Stock Benefit Plans and Stock-Based Compensation

In 2005, the Company adopted its 2005 Employee, Director, and Consultant Stock Plan (the “2005 Plan”). The 2005 Plan allows for the grant of options, restricted stock and restricted stock unit awards to employees, directors, and consultants of the Company. Since its adoption, the 2005 Plan has had 17,400,000 shares of common stock reserved for issuance. The Board of Directors determines the terms of the restricted stock, the terms of the restricted stock units, and the terms of the stock options, including the number of shares for which each option is granted, the exercise price, vesting schedule, expiration date, and whether restrictions will be imposed on the shares subject to options. Options granted under the 2005 Plan expire no later than 10 years from the date of grant (5 years for incentive stock options granted to holders of more than 10% of the Company’s voting stock). Options generally vest over a four year period and may be immediately exercisable upon a change of control of the Company. The exercise price of incentive stock options may not be less than 100% of the fair value of the Company’s common stock on the date of grant. The exercise price of any option granted to a 10% stockholder may be no less than 110% of the fair value of the Company’s common stock on the date of grant. At December 31, 2015, approximately 3.8 million shares of common stock remained available for issuance under the 2005 Plan. The 2005 Plan will expire in April 2016.

On July 30, 2014, the Company amended the 2005 Plan (the “Plan Amendment”) to authorize the granting of time-based and performance-based restricted stock units, which represent a contingent entitlement to receive shares of the Company’s common stock, to employees, directors and consultants of the Company under the Plan. Prior to the Plan Amendment, the Plan provided solely for the granting of stock options and restricted stock.

Stock Options

A summary of the Company’s stock option activity under the 2005 Plan and related information is as follows (in thousands, except as indicated and per share data):



	Shares		Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding at December 31, 2014	8,267		$	2.08	7.35	$	71
Granted	457		$	1.28	—	—
Exercised	(5	)	$	—	—	—
Forfeited	(1,081	)	$	2.10	—	—
Outstanding at December 31, 2015	7,638		$	2.03	6.36	$	—
Options vested and exercisable at December 31, 2015	5,170		$	2.25	5.63	$	—
Options vested and expected to vest at December 31, 2015	7,304		$	2.05	6.25	$	—

The weighted-average grant-date fair value per share of stock options granted during the years ended December 31, 2015, 2014 and 2013 was $1.28, $0.81 and $1.09, respectively. The aggregate intrinsic value of options at December 31, 2015 is based on the Company’s closing stock price on that date of $0.30 per share.

As of December 31, 2015, there was $2.4 million of unrecognized compensation expense for stock options and awards which is expected to be recognized on a straight-line basis over a weighted average period of approximately 1.8 years. The total intrinsic value of options exercised was immaterial for the years ended December 31, 2015, 2014 and 2013.

Restricted Stock Awards

The following table summarizes information about the restricted stock awards activity (in thousands, except as indicated and per share data):



	Shares		Weighted average grant date fair value		Weighted average remaining recognition period (in years)
Unvested at December 31, 2014	690		$	1.60	1.83
Awarded	291		$	1.36
Vested	(243	)	$	1.44
Forfeited	(5	)	$	1.80
Unvested at December 31, 2015	733		$	1.55	0.88

The weighted average fair value per share of awards granted during the years ended December 31, 2015, 2014 and 2013 was $1.36, $1.32 and $1.97, respectively.

Performance-Based Restricted Stock Units

In July 2014, the Company granted 932,000 performance-based restricted stock units ("PSUs") to certain employees under its 2005 Plan. The PSUs vest based upon the Company's achievement of certain performance goals over the period from July 1, 2014 through December 31, 2016. The number of PSUs that may vest varies between 0%-200% based on the achievement of such goals. The PSUs were valued at $1.42 per share based on the closing price of the Company's common stock on the date of grant.

In February 2015, the Company granted 1,854,000 PSUs to certain employees under its 2005 Plan. The PSUs vest based upon the Company's achievement of certain performance goals over the period from January 1, 2015 through December 31, 2017. The number of PSUs that may vest varies between 0%-200% based on the achievement of such goals. The PSUs were valued at $1.35 per share based on the closing price of the Company's common stock on the date of grant.

For purposes of measuring compensation expense, the amount of PSUs ultimately expected to vest is estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. The related compensation expense was $0.2 million, $0.2 million and $0.0 million for the years ended December 31, 2015, 2014 and 2013, respectively. The recognition of compensation expense associated with PSUs requires judgment in assessing the probability of meeting the performance goals, as well as defined criteria for assessing achievement of the performance-related goals (in thousands, except as indicated and per share data):



	Shares		Weighted average grant date fair value		Weighted average remaining recognition period (in years)
Unvested at December 31, 2014	854		$	1.42	2.00
Awarded	1,854		$	1.34
Vested	—		$	—
Forfeited	(338	)	$	1.36
Unvested at December 31, 2015	2,370		$	1.37	1.67

Elite Medical Holdings and Pac 3 Surgical Collaboration Agreement

In October 2013, the Company entered into a three-year collaboration agreement with Elite Medical Holdings, LLC and Pac 3 Surgical Products, LLC (the "Collaborators") (the "Collaboration Agreement") to provide consultation services to assist the Company in the development of its products and its products in development. Under the terms of the collaboration agreement, the Company will gain exclusive rights to the use of all intellectual property developed by the collaborators. The Company agreed to make three annual payments to the collaborator as sole consideration for services provided, totaling an aggregate of up to $8 million, paid in common stock of Alphatec Holdings at a per share price of $1.95, which was equal to the average NASDAQ closing price of the common stock on the five days leading up to and including the date of signing the Collaboration Agreement. The actual number of shares issued each year will be determined by the fair market value of the services provided over the prior 12 months.

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

Based on the closing price of the Company’s common stock on December 31, 2015, the Company has recorded a guaranteed compensation liability of $4.9 million for shares of the Company’s common stock previously issued under the Collaboration Agreement, with $2.2 million payable in January of 2017, $2.2 million payable in January of 2018 and $0.5 million payable in January of 2019. This liability is presented under other long-term liabilities in the consolidated balance sheet. In addition, based on the closing price of the Company’s common stock on December 31, 2015, the Company would have an additional cash liability of $2.1 million for shares of the Company’s common stock issuable under the remaining terms of the Collaboration Agreement (assuming that all of the shares issuable under the Collaboration Agreement are issued) payable in 2019 in addition to the amount accrued above. If the Collaborators elect to sell, assign or transfer: (i) more than 20% of the shares issued to the Collaborators prior to the first valuation date; or (ii) any of the Collaborator shares still subject to a lockup after the first valuation date, all of the aforementioned restrictions on transfer and valuation minimums and maximums are null and void.

As of December 31, 2015, the Company has issued 2,780,787 shares of its common stock under this agreement and recorded expense of $4.9 million, $1.9 million and $0.5 million in the years ended December 31, 2015, 2014 and 2013, respectively, which is included in research and development expenses.

Common Stock Reserved for Future Issuance

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



	December 31, 2015
Stock options outstanding	7,638
Awards outstanding	733
Performance restricted stock units outstanding	2,370
Warrants outstanding	11,544
Authorized for future grant under 2005 Plan	3,840

	26,125