Item 1.01.
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Entry into a Material Definitive Agreement
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Private Placement and Securities Purchase Agreement
On March 8, 2018, Alphatec Holdings, Inc. (the Company) entered into a securities purchase agreement (the
Purchase Agreement), pursuant to which the Company sold in a private placement (the Private Placement) to certain institutional and accredited investors (collectively, the Purchasers), including certain directors
and executive officers of the Company, at a purchase price of $1,000 per share, 39,746 shares (the Preferred Shares) of newly designated Series B Convertible Preferred Stock (the Series B Convertible Preferred Stock) (which
Preferred Shares will be converted into approximately 12,617,857 shares (subject to adjustment as described below and in the Certificate of Designations (as defined below)) of the Companys common stock (Common Stock) upon approval
by the Companys stockholders (Stockholder Approval) as required in accordance with the NASDAQ Global Select Market rules as further described below), and warrants to purchase up to 10,725,179 shares of Common Stock at an exercise
price of $3.50 per share (the Private Offering Warrants). The Private Offering Warrants will become exercisable following Stockholder Approval, are subject to certain ownership limitations in certain cases, and expire five years after
the date of such Stockholder Approval. A first closing of the Private Placement occurred on March 8, 2018 and a second and final closing is expected to occur within five business days following the first closing. At the second closing, the
Company is eligible to sell an additional 5,454 shares of Series B Convertible Preferred Stock that is converted into approximately 1,731,349 shares of Common Stock and issue Private Offering Warrants to purchase up to 1,471,646 shares of Common
Stock.
The aggregate gross proceeds for the first closing of the Private Placement were approximately $39.7 million, with an
additional $5.5 million expected at the second closing. The Company intends to use the net proceeds from the Private Placement for general corporate and working capital purposes and to fund strategic initiatives, including a portion of the
merger consideration described below.
Certain directors and executive officers of the Company purchased in the first close or are
committed to purchase in the second close an aggregate of $5,000,000 million of shares of Series B Convertible Preferred Stock, which shares are convertible into approximately 1,587,302 shares of Common Stock, and Private Offering Warrants to
purchase up to 1,349,207 shares of Common Stock.
Pursuant to the terms of the Purchase Agreement, from the closing until the later of 90
days after the effective date of the Resale Registration Statement (as defined below) or the date of Stockholder Approval, the Company is prohibited from issuing, or entering into any agreement to issue, or announcing the issuance or proposed
issuance of, any shares of Common Stock or Common Stock equivalents, subject to certain permitted exceptions.
Pursuant to the terms of
the Purchase Agreement, from the date of the Stockholder Approval through the first anniversary of the effective date of the Resale Registration Statement, if the Company issues any shares of Common Stock or Common Stock equivalents, subject to
certain permitted exceptions, at a price below the conversion price on the date Stockholder Approval was obtained (a Dilutive Issuance), the Company is required to issue an additional number of shares of Common Stock to the Purchasers in
amount equal the number of shares of Common Stock such Purchasers would have received if the Dilutive Issuance occurred prior to the date Stockholder Approval was obtained.
Pursuant to the terms of the Purchase Agreement, the Company granted to the lead investor in the Private Placement and its affiliates and
their respective members, stockholders, owners, equity holders and family members, so long as such group continues to hold collectively at least 12.5% of the Companys fully diluted Common Stock, the right to purchase, on the terms and subject
to the conditions included in the Purchase Agreement, each such stockholders pro rata share of any shares of Common Stock or securities exercisable for or convertible into Common Stock issued by the Company, other than such securities issued
in an exempt issuance specified in the Purchase Agreement.
The securities sold and issued in the Private Placement will not be registered
under the Securities Act of 1933, as amended (the Securities Act), or any state securities laws and may not be offered or sold in the United States absent registration with the Securities and Exchange Commission (the SEC) or
an applicable exemption from the registration requirements.
Series B Convertible Preferred Stock
A total of 45,200 shares of Series B Convertible Preferred Stock are authorized for issuance under a Certificate of Designation of Preferences,
Rights and Limitations of Series B Convertible Preferred Stock of the Company (the Certificate of Designation) filed with the Secretary of State of the State of Delaware on March 8, 2018 in connection with the closing. Each share of
Series B Convertible Preferred Stock has a stated value of $1,000 and is convertible into approximately 317 shares of the Companys Common Stock. Until the date that Stockholder Approval is obtained, the Purchasers will be unable to convert
their Preferred Shares into Common Stock, in accordance with the NASDAQ Global Select Market rules and regulations. Upon Stockholder Approval, the Preferred Shares will automatically convert into shares of Common Stock.
The Series B Convertible Preferred Stock will be entitled to dividends on an
as-if-converted
basis in the same form as any dividends actually paid on shares of Common Stock or other securities.
The initial conversion price of $3.15 is subject to appropriate adjustment in the event of a stock split, stock dividend, combination,
reclassification or other recapitalization affecting the Common Stock. In addition, until the date that is one year from the effective date of the Resale Registration Statement, the conversion price is also subject to full ratchet anti-dilution
protection in the event the Company issues securities at an effective price less than the initial conversion price, subject to certain exceptions. If the Companys stockholders
do not approve the conversion feature of the Series B Convertible Preferred Stock, the shares of Series B Convertible Preferred Stock will not become convertible, and will remain outstanding in
accordance with the terms of the Certificate of Designation.
Except as otherwise required by law, the holders of Series B Convertible
Preferred Stock will have no right to vote on matters submitted to a vote of the Companys stockholders. Without the prior written consent of 75% of the outstanding shares of Series B Convertible Preferred Stock, however, the Company may not:
(a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend the Certificate of Designation, (b) amend the Companys certificate of incorporation or other charter documents in any
manner that adversely affects any rights of the holders of Series B Convertible Preferred Stock, (c) increase the number of authorized shares of Series B Convertible Preferred Stock, or (d) enter into any agreement with respect to any of
the foregoing.
In the event of the dissolution and winding up of the Company, the proceeds available for distribution to the
Companys stockholders shall be distributed
pari passu
among the holders of the shares of Common Stock and Series B Convertible Preferred Stock, pro rata based upon the number of shares held by each such holder, as if the outstanding
shares of Series B Convertible Preferred Stock were convertible, and were converted, into shares of Common Stock.
Registration Rights Agreement
In connection with the Private Placement, the Company entered into a registration rights agreement (the Registration Rights
Agreement) with the Purchasers, effective as of the closing. Pursuant to the Registration Rights Agreement, the Company agreed to prepare and file a registration statement (the Resale Registration Statement) with the SEC within 30
days after the closing for purposes of registering the resale of the shares of Common Stock issuable upon conversion of the Preferred Shares and the shares of Common Stock issuable upon exercise of the Private Offering Warrants. The Company
also agreed to use its best efforts to cause this registration statement to be declared effective by the SEC within 60 days after the Closing (90 days in the event the registration statement is reviewed by the SEC). If the Company fails to meet the
specified filing deadlines or keep the Resale Registration Statement effective, subject to certain permitted exceptions, the Company will be required to pay liquidated damages to the Purchasers. Pursuant to the Registration Rights Agreement, the
Company gave certain rights to the Purchasers to require the Company to cooperate with an underwritten offering of their registered securities, and to piggyback on certain offerings by the Company. The Company also agreed, among other
things, to indemnify the selling holders under the registration statements from certain liabilities and to pay all fees and expenses incident to the Companys performance of or compliance with the Registration Rights Agreement.
Support Agreements
Prior to and as a
condition for the closing, certain stockholders comprising a majority of the outstanding shares of Common Stock entered into support agreements (the Support Agreements), pursuant to which such stockholders agreed to vote all shares of
Common Stock owned by them in favor of transactions contemplated by the Purchase Agreement and in favor of the transactions contemplated by the Merger Agreement (as defined below). The Support Agreements will terminate on the earlier of (i) the
later of termination of the Purchase Agreement and Merger Agreement pursuant to its terms or (ii) the date that is five days following the stockholders meeting at which Stockholder Approval is obtained.
Private Offering Transaction Documents
The representations, warranties and covenants contained in the Purchase Agreement were made solely for the benefit of the parties to the
Purchase Agreement and may be subject to limitations agreed upon by the contracting parties. In addition, such representations, warranties and covenants (i) are intended as a way of allocating the risk between the parties to the Purchase
Agreement and not as statements of fact, and (ii) may apply standards of materiality in a way that is different from what may be viewed as material by stockholders of, or other investors in, the Company. Accordingly, the Purchase Agreement is
filed with this report only to provide investors with information regarding the terms of transaction, and not to provide investors with any other factual information regarding the Company. Stockholders should not rely on the representations,
warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company. Moreover, information concerning the subject matter of the representations and warranties may change after the date
of the Purchase Agreement, which subsequent information may or may not be fully reflected in public disclosures.
The foregoing
description of the Private Placement and the Purchase Agreement, the Private Offering Warrants, the Certificate of Designation, the Registration Rights Agreement and the Support Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the full text of the Purchase Agreement, the form of Private Offering Warrant, the form of Certificate of Designation, the form of Registration Rights Agreement and the form of Support Agreement, which are
filed as Exhibits 10.1, 4.1, 3.1, 4.2, and 10.2, respectively, to this Current Report on
Form 8-K.
Acquisition of SafeOp Surgical, Inc. and Merger Agreement
On March 6, 2018, the Company and its newly-created wholly-owned subsidiary, Safari Merger Sub, Inc. (Sub), entered into an
Agreement and Plan of Merger (the Merger Agreement) with SafeOp Surgical, Inc., a Delaware corporation (SafeOp), certain Key Stockholders of SafeOp and a Stockholder Representative. The Merger Agreement provides for a reverse
triangular merger (the Merger), which was consummated on March 8, 2018, in which Sub was merged into SafeOp, with SafeOp being the surviving corporation and a wholly-owned subsidiary of the Company. Under the term of the Merger
Agreement, the Company paid $15 million in cash, agreed to issue 3,265,132 shares of Common Stock, issued $3 million of notes that are convertible into 931,667 shares of
Common Stock (the Notes), and issued warrants to purchase 2.2 million shares of Common Stock at an exercise price of $3.50 per share (the Merger Warrants). An
additional 1,330,263 shares of Common Stock are issuable upon achievement of post-closing milestones.
Pursuant to the NASDAQ Global
Select Market rules, the former SafeOp stockholders will not be entitled to cast votes as to the approval of the issuance of such shares of Common Stock issuable in connection with the closing of the Merger that. together with the shares of Common
Stock issuable in connection with the closing of the Merger, exceed 19.99% of the Companys total outstanding shares or for the conversion feature with respect to any shares of Common Stock purchased under the Purchase Agreement or for the
issuance of the shares of Common Stock upon exercise of the Private Offering Warrants, the Merger Warrants or the warrant issued in the warrant exchange described below or the conversion of the Notes.
The Merger Agreement contains customary representations, warranties and covenants by the parties, as well as customary indemnification
provisions among the parties, subject to specific caps and thresholds. The terms of the Merger Warrants are substantially similar to the terms of the Private Offering Warrants. The Notes contain customary payment, conversion, default and enforcement
provisions for promissory notes issued in similar transactions. The issuance of the shares of Common Stock in the Merger upon achievement of the second milestone, conversion of the Notes and exercise of the Merger Warrants is subject to limitations
until the Stockholder Approval is obtained as required in accordance with the NASDAQ Global Select Market rules.
The Merger Agreement,
the Merger Warrant and the Note and the above description have been included to provide investors and security holders with information regarding the terms of the Merger Agreement. They are not intended to provide any other factual information about
the Company, SafeOp, the Key Stockholders, the Stockholder Representative or Merger Sub or their respective subsidiaries, affiliates, businesses or equityholders. The representations, warranties and covenants contained in the Merger Agreement were
made only for purposes of those agreements and as of specific dates, were solely for the benefit of the parties to the Merger Agreement and may be subject to limitations agreed upon by the parties, including being qualified by schedules and other
disclosures made by each contracting party to the other for the purposes of allocating contractual risk between them that differ from those applicable to investors. Investors should be aware that the representations, warranties and covenants or any
description thereof may not reflect the actual state of facts or condition of the parties to the Merger Agreement or any of their respective subsidiaries, affiliates, businesses, or equityholders. Moreover, information concerning the subject matter
of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the Company. Accordingly, investors should read the
representations and warranties in the Merger Agreement only in the context of the other information that the Company includes in reports, statements and other filings that it makes with the SEC.
The foregoing description of the Merger and the Merger Agreement, the Merger Warrant and the Note does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, the Merger Warrant and the Note, which are filed as Exhibits 2.1., 4.3 and 10.3, respectively, to this Current Report on
Form 8-K.
Warrant Exercise
On March 8, 2018, the Company entered into a Warrant Exercise Agreement (the Exercise Agreement) with Armistice Capital Master
Fund, Ltd. (Armistice), a holder of an outstanding warrant to purchase up to an aggregate of 2,400,000 shares of Common Stock, at an exercise price of $2.00 per share (the Original Warrant). Pursuant to the terms of the
Exercise Agreement, Armistice has agreed to exercise, from time to time and in accordance with the terms of the Original Warrant, including certain beneficial ownership limitations set forth therein, the Original Warrant for cash (the Warrant
Exercise). As a result of the Warrant Exercise, the Company received gross proceeds of $3.4 million on March 8, 2018 from the exercise of the 1.7 million shares of the Original Warrant, and expects to receive additional gross
proceeds of up to $1.4 million thereafter from additional exercises of the remaining shares under the Original Warrant following Stockholder Approval. The Company expects to use the net proceeds from the exercise of the Original Warrant for
general corporate and working capital purposes and to fund strategic initiatives.
Pursuant to the terms of the Exercise Agreement, and in
order to induce the Holder to exercise the Original Warrant, the Company has issued to Holder a new warrant to purchase a number of shares of Common Stock equal to 75% of the number of shares of Common Stock received by Holder upon the cash exercise
of the Original Warrant. The terms of the new Warrant will be substantially similar to the terms of the Private Offering Warrant, and has an exercise price of $3.50 per share, higher than the Original Warrant exercise price of $2.00 per share.
The warrant issued upon exercise of the Original Warrant will become exercisable following Stockholder Approval, is subject to certain
ownership limitations, and expire five years after the date of such Stockholder Approval.
The foregoing description of the Warrant
Exercise and the Exchange Agreement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Exchange Agreement, which is filed as Exhibit 10.4 to this Current Report on
Form 8-K.
Financial Advisor
Raymond James & Associates, Inc. (Raymond James) acted as placement agent in connection with the Private Placement and
financial advisor to the Company in connection with the Merger and the Warrant Exercise and was paid fees for its services for introducing certain of the Purchasers to the Company, in accordance with applicable FINRA rules and regulations, and
assisting the
Company in connection with the Merger and the Warrant Exercise. No compensation, fees, or discounts were paid or given to any other person in connection with the offer and sale of the securities.
Amendment to Credit Agreement
In
connection with the consummation of the Private Offering and the Merger, on March 8, 2018, the Company entered into an amendment (the MidCap Amendment) of its Credit, Security and Guaranty Agreement with MidCap Funding IV Trust (the
Midcap Credit Agreement) to consent to the consummation of the Merger, cause SafeOp to become a borrower under the MidCap Credit Agreement, extend the date that the financial covenants of the MidCap Credit Agreement are effective from
April 2017 to April 2019, establish a minimum liquidity covenant and extend the maturity date of the MidCap Credit Agreement from December 31, 2019 to December 31, 2022. In connection with the execution of the MidCap Amendment, the
Company, Alphatec Spine, Inc. and SafeOp Surgical, Inc. also entered into an Amended and Restated Revolving Loan Note (the Midcap Note) reflecting the revolving loans contemplated by the MidCap Credit Agreement, as amended by the MidCap
Amendment.
In connection with the consummation of the Private Offering and the Merger, on March 8, 2018, the Company entered into an
amendment (the Globus Amendment) of its Credit, Security and Guaranty Agreement with Globus Medical, Inc. (the Globus Facility Agreement) to consent to the consummation of the Merger, cause SafeOp to become a borrower under
the Globus Facility Agreement, extend the date that the financial covenants of the Globus Facility Agreement are effective from April 2018 to April 2019, and established a minimum liquidity covenant of $5.0 million through March 31, 2019.
In connection with the execution of the Globus Amendment, the Company, Alphatec Spine, Inc. and SafeOp Surgical, Inc. also entered into an Amended and Restated Term Note (Globus Note) reflecting the term loan contemplated by the Globus
Facility Agreement, as amended by the Globus Amendment.
The foregoing description of the MidCap Amendment, the MidCap Note, the Globus
Amendment and the Globus Note does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the MidCap Amendment, the MidCap Note, the Globus Amendment and the Globus Note, which are filed as
Exhibits 10.5, 10.6, 10.7 and 10.8, respectively, to this Current Report on
Form 8-K.