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Exhibit
10.4
DEVELOPMENTAL
CONSULTING AGREEMENT
This Developmental Consulting
Agreement (the “Agreement”) is entered into as of
March 3, 2007 (the “Effective Date”), by and among
Alphatec Spine, Inc., a Delaware corporation with a principal place
of business at 2051 Palomar Airport Road, Suite 100, Carlsbad,
California 92011 (the “Company”), Stout Medical Group
LP, a limited partnership company organized under the laws of the
state of Delaware, and having a place of business at 410 East
Walnut Street, Suite #8, Perkasie, Pennsylvania 18944
(“Service Provider”) and for purposes of Sections 3.2,
3.3, 11.14 and Article 7 hereof only Alphatec Holdings, Inc., a
Delaware corporation with a principal place of business at 2051
Palomar Airport Road, Suite 100, Carlsbad, California 92008
(“Holdings”). Company and Service Provider are each
hereafter referred to individually as a “Party” and
together as the “Parties”.
WHEREAS, the Company desires
to retain the Service Provider to render certain professional
services to the Company and the Service Provider desires to be so
retained by the Company and to perform the services specified
herein, all in accordance with the terms and conditions of this
Agreement.
NOW, THEREFORE, in
consideration of the premises, conditions and representations set
forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby mutually acknowledged,
the Company and the Service Provider agree as follows:
1. DEFINITIONS
Whenever used in the Agreement with an
initial capital letter, the terms defined in this Article 1 shall
have the meanings specified.
1.1. “Affiliate”
shall mean any company, corporation, partnership, limited liability
company, trust, or other business entity that directly or
indirectly controls, is controlled by, or is under common control
with a designated person or entity, and for such purpose
“control” shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of the entity, whether through the
ownership of voting securities, by contract or
otherwise.
1.2. “Common
Stock” shall mean the common stock of Holdings, and any
securities into which such common stock may hereafter be
reclassified, converted or exchanged.
1.3. “Company
Indemnitees” and “Service Provider Indemnitees”
(each individually an “Indemnitee”) shall have the
meaning given in Article 8.
1.4. “Confidential
Information” shall mean with respect to a Party (the
“Receiving Party”), all information which is disclosed
by the other Party (the “Disclosing Party”) to the
Receiving Party hereunder or to any of its employees, consultants,
Affiliates, licensees or sublicensees, except to the extent that
the Receiving Party can demonstrate by written record or other
suitable physical evidence that such information, (a) as of
the date of disclosure is demonstrably known to the Receiving Party
or its Affiliates other than by virtue of a prior confidential
disclosure to such Party or its Affiliates; (b) as of the date
of disclosure is in, or subsequently enters, the public domain,
through no fault or omission of the Receiving Party; (c) is
obtained from a Third Party having a lawful right to
make
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such disclosure free from any obligation
of confidentiality to the Disclosing Party; or (d) is
independently developed by or for the Receiving Party without
reference to or reliance upon any Confidential Information of the
Disclosing Party. Any information in relation to the subject matter
of this Agreement disclosed by a Party under that certain Mutual
Confidentiality Agreement between the parties dated the 2nd day of
July, 2007 shall, subject to the foregoing exceptions, be
considered Confidential Information for purpose of this
Agreement.
1.5. “Existing FA
Technology” shall have the meaning given in Subsection
5.2(a).
1.6. “FDA” shall
mean the United States Food and Drug Administration and any
successor agency or authority thereto.
1.7. “Filling
Agent” shall mean a bioactive filling agent (either cadaveric
or synthetic) designed to strengthen the Licensed
Product.
1.8. “Guarantee and
Agreement” shall mean the guarantee and agreement of Holdings
set forth in Section 11.14 hereof.
1.9. “In-Field
Products” shall have the meaning given in
Section 5.3.
1.10. “Joint
Inventions” shall have the meaning given in
Section 5.3.
1.11. “License
Agreement” shall mean that certain License Agreement as of
even date herewith between the Parties relating to Company’s
license of Technology in the Licensed Field from the Service
Provider.
1.12. “Licensed
Field” shall mean: (i) spinal interbody or intrabody
body fusion using an expandable metallic interbody device; or
(ii) spinal vertebral body replacement using an expandable
metallic interbody device.
1.13. “Licensed
Product” shall mean any product sold by Company, its
Affiliates or Sublicensees that embodies or uses any aspect of the
Licensed Patent Rights and/or the Licensed Technology (as such
terms are defined in the License Agreement).
1.14. “Net Sales”
shall mean the gross amount invoiced by or otherwise payable to the
Company, any of its Affiliates or any Sublicensee on account of
sales or other transfers of an In-Field Products anywhere in the
Territory during a designated period (and for the avoidance of
doubt if such In-Field Product is sold in kitted form, such gross
amount invoiced shall include the amount invoiced for the entire
kit and/or each component thereof), less to the extent otherwise
then or previously included in amounts invoiced for such In-Field
Product and in respect of which no previous deduction was
taken:
1.13.1 trade, cash and
quantity discounts or rebates actually allowed or taken on In-Field
Products, including discounts or rebates to governmental or managed
care organizations;
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1.13.2 credits or allowances
actually given or made for rejection of, and for uncollectible
amounts (except to the extent later collected) on, or return of
previously sold In-Field Products;
1.13.3 any charges for
insurance, freight, and other transportation costs directly related
to the delivery of In-Field Products to the extent included in the
gross invoiced sales price;
1.13.4 any tax, tariff, duty
or governmental charge levied on the sales, transfer,
transportation or delivery of an In-Field Products (including any
tax such as a value added or similar tax or government charge),
other than franchise or income tax of any kind whatsoever;
and
1.13.5 any import or export
duties or their equivalent borne.
“Net Sales” shall not
include amounts invoiced by or otherwise payable to the Company,
any of its Affiliates and/or any Sublicensees for In-Field Products
sold or otherwise transferred to the Company or any of its
Affiliates and/or its Sublicensees, unless the In-Field Products is
consumed by the invoiced entity.
1.15. “Patent
Analysis” shall have the meaning set forth in Exhibit
B hereof.
1.16. “Restricted Stock
Agreement” shall have the meaning set forth in
Section 3.2 hereof.
1.17. “Services”
shall have the meaning set forth in Section 2.1
hereof.
1.18. “Shares”
shall have the meaning set forth in Paragraph. 3.4.1(a)
hereof.
1.19. “Statement of
Work” shall have the meaning set forth in Section 2.1
hereof.
1.20.
“Sublicensee” shall mean any Third Party to whom
Company grants a sublicense of some or all of the rights granted to
Company under this Agreement.
1.21.
“Technology” shall mean all of the following intangible
legal rights, whether or not filed, perfected, registered or
recorded, applicable to the Licensed Field: (i) inventions,
patents, patent disclosures, patent rights, including any and all
continuations, continuations-in-part, divisionals, reissues,
reexaminations, utility models, industrial designs and design
patents or any extensions thereof, (ii) rights associated with
works of authorship, including without limitation, copyrights,
copyright applications and copyright registrations and
(iii) any and all proprietary ideas, inventions, discoveries,
Confidential Information, data, results, formulae, designs,
specifications, methods, processes, techniques, ideas, know-how,
technical information (including, without limitation, structural
and functional information), process information, pre-clinical
information, clinical information, and any and all proprietary
control and manufacturing data and materials, whether or not
patentable.
1.22. “Term”
shall have the meaning given in Section 9.1.
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1.23. “Territory”
shall mean all countries and jurisdictions of the world.
1.24. “Third
Party” shall mean any person or entity other than Company,
Service Provider and their respective Affiliates.
1.25. “Triggering
Event” shall mean FDA clearance of Licensed Product for
marketing, irrespective of whether such Licensed Product employs a
Filling Agent.
2. PROFESSIONAL
SERVICES
2.1. Statement of Work
. The Company hereby engages the Service Provider to provide
professional services (the “Services”) set forth on
Schedule A attached hereto (the “Statement of
Work”), and the Service Provider hereby accepts such
engagement. The Service Provider agrees to perform for the Company
the Services, and to provide to the Company the work product set
forth in Schedule A attached hereto. Schedule A may only be
amended by mutual written agreement of the Parties.
2.2. Location and
Access . Except as otherwise stated in the Statement of Work,
the Service Provider shall perform the Services at the Service
Provider’s premises or such other premises that the Company
and the Service Provider may agree in writing.
2.3. Records and
Reports . The Service Provider shall keep accurate written
records of its activities under this Agreement and shall make such
records available to the Company upon request. Unless otherwise
stated in the Statement of Work, the Service Provider shall provide
the Company with periodic written reports on such activities. The
Service Provider shall also provide the Company with such other
reports that the Company may periodically request during the term
of this Agreement.
3. PAYMENTS TO THE SERVICE
PROVIDER
3.1. Cash Remuneration
. The Company shall pay the Service Provider five-hundred thousand
dollars ($500,000) in cash in ten (10) monthly payments of
fifty thousand dollars ($50,000) each (with the first such first
retainer payment due thirty (30) days after the Effective
Date, and each subsequent retainer payment due thirty
(30) days thereafter) (the “Cash Retainer”);
provided however, that in the event that a Triggering Event occurs
prior to the date that all such ten monthly payments shall have
been made, all then unpaid amounts of the Cash Retainer shall
become due and payable within ten (10) business days. In the
event that a Triggering Event has not occurred on or before [***]
from the Effective Date, the Service Provider shall remit to the
Company the aggregate amount of the Cash Retainer actually paid to
the Service Provider plus three percent (3.0%) per annum of
such amount.
3.2. Restricted Common
Stock . Within thirty (30) days of the Effective Date
Holdings shall issue five-hundred thousand dollars ($500,000) in
shares of restricted Common Stock, with a price per share of Common
Stock for such purpose equal to the average per share NASDAQ
Close/NASDAQ Official Closing Price (as defined by NASDAQ) or a
defined successor closing price (designated by NASDAQ) on the
fifteen (15) trading days prior to the date of issuance;
provided that if on any such trading day the Common Stock shall not
be listed on the NASDAQ national exchange or a similar national
securities exchange, then Service Provider shall receive [***] in
cash in lieu of such shares of restricted Common Stock. The Common
Stock shall be subject to a restricted stock agreement in
substantially the form of Schedule B (the “Restricted
Stock Agreement”) which each Party agrees it shall execute
concurrently with the issuance of such Common Stock and which
Agreement shall be dated as of the date of such
issuance.
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3.3. Matters Related to
the Issuance of Common Stock .
3.3.1. Representations,
Warranties and Certain Covenants of the Company . The Company
represents, warrants and covenants that:
(a) Assuming the covenant of
Service Provider contained in Subsection 3.3.2 of this Agreement is
complied with, the issuance to Service Provider of each share of
Common Stock (all shares so issued the “Shares”) will
be in compliance with all applicable federal and state securities
laws in connection with the offer, issuance and sale of the
securities.
(b) The execution, delivery
and performance of this Agreement by Holdings, the issuance and
sale of the Shares and the consummation by Holdings of the other
transactions by it contemplated hereby do not and will not on the
date of the issuance and sale of the Shares(i) conflict with or
violate any provision of Holdings’ or any of its subsidiaries
certificates or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time
or both would become a default) under, result in the creation of
any lien or encumbrance upon any of the properties or assets of
Holdings or any of its subsidiaries, or give to others any rights
of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument or other understanding to which
Holdings or any of its subsidiaries is a party or by which any
property or asset of Holdings or any such subsidiary is bound or
affected, in each case with respect to this Subsection (ii), to a
degree that would have a material adverse effect on the assets or
results of operations of Holdings or its subsidiaries when
considered as a whole (a “Material Adverse Effect”), or
(iii) conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which
Holdings or any such subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or
asset of Holdings or any such subsidiary is bound or affected, in
each case with respect to this Subsection (iii), to a degree that
would have a Material Adverse Effect.
(c) Prior to the issuance of
the Shares, Holdings shall obtain all consents, approvals, orders,
authorizations or registrations, qualifications, designations,
declarations, and make all filings or registrations with any court
or other federal, state, local or other governmental authority or
other person that is required in order to issue the
Shares.
(d) The Shares, when issued
in accordance herewith, will be (i) duly authorized,
(ii) duly and validly issued, (iii) fully paid and
nonassessable, and (iv) free and clear of all liens imposed by
Holdings, other than restrictions on transfer provided for
herein.
(e) At all times prior to the
second anniversary of the issuance of the Shares during which there
are Shares outstanding which have not been previously (i) sold
or transferred to or through a broker or dealer or underwriter in a
public distribution, or (ii) sold or transferred in a
transaction exempt from the registration and prospectus delivery
requirements of the
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Securities Act of 1933, as amended (the
“Securities Act”), in the case of either Subsection
(i) or Subsection (ii) in such a manner that, upon the
consummation of such sale or transfer, all transfer restrictions
and restrictive legends with respect to such Shares are removed
upon the consummation of such sale or transfer, Holdings shall use
its commercially reasonable efforts to: (1) comply with the
requirements of Rule 144(c) under the Securities Act with respect
to current public information about Holdings, and (2) furnish
to the Service Provider such non-publicly available reports and
documents of Holdings as Service Provider may reasonably request to
avail itself of Rule 144 of the Securities Act, or any similar rule
or regulation of the United States Securities Exchange Commission
allowing Service Provider to sell the Shares without
registration.
3.3.2. Representations and
Warranties of the Service Provider . The Service Provider
represents and warrants that (i) it is an “accredited
investor” as that term is defined in Rule 501(a) of
Regulation D of the Securities Act; (ii) it is acquiring the
Shares for investment for the Service Provider’s own account
and not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, without prejudice, however, to
Service Provider’s right to at all times to sell or otherwise
dispose of any or all of the Shares so issued in compliance with
applicable federal and state securities laws and (iii) it does
not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to such person
or to any third person, with respect to any of such
Shares.
3.3.3. Restrictions on the
Shares. Service Provider understands and agrees that the Shares may
not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom,
and that in the absence of an effective registration statement
covering the Shares or any available exemption from registration
under the Securities Act, the Shares must be held indefinitely. The
Service Provider agrees and acknowledges that the following legend
will be placed on the back of any certificate evidencing the
Shares:
“THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE CORPORATION RECEIVES
AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
THE SECURITIES REPRESENTED
HEREBY ARE SUBJECT TO RESTRICTIONS SET FORTH IN A RESTRICTED STOCK
AGREEMENT WITH THIS CORPORATION, A COPY OF WHICH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE OFFICES OF THE CORPORATION OR WILL
BE MADE AVAILABLE UPON REQUEST.”
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3.3.4. Limitation on the
Number of Shares Issued . Notwithstanding anything to the
contrary in this Agreement, in no event shall the aggregate number
of Shares issued pursuant to this Agreement be greater than
nineteen and nine-tenths percent (19.9%) of the number of
shares of Common Stock outstanding on the Effective Date. In the
event that an issuance of Shares pursuant to this Agreement would
cause an aggregate issuance of Shares that is more than nineteen
and nine-tenths percent (19.9%) of the number of shares of
Common Stock outstanding on the Effective Date, the Company shall
make a cash payment to the Service Provider equal to the difference
between cash value of the Shares that were scheduled to be issued
pursuant to this Agreement, and the value of the Shares that were
actually issued after giving effect to the limitation set forth in
this Section 3.3.4.
3.4. Service Provider
Expenses . Company will also pay all out-of-pocket costs
incurred by the Service Provider in connection with the provision
of the Services, including costs of any materials utilized [***].
Company and Service Provider shall equally split any travel costs
incurred by Service Provider in connection with any development
meetings that occur in the Carlsbad, CA area; provided that prior
to such meeting the Company and Service Provider shall mutually
agree on which representatives of the Service Provider shall attend
such meetings. Company shall reimburse the Service Provider for all
travel costs incurred at the request of the Company, provided that
such travel is requested by the Company. The foregoing sentence
shall specifically exclude all development meetings in the
Carlsbad, CA area. All reimbursement described in this
Section 3.4 will be invoiced monthly by the Service Provider
and invoices and are payable net 45 days.
4. PROTECTED
INFORMATION
4.1. Confidential
Information . Each Party recognizes that the other
Party’s Confidential Information constitutes highly valuable
and proprietary confidential information. Each Party agrees that
during the Term and for [***] years thereafter, it will keep
confidential, and will cause its employees, consultants, Affiliates
and sublicensees to keep confidential, all Confidential Information
of the other Party. Neither Party nor any of their respective
employees, consultants, Affiliates or sublicensees shall use
Confidential Information of the other Party for any purpose
whatsoever other than exercising any rights granted to it or
reserved by it hereunder. Without limiting the foregoing, each
Party may disclose information to the extent such disclosure is
reasonably necessary to (a) file, prosecute or defend
litigation in accordance with the provisions of this Agreement or
(b) comply with applicable laws, regulations (including those
of the United States Securities Exchange Commission) or court
orders; provided, however, that if a Party is required to make any
such disclosure of the other Party’s Confidential Information
in connection with any of the foregoing, it will give reasonable
advance notice to the other Party of such disclosure requirement
and will use reasonable efforts to cooperate with such other Party
in efforts to secure confidential treatment of such information
required to be disclosed. Each Party agrees that any Confidential
Information disclosed by a Party under that certain Mutual
Confidentiality Agreement between the Parties dated the 2nd day of
July 2007 shall be protected by the obligations set forth therein
through the date hereof and from and after the date hereof shall be
protected by the obligations as to Confidential Information set
forth herein so as to be continuously protected.
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4.2. Limited Disclosure
and Use . Each Party agrees that any disclosure of the other
Party’s Confidential Information to any officer, employee,
consultant or agent of the other Party or any of its Affiliates or
Sublicensees shall be made only if and to the extent necessary to
carry out its rights and responsibilities under this Agreement,
shall be limited to the maximum extent possible consistent with
such rights and responsibilities and shall only be made to the
extent any such persons are bound by written confidentiality
obligations to maintain the confidentiality thereof and not to use
such Confidential Information except as expressly permitted by this
Agreement. Each Party further agrees not to disclose or transfer
the other Party’s Confidential Information to any Third
Parties under any circumstance without the prior written approval
from the other Party (such approval not to be unreasonably
withheld), except as otherwise required by law, and except as
otherwise expressly permitted by this Agreement. Each Party shall
take such action, and shall cause its Affiliates or Sublicensees to
take such action, to preserve the confidentiality of each
other’s Confidential Information as it would customarily take
to preserve the confidentiality of its own Confidential
Information, using, in all such circumstances, not less than
reasonable care. Each Party, upon the request of the other Party,
will return all the Confidential Information disclosed or
transferred to it by the other Party pursuant to this Agreement,
including all copies and extracts of documents and all
manifestations in whatever form, within sixty (60) days of
such request or, if earlier, the termination or expiration of this
Agreement; provided however, that a Party may retain (i) any
Confidential Information of the other Party relating to any license
which expressly survives such termination, and (ii) one
(1) copy of all other Confidential Information in inactive
archives in legal counsel’s files solely for the purpose of
establishing the contents thereof.
4.3. Publicity .
Neither Party may publicly disclose the existence or terms or any
other matter of fact regarding this Agreement without the prior
written consent of the other Party, which consent shall not be
unreasonably withheld or delayed; provided, however, that either
Party may make such a disclosure (i) to the extent required by
law or by the requirements of any nationally recognized securities
exchange, quotation system or over-the-counter market on which such
Party has its securities listed or traded, or (ii) with
respect to Company, to any prospective Sublicensees, or to
investors, prospective investors, lenders and other potential
financing sources, who are obligated to keep such information
confidential. The Parties, upon the execution of this Agreement,
will mutually agree to a press release with respect to this
transaction for publication. Once such press release or any other
written statement is approved for disclosure by both Parties,
neither Party may make subsequent public disclosure of the contents
of such statement without the further approval of the other
Party.
4.4. Use of Name .
Neither Party shall employ or use the name of the other Party in
any promotional materials or advertising without the prior express
written permission of the other Party.
5. OWNERSHIP OF IDEAS, COPYRIGHTS AND
PATENTS
5.1. Company
Inventions . All Technology, whether patentable, copyrightable
or not, which is solely conceived, reduced to practice or developed
by the Company, its employees, agents (it being agreed to by the
Parties that the Service Provider shall not be deemed to be an
agent of the Company with respect to this Section 5.1) or its
Affiliates (the “Company Inventions”) is the sole and
exclusive property of the Company, and the Service Provider shall
not exploit any of the Company Inventions.
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5.2. Service Provider
Inventions . All Technology, whether patentable, copyrightable
or not, which is solely conceived, reduced to practice or developed
by the Service Provider, its Affiliates or any of their employees,
agents (it being agreed to by the Parties that the Company shall
not be deemed to be an agent of the Company or any if its
Affiliates with respect to this Section 5.2) is the sole and
exclusive property of the Service Provider. With respect to
Technology described in the
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