangements, description		In addition, the Seller is entitled to receive contingent consideration from the Company valued in an aggregate amount of up to $83 million, to be paid through the issuance of Common Stock or the payment of cash, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing. The Purchase Agreement provides that the Company will issue Common Stock to satisfy any contingent consideration payable to the Seller, until the total number of shares of Common Stock issued to the Seller pursuant to the Purchase Agreement (including the 6,250,000 shares of Common Stock issued
Business acquisition, contingent consideration arrangements, basis for amount		The number of shares of Common Stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the Common Stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone.
Payments to acquire businesses		$ 94,999,000
Cash consideration		30,000,000
Direct and incremental costs		2,117,000
Estimated fair value related to contingent consideration		$ 50,632,000
Fair value of liability			$ 56,464,000	$ 56,515,000
Change in fair value of liability				51,000
Stock Purchase Agreement [Member] | Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Gain (loss) on Acquisition Contingency [Member]
Business Combinations [Line Items]
Change in fair value of liability			51,000
Stock Purchase Agreement [Member] | Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Accrued Expenses [Member]
Business Combinations [Line Items]
Fair value of liability			18,738,000
Stock Purchase Agreement [Member] | Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Other Long-Term Liabilities [Member]
Business Combinations [Line Items]
Fair value of liability			$ 37,726,000	$ 47,519,000
Stock Purchase Agreement [Member] | Common Stock [Member] | Holo Surgical Inc. [Member]
Business Combinations [Line Items]
Business acquisition, contingent consideration payable upon achievement of post-closing milestones	$ 50,632,000
Stock Purchase Agreement [Member] | Common Stock [Member] | Holo Surgical Inc. [Member] | Roboticine, Inc. [Member]
Business Combinations [Line Items]
Business acquisition, common shares issuable at closing	6,250,000	6,250,000
Business acquisition, equity interests issued or issuable for contingent consideration upon achievement of post-closing milestones	14,900,000	14,900,000
Business acquisition, common shares issuable value	$ 12,250,000	$ 12,250,000

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Stock-Based Compensation - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 936	$ 1,186
Discontinued Operations [Member] | OEM Business [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 0	$ 124
2018 Equity Incentive Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock options, granted	173,683
Restricted Stock Awards [Member] | 2018 Equity Incentive Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Granted	78,084

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Stock-Based Compensation - Stock-Based Compensation Recognized (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation	$ 936	$ 1,186
Costs of Goods Sold [Member]
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation	21	36
Marketing General and Administrative [Member]
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation	889	1,135
Research and Development Expense [Member]
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation	$ 26	$ 15

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Net Loss Per Common Share - Reconciliation of Common Stock Used in Calculation of Basic and Diluted Earnings Per Share (Detail) - shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Earnings Per Share [Abstract]
Weighted average basic and dilutive shares	98,109,900	72,864,390

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Net Loss Per Common Share - Schedule of Number of Potential Dilutive Shares that Excluded Due to Anti-dilutive Effect (Detail) - shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Number of potential dilutive shares excluded due to anti-dilutive effect	1,667,578	16,756,412
Stock Option [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Number of potential dilutive shares excluded due to anti-dilutive effect	781,144	484,518
RSU and RSA [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Number of potential dilutive shares excluded due to anti-dilutive effect	886,434	1,119,133
Convertible Series A Preferred Stock [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Number of potential dilutive shares excluded due to anti-dilutive effect		15,152,761

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Net Loss Per Common Share - Additional Information (Detail) - USD ($) $ in Thousands		3 Months Ended
	Oct. 23, 2020	Mar. 31, 2021	Mar. 31, 2020
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive stock excluded from the computation of diluted EPS		1,667,578	16,756,412
Holo Surgical Inc. [Member] | Stock Purchase Agreement [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Business acquisition, contingent consideration arrangements, description		On October 23, 2020, the Company completed the acquisition of Holo and became obligated for a contingent consideration in an aggregate amount of $50,632, which must be first paid in shares of the Company’s common stock (in an amount up to 8,650,000 shares) and then paid in cash thereafter, contingent upon and following the achievement of certain regulatory, commercial and utilization milestones by specified time periods occurring up to the sixth (6th) anniversary of the closing.
Business acquisition, contingent consideration arrangements, basis for amount		The number of shares of common stock issued as contingent consideration with respect to the achievement of a post-closing milestone, if any, will be calculated based on the volume weighted average price of the common stock for the five (5) day trading period commencing on the opening of trading on the third trading day following the achievement of the applicable milestone.
Holo Surgical Inc. [Member] | Stock Purchase Agreement [Member] | Common Stock [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Business acquisition, contingent consideration payable upon achievement of post-closing milestones	$ 50,632
Holo Surgical Inc. [Member] | Stock Purchase Agreement [Member] | Common Stock [Member] | Maximum [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Business acquisition, common shares issuable at closing	8,650,000
Stock Option [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive stock excluded from the computation of diluted EPS		4,264,055	2,837,404

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Inventories - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Inventory Disclosure [Abstract]
Provision for inventory write-downs	$ 2,754	$ 1,177

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Prepaid and Other Current Assets - Schedule of Prepaid and Other Current Assets (Detail) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]
Income tax receivable	$ 2,299	$ 4,836
Prepaid expenses	1,931	1,543
Other receivable	625	3,795
Other	146	110
Prepaid and other current assets	$ 5,001	$ 10,284

XML

Prepaid and Other Current Assets - Additional Information (Detail) $ in Thousands	Dec. 31, 2020 USD ($)
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]
Other receivable included fees and expenses related to public offering	$ 3,208

XML

Property and Equipment - Schedule of Net Book Value of Property and Equipment after Accumulated Depreciation and Impairment (Detail) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Property, Plant and Equipment [Line Items]
Property and equipment - net	$ 526	$ 521
Processing Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment - net	28	35
Surgical Instruments [Member]
Property, Plant and Equipment [Line Items]
Property and equipment - net	454	440
Office Equipment, Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment - net	29	34
Computer Equipment and Software [Member]
Property, Plant and Equipment [Line Items]
Property and equipment - net	12	$ 12
Construction in Progress [Member]
Property, Plant and Equipment [Line Items]
Property and equipment - net	$ 3

XML

Property and Equipment - Additional Information (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Property, Plant and Equipment [Line Items]
Depreciation expense in connection with property and equipment	$ 520,000	$ 935,000
Capitalized cost of internal software related to new ERP system	310,000		$ 0
Capitalized impairment charges	6,238,000	9,224,000
Expenses related to ERP implementation costs that were not capitalizable	2,875,000	4,282,000
Operating lease ROU assets	$ 1,251,000		$ 1,425,000
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	Other assets - net		Other assets - net
Operating lease costs	$ 183,000	376,000
Variable lease costs	$ 0	0
Operating Lease Weighted Average Remaining Lease Term1	5 years 10 months 2 days
Weighted-average discount rate of operating leases	4.93%
Minimum [Member]
Property, Plant and Equipment [Line Items]
Operating lease, remaining lease term	1 year
Maximum [Member]
Property, Plant and Equipment [Line Items]
Operating lease, remaining lease term	9 years
ERP [Member]
Property, Plant and Equipment [Line Items]
Expenses related to ERP implementation costs that were not capitalizable	$ 126,000	0
Spine [Member] | Property And Equipment [Member]
Property, Plant and Equipment [Line Items]
Asset impairment and abandonment charges	2,176,000	$ 1,879,000
Technology Service [Member]
Property, Plant and Equipment [Line Items]
Capitalized impairment charges	$ 307,000

XML

Fair Value Information - Additional Information (Detail) $ in Thousands	Jan. 04, 2018 USD ($)	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fair market value of contingent earnout		$ 56,464	$ 56,515	$ 1,130	$ 1,130
Zyga Technology Inc [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Date of merger agreement	Jan. 04, 2018
Zyga Technology Inc [Member] | Clinical and Revenue Milestones [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Business Combination Contingent Consideration Liability	$ 1,130				$ 1,130
Holo Surgical Inc. [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fair market value of contingent earnout		56,464	56,515
Holo Surgical Inc. [Member] | Accrued Expenses [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Current liabilities fair value disclosure		18,738	8,996
Holo Surgical Inc. [Member] | Other Long-Term Liabilities [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Non-current liabilities fair value disclosure		$ 37,726	$ 47,519
Holo Surgical Inc. [Member] | Measurement Input, Default Rate | Minimum [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fair value, measurement input		40	60
Holo Surgical Inc. [Member] | Measurement Input, Default Rate | Maximum [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fair value, measurement input		90	90
Holo Surgical Inc. [Member] | Measurement Input, Discount Rate | Minimum [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fair value, measurement input		0.06	0.11
Holo Surgical Inc. [Member] | Measurement Input, Discount Rate | Maximum [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Fair value, measurement input		9.39	16.86

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Fair Value Information - Summary of Reconciliation of Acquisition Contingencies (Detail) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Fair Value Disclosures [Abstract]
Beginning balance as of January 1	$ 56,515
Gain on acquisition contingency	(51)
Ending balance as of March 31	$ 56,464

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Fair Value Information - Summary of Fair Value Assets Subject to Fair Value Measured Using Level 3 Inputs (Detail) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Impaired Long Lived Assets Held And Used [Line Items]
Property and equipment - net	$ 526	$ 521
Other assets - net	12,398	10,145
Level 3 [Member]
Impaired Long Lived Assets Held And Used [Line Items]
Property and equipment - net	526	521
Other assets - net	12,398	10,145
Long lived assets	$ 12,924	$ 10,666

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Fair Value Information - Summary of Impairments of Assets Subject to Fair Value Measured Using Level 3 Inputs (Detail) - Level 3 [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Impaired Long Lived Assets Held And Used [Line Items]
Property and equipment - net	$ 1,778	$ 1,879
Other intangibles - net	161
Other assets - net	237
Impairment	$ 2,176	$ 1,879

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Accrued Expenses - Accrued Expenses (Detail) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Payables And Accruals [Abstract]
Accrued compensation	$ 2,798	$ 2,268
Accrued severance and restructuring costs	218
Accrued distributor commissions	3,476	4,113
Accrued leases	532	650
Accrued acquisition contingency - Holo	18,738	8,996
Other	5,054	5,617
Total accrued expenses	$ 30,816	$ 21,644

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Accrued Expenses - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2021 USD ($)
Payables And Accruals [Abstract]
Accrued severance and restructuring expense	$ 218,000
Severance and restructuring cash payments	$ 0

XML

Other Long-Term Liabilities - Summary of Other Long-term Liabilities (Detail) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Other Long Term Liabilities [Line Items]
Acquisition contingencies	$ 37,726	$ 47,519
Other	2,991	2,991
Total other long-term liabilities	41,842	51,710
Other Long Term Liabilities [Member]
Other Long Term Liabilities [Line Items]
Lease obligations	1,125	1,200
Zyga Technology Inc [Member]
Other Long Term Liabilities [Line Items]
Acquisition contingencies	$ 37,726	$ 47,519

XML

Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended
	Mar. 27, 2020	Apr. 30, 2021	Mar. 31, 2021	Mar. 31, 2020
Income Tax [Line Items]
Income tax expense (benefit)			$ 219	$ (3,539)
Net operating losses carried back period	5 years
Income tax receivable				$ 3,500
Subsequent Event [Member]
Income Tax [Line Items]
Federal tax liability discontinued operations		$ 14,900

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Preferred Stock - Schedule of Preferred Stock (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Temporary Equity Disclosure [Abstract]
Preferred Stock Liquidation Value	$ 66,519	$ 66,519
Amortization of preferred stock issuance costs	46
Preferred Stock Issuance Costs	(63)	(109)
Net Total	$ 66,456	$ 66,410

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Preferred Stock - Additional Information (Detail) $ in Thousands	Jul. 24, 2020 USD ($)
Temporary Equity Disclosure [Abstract]
Payment on redemption of preferred stock	$ 66,519

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Commitments and Contingencies - Additional Information (Detail)								1 Months Ended	3 Months Ended		12 Months Ended
	Mar. 12, 2021 USD ($) ft²	Jan. 20, 2021 USD ($)	Oct. 23, 2020 USD ($) shares	Sep. 29, 2020 USD ($) shares	Jul. 20, 2020 USD ($)	Mar. 08, 2019 USD ($) shares	Jan. 04, 2018 USD ($)	Jan. 31, 2021 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($)
Commitment And Contingencies [Line Items]
Operating lease cost									$ 183,000	$ 376,000
Manufacturing and Distribution Agreements with Affiliates of Montague Private Equity [Member]
Commitment And Contingencies [Line Items]
Purchase commitment, description									In connection with the closing of the OEM Transaction, on July 20, 2020 the Company entered into three manufacturing and distribution agreements with affiliates of Montague Private Equity:  (i) a Manufacture and Distribution Agreement (the “Hardware MDA”) with Pioneer Surgical Technology, Inc. (“Pioneer”) pursuant to which Pioneer will manufacture certain hardware implants for the Company; (ii) a Processing and Distribution Agreement with RTI Surgical, Inc. (“RTI”), an affiliate of Pioneer, pursuant to which RTI would process certain biologic implants for the Company (the “PDA”); and (ii) a Manufacture and Distribution Agreement (NanOss) pursuant to which Pioneer would manufacture certain synthetic implants for the Company (the “NanOss MDA”, and together with the Hardware MDA and the PDA, the “OEM Distribution Agreements”.
Purchase obligation, year one					$ 24,201,000
Purchase obligation, year two					25,767,000
Purchase obligation, year three					27,158,000
Design and Development Agreement with Pioneer [Member]
Commitment And Contingencies [Line Items]
Direct labor costs					$ 1,700,000
Oxford Supply Agreement [Member]
Commitment And Contingencies [Line Items]
Contract maturity period									2025
Minimum purchase obligations beyond 2021		$ 0
San Diego Lease [Member]
Commitment And Contingencies [Line Items]
Operating lease term of contract	12 years
Operating lease, option to extend	The initial term of the Lease is twelve (12) years, with one (1) extension option for a period of seven (7) years.
Operating lease extension period	7 years
San Diego Lease [Member] | Premises [Member]
Commitment And Contingencies [Line Items]
Lease rentable area | ft²	94,457
Operating lease cost	$ 64,600,000
Operating lease payments	$ 2,500,000
Rent abatement term	13 months
Aziyo Biologics, Inc. [Member] | Distribution Agreements [Member] | 2020 Shortfall Obligation [Member]
Commitment And Contingencies [Line Items]
Purchase order issued								$ 12,361,000
Maximum [Member] | Oxford Supply Agreement [Member]
Commitment And Contingencies [Line Items]
Purchase order issued		600,000
Minimum [Member] | Oxford Supply Agreement [Member]
Commitment And Contingencies [Line Items]
Purchase order issued		$ 150,000
Paradigm Spine [Member]
Commitment And Contingencies [Line Items]
Agreement to acquire business						$ 300,000,000
Cash to be paid at closing						150,000,000
Potential debt to finance business combination						$ 100,000,000
Business acquisition, common shares issuable at closing | shares						10,729,614
Number of common stock to be issued at closing, value						$ 50,000,000
Revenue based earnout considerations						0
First potential earnout payment											$ 20,000,000
Paradigm Spine [Member] | Maximum [Member]
Commitment And Contingencies [Line Items]
Revenue based earnout considerations						$ 150,000,000
Zyga Technology Inc [Member]
Commitment And Contingencies [Line Items]
Date of merger agreement							Jan. 04, 2018
Payments to acquire businesses							$ 21,000,000
Cash from RTI Surgical							3,000,000
Zyga Technology Inc [Member] | Clinical Milestones [Member]
Commitment And Contingencies [Line Items]
Contingent liability							1,000,000		$ 0
Zyga Technology Inc [Member] | Earn Out Payment [Member]
Commitment And Contingencies [Line Items]
Revenue based earnout consideration							35,000,000
Zyga Technology Inc [Member] | Revolving Credit Facility
Commitment And Contingencies [Line Items]
Cash proceeds from credit facility							$ 18,000,000
Holo Surgical Inc. [Member] | Stock Purchase Agreement [Member] | Common Stock [Member]
Commitment And Contingencies [Line Items]
Business acquisition, contingent consideration payable upon achievement of post-closing milestones			$ 50,632,000
Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member]
Commitment And Contingencies [Line Items]
Cash to be paid at closing			30,000,000	$ 30,000,000
Payments to acquire businesses				94,999,000
Cash from RTI Surgical				30,000,000
Business acquisition, contingent consideration payable upon achievement of post-closing milestones			50,632,000	$ 83,000,000
Fair value of liability									56,464,000		56,515,000
Change in fair value of liability											51,000
Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member] | Current Liabilities [Member]
Commitment And Contingencies [Line Items]
Fair value of liability			8,993,000						18,738,000		8,996,000
Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member] | Other Long-Term Liabilities [Member]
Commitment And Contingencies [Line Items]
Fair value of liability									$ 37,726,000		$ 47,519,000
Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member] | Long-Term liabilities [Member]
Commitment And Contingencies [Line Items]
Fair value of liability			$ 41,639,000
Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member] | Common Stock [Member]
Commitment And Contingencies [Line Items]
Business acquisition, common shares issuable at closing | shares			6,250,000	6,250,000
Business acquisition, equity interests issued or issuable for contingent consideration upon achievement of post-closing milestones | shares			14,900,000	14,900,000
Holo Surgical Inc. [Member] | Maximum [Member] | Stock Purchase Agreement [Member] | Common Stock [Member]
Commitment And Contingencies [Line Items]
Business acquisition, common shares issuable at closing | shares			8,650,000
Holo Surgical Inc. [Member] | Maximum [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member]
Commitment And Contingencies [Line Items]
Business acquisition, contingent consideration payable upon achievement of post-closing milestones			$ 83,000,000
Holo Surgical Inc. [Member] | Maximum [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member] | Common Stock [Member]
Commitment And Contingencies [Line Items]
Business acquisition, common shares issuable at closing | shares			8,650,000

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Legal Actions - Additional Information (Detail) $ in Millions	3 Months Ended
	Mar. 31, 2021 Claim Lawsuit	Dec. 31, 2020 USD ($)	Dec. 01, 2020 USD ($)
Commitments And Contingencies Disclosure [Abstract]
Maximum working capital adjustment amount | $		$ 1.4	$ 14.0
Claims for which the Company Parties are providing defense and indemnification | Claim	1,157
Number of lawsuits filed on behalf of company | Lawsuit	3

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Related Party Transactions - Additional Information (Detail)				12 Months Ended
	Oct. 23, 2020 USD ($) shares	Sep. 29, 2020 USD ($) shares	Jul. 20, 2020 USD ($) Installment	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Mar. 31, 2021
Related Party Transaction [Line Items]
Related party transaction amounts				$ 0	$ 0
Mr. Simpson [Member] | Restricted Stock Awards [Member]
Related Party Transaction [Line Items]
Number of shares to be grants, value			$ 825,000
Consulting Agreement [Member] | Mr. Simpson [Member]
Related Party Transaction [Line Items]
Agreement initial term Period			3 years
Annual consulting fee			$ 275,000
Number of monthly installments | Installment			12
Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member]
Related Party Transaction [Line Items]
Cash to be paid at closing	$ 30,000,000	$ 30,000,000
Business acquisition, contingent consideration payable upon achievement of post-closing milestones	$ 50,632,000	$ 83,000,000
Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member] | Dr. Pawel Lewicki [Member]
Related Party Transaction [Line Items]
Business combination, equity interest in acquiree, percentage	57.50%
Holo Surgical Inc. [Member] | Common Stock [Member] | Stock Purchase Agreement [Member]
Related Party Transaction [Line Items]
Business acquisition, contingent consideration payable upon achievement of post-closing milestones	$ 50,632,000
Holo Surgical Inc. [Member] | Common Stock [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member]
Related Party Transaction [Line Items]
Business acquisition, common shares issuable at closing | shares	6,250,000	6,250,000
Business acquisition, common shares issuable value	$ 12,250,000	$ 12,250,000
Minimum [Member]
Related Party Transaction [Line Items]
Percent of beneficial owner of common stock						5.00%
Maximum [Member] | Holo Surgical Inc. [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member]
Related Party Transaction [Line Items]
Business acquisition, contingent consideration payable upon achievement of post-closing milestones	$ 83,000,000
Maximum [Member] | Holo Surgical Inc. [Member] | Common Stock [Member] | Stock Purchase Agreement [Member]
Related Party Transaction [Line Items]
Business acquisition, common shares issuable at closing | shares	8,650,000
Maximum [Member] | Holo Surgical Inc. [Member] | Common Stock [Member] | Roboticine, Inc. [Member] | Stock Purchase Agreement [Member]
Related Party Transaction [Line Items]
Business acquisition, common shares issuable at closing | shares	8,650,000

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Subsequent Events - Additional Information (Detail) - Asset Purchase Agreement [Member] - Subsequent Event [Member] - Prompt Prototypes [Member] $ in Thousands	1 Months Ended
	Apr. 30, 2021 USD ($)
Subsequent Event [Line Items]
Payments to acquire businesses	$ 1,100
Cash to be paid at closing	330
Restricted Stock Awards [Member]
Subsequent Event [Line Items]
Business acquisition, common shares issuable value	$ 220