IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

L

- 5 Healthcare Partners, LLC,

Plaintiff, Counterclaim Defendant,

v. Alphatec Holdings, Inc. ,

Defendant, Counterclaim Plaintiff. ) ) ) ) ) ) ) ) ) ) ) C.A. No. 2019

- 0412

- KSJM

MEMORANDUM OPINION Date Submitted: July 14 , 2020 Date Dec ided: October 12 , 2020 William M. Lafferty, D. McKinley Measley, Thomas P. Will, MORRIS NICHOLS ARSHT & TUNNELL LLP, Wilmington, Delaware; Antonio Yanez, Jr., Alexander L. Cheney, WILLKIE FARR & GALLAGHER LLP, New York, New York; Counsel for L

- 5 Healthcare Partners, LLC

. Philip A. Rovner, Jonathan A. Choa, Jaclyn C. Levy, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Counsel for Alph atec Holdings, Inc.

McCORMICK, V.C.This action arises out of a March 2018 share purchase agreement between

Plaintiff L

- 5 Healthcare Partners, LLC (“L

- 5”) and Defendant Alphatec Holdings, Inc. (“Alphatec”)

. T he purchase a greement requires that whenever Alphatec
authorizes the issuance and sale of common stock equivalents to a third

- party buyer , Alphatec must first offer L

- 5 a pro

- rata opportunity to participate in th at issuance at the same price and on the sam e terms as the third

- party

. In November 2018, Alphatec issued warrants convertible into Alphatec
common stock to nonparty Squadron Medical Finance Solutions LLC (“Squadron”) pursuant to a credit agreement. I n March 2019, Alphatec again agreed to issue (and
in June 2019 issued) warrants convertible to Alphatec common stock at a price and

on terms that differed from the first transa c tion

. Later, Alphatec made a proposal to
L

- 5 to acquire warrants based on a blended version of the prices a nd terms in the
2018 agreement and the 2019 agreement

. Alphatec’s proposal to L

- 5 was subject to approval by Alphatec ’s board and further negotiation s with Squadron.
L

- 5 filed this lawsuit to enforce its preemption rights. L

- 5 first claims that the
2019 agreement and subsequent issuance constituted an authorization that triggered
L

- 5’s preemption rights. L

- 5 next claims that the blended

- terms proposal did not satisfy L

- 5’s preemption rights because it did not constitute an offer to sell and
because the blended terms were not the same price or the same terms. L

- 5 also2

claims that it is entitled to fee

- shifting and indemnification for its fees and costs incurred in this litigation.
L

- 5 has moved for pa rtial judgment on the pleadings , and this decisi on grants that motion in part. L

- 5 is entitled to a declaration that t he 2019 agreement with Squadron tr ig gered L

- 5’s preemption rights and that Alphat ec’s contingent proposal did not constitute an “offer to sell” sufficient to satisfy L

- 5’s preemption rights

. Yet,
f actual issues foreclose judgment on the pleadings on Alphatec’s affirmative
defenses and on the question of whether Alphatec’s blended

- terms proposal complied with the price and term requirement s of the purchase agreement. The
motion is denied as to those issue s and as to L

- 5’s claim s for fee

- shifting and indemnification, which are more appropriately resolved at a later stage of this action

. I. FACTUAL BACKGROUND This statement of fac ts is drawn from the pleadings, and the doc uments attached to and incorporate d by reference in the pleadings.
A. The Purchase Agreement L

- 5 and Alphatec are parties to a Securities Purchase Agreement (“ Purchase Agreement ”) 1 dated March 8, 2018 , under which L

- 5 purchased 25,000 shares of

1 C.A. No. 2019

- 0412

- KSJM Docket (“Dkt.”) 1, Verified Compl. (“Compl.”) Ex. A (“Purchase Agreement”).3

Alphatec preferred stock for $25 million

. 2 The Purchase Agreement grants L

- 5 preemption rights in the event that L

- 5 achieved an ownership level of at least 12.5% of Alphatec’s outstanding stock. 3 L

- 5 converted its preferred stock such that, at all
times relevan t to this parties’ dispute, L

- 5’s ownership interest has exceeded the
12.5% threshold

. 4
L

- 5’s preemption rights are set forth in Section 4.18(a) of the Purchase Agreement, which provides that prior to authorizing “the issuance and sale of any
Common Stock or Common Stock Equivalents , ” Alphatec “will first offer to sell to [L

- 5] a pro rata portion of such securities . . . at the same price and on the same terms” as those offered to another party. 5 Section 4.18(a) reads in its entirety:

Immediately following the Closing, and for so long as the LI Group beneficially owns such number of shares of Common Stock on a fully diluted basis (calculated in accordance with Section 4.11(h)) equal to or greater than the Threshold Ownership Percentage, if [Alphatec] author izes the issuance and sale of any Common Stock or Common Stock Equivalents (other than any Exempt Issuance),[ 6 ] [Alphatec] will first offer to sell to [L

- 5], a

2 Compl. ¶ 1, 9.
3 Purchase Agreement § 4.18(a).
4 Compl. ¶ 9.
5 Purchase Agreement § 4.18(a).
6 “Exempt Issuance” is defined to include the issuance of securities in connection with specified transactions and the filing of a universal shelf registration statement, none of which are at issue here. See i d . § 1.1.4 pro rata portion of such securities equal to the percentage determined by dividing (i) the numbe r of shares of Common Stock held by the LI Group (determined on a fully

- diluted basis (calculated in accordance with Section 4.11(h)), by (ii) the total number of shares of Common Stock then outstanding (determined on a fully

- diluted basis (calculated in a ccordance with Section 4.11(h)). The members of the LI Group (as determined by [L

- 5] ) will be entitled to purchase all or part of such stock or securities at the same price and on the same terms as such stock or securities are to be offered to any other P erson. 7 “Common Stock Equivalents” is defined to include warrants convertible in to Alphatec common stock. 8 Section 4.8 imposes indemnification obligations on Alphatec for all “losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including

. . . reasonable attorneys’ fees and costs of investigation that [L

- 5] may
suffer or incur as a result of or relating to . . . any breach of” the Purchase Agreement, including violations of Section 4.18. 9 In the event of a dispute resulting in an action to enforce a provision of the Purchase Agreement by either party, Section 5.9 additionally r equires that “the prevailing party in such Action or Proceeding shall be reimbursed by the non

- prevailing party for its reasonable attorneys’ fees and other

7 Id . § 4.18(a)

. 8 Id . § 1.1.
9 Id . § 4.8.5

costs and expenses incurred with the investigation, preparation and prosecution of
such Action or P roceeding.” 10
B. The 2018 Agreement On November 6, 2018, Alphatec executed a Credit, Security and Guaranty Agreement (“ 2018 Agreement”) 11 with Squadron. 12 Under t he 2018 Agreement , Squadron provided Alphatec w ith a $35 million te rm loan facility , 13 and Alphatec granted Squadron warrants entitling Squadron “to purchase 845,000 shares of common stock of [Alphatec] at $3.15 per share.” 14 L

- 5 did not assert and does not
seek to enforce its preemption rights in connection with the 2018 Agreement

. 15
C. The 201 9 Agreement Several months later, Alphatec sought additional capital and contacted both
L

- 5 and Squadron to determine their interest in a debt financing arrangement. 16 L

- 5
declined . Squadron agreed. O n March 27, 2019, Alphatec and Squadron executed

10 Id . § 5.9.
11 Compl. Ex. B.
12 Compl. ¶16.
13 2018 Agreement § 2.1(a).
14 Id . § § 2.1(e), 1.1.
15 Compl. ¶ 17.
16 Dkt. 11, Def .’ s Answer to Verified Compl. and Verified Countercls. ( “Answer” or “Countercls.”) ¶¶ 16

– 17 , 19

.6

the F irst Amendment to Credit, Security and Guaranty Agreement ( the “ 2019 Agreement”). 17
Under the 2019 Agreement, Squadron provided Alphatec an a dditional t erm l oan of $30 million (the “Additional Term Loan”)

. 18 The 2019 Agreement required
that Al phatec grant Squadron warrants to purchase 4,838,710 shares of common
stock of Alphatec. 19 Th is additional grant of warrants would not become due until Alphatec drew from the Additional Term Loan

. 20 T he 2019 Agreement alters and
restates the 2018 Agreement ’s definition of Warrants to establish a new price of $2.17

. 21

17 Compl. Ex. C.
18 Compl

. ¶¶ 17, 19; s ee also 2019 A greement ¶ 3(B) (amending § 2.1(a) of the 2018 Agreement).
19 2019 Agreement ¶ 3(A) (amending § 1.1 of the 2018 Agreement).
20 Id

. 21 Id

. (defining “ Warrants ” as “ (i) the warrants granted to [Squadron] (including any designee of [Squadron] ) in connection with the Initial Term Loan on the Closing Date to purchase 845,000 shares of common stock of [Alphatec] at $3.15 per share and (ii) the warrants to be granted to [S quadron] (including any designee of [Squadron] ) on the date of the initial drawing by [Alphatec] under the Additional Term Loan to purchase 4,838,710 shares of common stock of Holdings at $2.17 per share, such Warrant shall be substantially in the form of Exhibit B ”).7

D. The Proposal Alphatec and L

- 5 had been in communication during Alphatec’s negotiations with Squadron regarding the 2019 Agreement

. 22 On March 7, 2019, in response to
a letter from L

- 5’s counsel, Alphatec provided L

- 5 a copy of the binding
commitment letter and attached term sheet that Squadron had executed earlier that day. 23 After some back

- and

- forth between Alphatec and L

- 5 as to whe ther the 2019 Agreement triggered L

- 5’s preemption rights , Alphatec made a proposal pursuant to Section 4.18 on May 17, 2019 (the “Proposal”)

. 24 The Proposal took the form of a
term sheet that purported to reflect the terms of Alphatec’s agreement with Squ adron. 25 Noting the ongoing disagreement as to L

- 5’s preemption rights, the Proposal
referenced the protections of “Fed. Rule of Evid. 408 and Cal. Evid. Code 1152” and was labeled with the heading: “For Mediation Purposes Only.” 26
T he Proposal sought to replicate the price and terms of the 2018 Agreement and the 2019 Agreement together. To that end, it required that L

- 5 initially make a

22 Countercls. ¶¶ 33

– 36.
23 Id . ¶¶ 37

– 39.
24 Countercl s . Ex. C; accord Countercls. ¶ 62

. 25 Proposal ; Countercl s . ¶ 62.
26 Proposal at 1.8

first term loan of $11,550,137 in exchange for warrants to purchase 256,839 Alphatec common share s at $3.15 per share 27

— the exercise price set forth in the 2018 Agreement

. 28 It then required that L

- 5 commit to make a second term loan of $9,118,529. 29 Upon Alphatec’s draw on the second term loan, L

- 5 would receive

warrants to purchase 1,470,731 shares o f Alphatec common stock at $2.17 per
share 30

— t he exercise price set forth in the 2019 Agreement

. 31 L

- 5 calculates the weighted average of the exercise price of L

- 5’s warrants as $2.32, or around 7% more than the $2.17 exercise price available to Squadron in the 2019 Amendment. 32 The Proposal was contingent. It contemplated that L

- 5 would provide Alphatec with a credit facility representing a pro rata portion of the loans Alphatec
obtained from Squadron. 33 The Proposal additionally provided that it was “subject

27 Id

. at 1

– 2.
28 2019 Agreement ¶ 3(A).
29 Proposal at 1.
30 Id

. at 2.
31 2019 Agreement ¶ 3(A).
32 L

- 5 calculates the weighted average by “(i) taking the sum of the exercise price of the warrants multiplied by the number of corresponding shares that could be acquired with those warrants, and (ii) dividing that sum by the total number of shares L

- 5 could ac quire with its warrants. In t his instance, the formula is: ( ($3.15 x 256,839) + ($2.17 x 1,470,731)) / (256,839 + 1,470,731) = $2.32 .” Dkt. 17, Pl.’s

- Countercl. Def.’s Mem

. o f L aw in Supp. of I ts Mot. for J. on the Pl eadings (“Pl.’s Opening Brief”) at 8

– 9 n. 2.
33 Proposal at 1.9

to fina l approval” by Alphatec’s B oard of Directors

. 34 As Alphatec clarified in a May 23, 2019 letter, e xecution of t he Proposal also depended on Squadron agreeing

to retroactively carve o ut a pro rata portion of the warrants it received under the 2018 and 2019 Agreements

. 35 The letter stated :

[T] he [Proposal], if accepted by L

- 5, requires Squadron to carve out a pro rata portion of its pre
- existing security position

. . . . [Alphatec] i s unwilling to disrupt, potentially significantly, its relationship with its largest lender, without L

- 5 first making a binding commitment to execute the resulting deal. 36 Squadron had no obligation to allow a carve

- out, and would have been well within its rights under the 2019 Agreement to reject L

- 5’s involvement. 37
The P roposal made explicit that Alphatec was “under no obligation to draw”
from the L

- 5 loan

. 38 The deal contemplated by the Proposa l thus created a scenario

34 Id . at 1 n.1.
35 Countercls. Ex. D, L et t e r from Craig Hunsaker, General Counsel, Alphatec Spine, Inc., to John Staikos, attorney, LS Power and John Wade, Chief Compliance Of ficer, LS Power (May 23, 2019) (“May 23, 2019 L et t er ”)

. 36 Id

. 37 The 2019 Agreement explicitly restricted third

- party participation : “The terms and provisions of this Amendment shall be for the sole benefit of the parties hereto and their respective successors and assigns; no other person, firm, entity or corpor ation shall have any right, benefit or interest under this Amendment.” 2019 Agreement ¶ 13.
38 Proposal at 1

.10

where if Alphatec chose to draw from the Squadron loan but not the L

- 5 loan, Squadron would obtain additional warrants and L

- 5 would not. 39
E. The 2019 Issuance On June 13, 2019, the Board approved a draw on the Additio nal Term Loan
and issue the corresponding warrants to Squadron ( the “2019 Issuance”)

. 40 The
B oard resolution also approved a warrant issuance to L

- 5 in the event it accepted the Proposal. 41
F. This Litigation L

- 5 filed this litigation o n June 4, 2019, to enforce its preemption rights. L

- 5’s
C omplaint asserts three causes of action. In Count I, L

- 5 seeks a declaration that the 2019 Agreement triggered L

- 5’s preemption rights. In Count II, L

- 5 seeks a
declaration that Alphatec breached the Purchase Agreement by failing to offer L

- 5 the opportunity to participate in the 2019 Amendment at the s ame price and on the

39 Section 5.1 of the 2018 Agreement restricted Alphatec’s ability to incur additional subsequent debt without Squadron’s permission, effectively g iving Squadron veto power over Alphatec’s ability to draw down on the L

- 5 loan in the Proposal and on Alphatec’s issuance of warrants to L

- 5 pursuant to that loan. See 2018 Agreement, § 5.1 (“No Borrower will . . . create, incur, assume, guarantee or othe rwise become or remain directly or indirectly liable with respect to, any Debt, except for Permitted Debt.”); s ee also i d

. § 1.1 (defining “ Debt ” and “ Permitted Debt ” ).
40 Countercl s . ¶¶ 70

– 71.
41 Id

.11

terms as Squadron. In Count III, L

- 5 seeks indemnification under Sections 4.8 and
5.9 of the Purchase Agreement for its reason able attorneys’ fees and other costs and expenses incurred in connection with this action

. O n July 30, 2019 , Alphatec filed its answer and asserted two counterclaims seeking declaration s that mirror the relief sought in Counts I and II of the Complaint. 42 L

- 5 answered the counterclaims on September 18, 2019. 43 On January 31, 2020, L

- 5 moved for partial judgment on the pleadings as to all questions of liability , leaving only the remedy to be determined

. 44 The parties completed briefing on the motion on May 6, 2020, 45 and t he c ourt held oral argument on July 14, 2020. 46
II. LEGAL ANALYSIS A motion for judgment on the pleadings under Court of Chancery Rule 12(c) may be granted “where the movant is entitled to judgment as a matter of law and

42 Answer and Countercls

. 43 Dkt. 14, Pl.

- Countercl. Def. L

- 5 Healthcare P’rs. LLC’s Ans. and Affirmative Defenses.
44 Pl.’s Opening Br. at 2.
45 See Dkt. 27, Def.

- Countercl. Pl.’s Answering Br. in Opp’n to Pl.

- Countercl. Def.’s Mot. for Partial J. on the Pleadings (“Def.’s Ans. Br.”); Dkt. 29, Pl.

- Count ercl. Def.’ s Reply Br. in Supp. of Its Mot. for Partial J. on the Pleadings (“Pl.’s Reply Br.”).
46 Dkt. 38, Oral Argument and Partial Rulings of the Ct. V ia Zoom on L

- 5 Healthcare P’ rs., LLC’s Mot. for Partial J. on the Pleadings and Mot. for Stay of Disc. (“Oral Arg ument Tr.”).12

there are no disputed ma terial facts.” 47 Judgment on the pleadings “is a proper framework for enforcing unambiguous contracts because there is no need to resolve material disputes of fact.” 48 The c ourt “must draw all reasonable inferences from those facts in the light most favora ble to the nonmoving party” and “may consider the agreements attached to the pleadings in making its determination.” 49 The c ourt also may take judicial notice of a corporation’s public filings. 50
L

- 5 moves for judgment on the pleadi ngs as to the following issues : (i) whether the 2019 Amendment triggered L

- 5’s preemption rights; (ii) whether Alphatec breached the Purchase Agreement by failing to offer L

- 5 the opportunity to participate in the 2019 Amendment “at the same price and on the same terms” as offered to Squadron; and (iii) whether Alphatec is required to indemnify L

- 5 under
Section 4.8 and reimburse L

- 5 under Section 5.9 of the Purchase Agreement

. 51 This
decision tackles the issue s in that order.

47 Cantor Fitzgerald, L.P. v. Cantor , 2001 WL 1456494, at *4 (Del. Ch. Nov. 5, 2001).
48 Chicago Bridge & Iron Co. N.V. v. Westinghouse Elec. Co. LLC , 166 A.3d 912, 925 (Del. 2017) (citation omitted); accord Fortis Advisors LLC v. Meds. Co. , 2019 WL 7290945, at *1 (Del. Ch. Dec. 18, 2019) ( ORDER ).
49 CorVel Enter. Comp, Inc. v. Schaffer , 2010 WL 2091212, at *1 (Del. Ch. May 19, 2010).
50 Tyson Foods , 2007 WL 2351071, at *2 (Del. Ch. Aug. 15, 2007)

. 51 Pl.’s Opening Brief at 22.13

A. L
- 5’s Preemption Rights Were Triggered . Under Section 4.18 of the Purchase Agreement, L

- 5 is entitled to exercise its preemption rights if Alphatec “ authorizes the issuance and sale of any . . . Common Stock Equivalents” to a third

- party. 52 The parties agree that the warrants were Common Stock E quivalents. 53 They dispute whether the issuance and sale of

warrants were “ authorized ” so as to trigger L

- 5’s preemption rights

. L

- 5’s primary argument is that its preemption rights wer e triggered by the
2019 Issuance. This is a good argument , as t he 2019 Issuance was unequivocally an “issu ance and sale ” that Alphatec “authoriz[ed]. ” Alphatec does not respond to t his argument on its merits

. Instead, Alphatec argues that the c ourt should ignore the
2019 Issuance because it occurred after L

- 5 filed the Verified Complaint

. Alphatec , however, admitted the fact of the 2019 Issuance in its Counterclaim s
. 54 Consistent with the purpose of Rule 12(c), 55 the c ourt can take judicial notice of Alphatec’s

52 Purchase Agreement § 4 .18(a) (emphasis added).
53 Answer ¶ 9.
54 Countercls. ¶¶ 70

– 71.
55 See 5C Federal Practice and Procedure § 1367 ( 3d ed. 2020) (describing the purpose of the analogous Federal Rule of Civil Procedure as “to provide a means of disposing of cases when the material facts are not in dispute between the parties and a judgment on the merits can be achieved by focusing on the content of the competing pleadings, exhibits thereto, matters incorporated by reference in the pleadings, whatever is ce ntral or integral to the claim for relief or defense, and any facts of which the district court will take judicial notice”).14

admission for the purpose of this motion

. 56 The 2019 Issuance, therefore, triggered
L

- 5’s preemption rights under Section 4.18. For completeness , this decision addresses L

- 5’s alternative argument, which
is that 2019 Agreement, standing alone, constituted the re quisite “authorization” of
the issuance and s ale of warrants that triggered L

- 5’ s preemption rights

. This too is a good argument. “Authorize” means “to formally approve,” 57 or to “ give officia l permission for or approval to. ” 58 T he 2019 Agreement did just that, setting forth the
terms and conditions under which the issuance and sale of warrants would occur

. Alphatec responds that u nder the 2019 Agreement , no warrants were due until Alphatec drew on the Additional Term Loan , 59 and the 2019 Amendment did not

56 See Merrill v. United Parcel Serv. , 956 A.2d 1196, 1201

– 02 (Del. 2008) (“Voluntary and knowing concessions of fact made by a part y during judicial proceedings ( e.g. , st atemen ts contained in pleadings . . . ) are

. . . . traditionally considered conclusive and binding upon both the party against whom they operate, and upon the court.”); Airborne Health, Inc. v. Squid Soap, LP , 984 A.2d 126, 130 (Del. Ch. 2009) (reiterating permissible sources of facts on a motion for judgment on the pleadings, including defendant’ s “answer and counterclaims.”).
57 Authorize , Black’s Law Dictionary (11th ed. 2019).
58 PWP Xerion Hldgs. III LLC v. Red L eaf Res

. , Inc. 2019 WL 5424778, at *12 (Del. Ch. Oct. 23, 2019) (citations omitted).
59 Def.’s Ans. Br. at 18; see 2019 Agreement ¶ 3(A).15

mandate that Alphatec ever draw on the loan

. 60 Alphatec thus argues that the 2019 Agreement alone did not constitute an authorization of the issuance o r sale of warrants because an intervening event

— Alphatec’s decision to draw on the loan

— was required

. Alphatec’s interpretation does not work. Many agreements authorize the payment or issuance of consideration upon the completion of a condition, and the presence of a condition in the 2019 Agreement did not render that consideration

— the issuance of warrants

— somehow less “authorized.” In essence, Alph atec’s interpretation confuses the authorization of an issuance and sale with the distinct act
of satisfying the conditions of that issuance and sale . It further conflates the
authorization of the issuance and sale of warrants with the distinct act of aut horizing

a draw on the Additional Term Loan

. B. The Proposal Was Not an “Offer to Sell.” Having determined that the 2019 Amendment and subsequent issuance triggered L

- 5’s preemption rights, the analysis next turns to the question of whether Alphatec complied with its obligations under Section 4.18 of the Purchase

60 The 2019 Agreement, however, impose s a fine of $300,000 “in the event Borrowers have not completed an initial drawing under the Additional Term Loan on or before June 30, 2019

. ” 2019 A greement ¶ 3(B).16

Agreement to “ offer to sell ” to L

- 5 a pro rata portion of the warrants “ at the same price and on the same terms. ” 61 Alphat ec argues that the Proposal contained the “same price” and “same terms” in compliance with this obligation. In response, L

5 raises a threshold issue, arguing that the Proposal was not in fact an “ offer to sell ” as required by Section 4.18

. An offer “is a manifestation of assent that empowers another to enter into a contract by manifesting assent in return.” 62 A valid offer “confers upon the offeree the power to create a contract.” 63 The validity of an offer thus requires t hat “one making an offer assent [] in advance to the proposed bargain, after which all that is required to complete the mutual assent necessary is the assent of the offeree.” 64 A valid offer contains sufficient finality such that an offeree’s acceptance of an offer
constitutes the last s tep in forming a contract. 65 Provisions that allow the proponent

61 Purchase Agreement § 4.18(a)

. 62 E. Allan Farnsworth & Zachary Wolfe, 1 Farnsworth on Contracts § 3.13 at 3

- 7 7 (4th ed. 2019).
63 Id

. § 3.03 at 3

- 7.
64 1 Williston on Contracts § 4:3 (4th ed. 2020).
65 Restatement (Second) of Contracts § 24 cmt. a (Am. L. Inst. 2020) (“[T]he key concept involves giving the addressee the apparent power to conclude a contract without further action by the other party.”); see also Id. § 35 cmt. c (“Exercise of the power of acceptance concludes an agreement and a bargain, and thus satisfies one of the requirements for formation...”).17

of a proposal to unilaterally withdraw it or withhold assent pending approval are typically an indication that a proposal is not an offer. 66 In light of its contingent nature, L

- 5 is correct that t he Proposal does not constitute an “offer” as required by Section 4.18

. T he Proposal was contingent on Board approval. 67 The Proposal was also contingent on further negotiations with Squadron. A s clarified by the May 23 Letter , if L

- 5 had accepted the Proposal, Alphatec would then “ approach Squadron to negotiate L

- 5’s pro rata security interest.” 68 Squadron, through restrictive covenants on Alphatec’s ability to take on
more debt 69 and the explicit exclusion of third parties to the 2019 Agreement, 70 had

66 Farnsworth on Contracts § 3.13 at 3

- 86 (“[T]he insertion into a proposal of a clause that reserves to its make r the power to close the deal is a compelling indication that the proposal is not an offer. A common example provides that the agreement is not binding until it has been approved at the home office of the maker of the proposal.”); Restatement (Second) of C ontracts § 24 (“An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it .” (emphasis added) ) ; see also Wilgus v. Salt Pond Inv. Co. , 498 A.2d 151, 156 (Del. Ch. 1985) (finding an offer pursuant to a right of first refusal contingent because it required investor approval and holding that, “[a] lthough Short signed the document it remained unenforceable as to the investor s and un til such time as the inv estors approved its terms it was merely an offer to further negotiate.”), superseded by statute on other grounds, as recognized in Wilm

. & N

. R y . Co. v. Del. Valley Ry. Co. , 1999 W L 463705, at *6 (Del. Super. Mar. 30, 1999).
67 Propo sal at 1 n.1.
68 May 23 , 2019 Letter at 1.
69 2018 Agreement § 5.1.
70 2019 Agreement ¶ 13 (“The terms and provisions of this Amendment shall be for the sole benefit of the parties hereto and their respective successors and assigns; no other18

functional veto power over L

- 5’s receipt of warrants. Squadron thus had no obligatio n to revise the 2019 Agreement , to permit L

- 5’s participation , or to allow Alphatec to draw down on an L

- 5 loan. L

- 5’s acceptance of the Proposal as the
offeree woul d not have been the final step in establishing a contract for these

reasons. 71
Because t he Proposal was contingent on approval by bot h Alphatec’s Board and Squadron , i t lacked sufficient finality to constitute an offer

. T he Proposal was
thus a promise to f

urther negotiate and not an “offer to sell” as required by Section
4.18 of the Purchase Agreement. 72

person, firm, e ntity or corporation shall have any right, benefit or interest under this Amendment.”).
71 One way Alphatec could have avoid ed conditioning the Proposal on further negotiations with Squadron was to first make the “offer to sell” to L

- 5 before entering into a final agreement with Squadron, as the Purchase Agreement seems to contempla te. Purchase Agreement § 4.18(a) (providing that Alphatec “ first offer to sell to [L

- 5] a pro rata portion of such securities . . . at the same price and on the same terms” as those offered to another party (emphasis added) ).
72 L

- 5 also argues that the Proposal is a settlement offer and not an “offer to sell.” Alphate c labeled t he Proposal “For Mediation Purposes Only ” and “Subject to Fed. Rule of Evid. 408 and Cal. Evid. Code 1152, ” Proposal at 1, designations that L

- 5 asks the c ourt to uphold. Generally, Rule 408 prohibits parties for relying on settlement communica tions to prove or disprove liability. D.R.E. 408; see also Grunstein v. Silva , 2011 WL 378782, at *6 (Del. Ch. Jan. 31, 2011) (noting that, under Delaware Rule of Evidence 408, “evidence of an offer in compromise is inadmissible if offered for the purpose of proving or disproving liability”)

. This decision considers the substance of the Proposal because doing so does not prejudice L

- 5.19

Because the Proposal was not an “offer” as required by Section 4.18(a) of the Purchase Agreement , this decision does not reach the question of whether the
b lended terms of the Proposal complied with Section 4.18(a). 73
C. Reimbursement and Indemnification Section 5.9 provides that Alphatec must reimburse L

- 5 for its “reasonable attorneys’ fees and other costs and expenses incurred with the investigation,
prepara tion and prosecution” of this litigation if L

- 5 prevails in this action. 74 Section 4.8 of the Purchase Agreement further provides that Alphatec must indemnify L

- 5 for all “losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and

r easonable attorneys’ fees and costs of investigation that [L

- 5] may suffer or incur as a result of or relating to . . . any breach of . . . [the Purchase Agreement].” 75

73 It bears noting that this question is not one that lends itself to resoluti on on the pleadings because evaluating the scope of L

- 5’s preemptive rights raise s inherently factual issues. See HUMC Holdco, LLC v. MPT of Hoboken TRS, LLC , 2020 WL 3620220, at *8 (Del. Ch. July 2, 2020) (denying judgment on the pleading where scope of preemptive rights raised factual issues). If L

- 5 defeats Alphatec’s affirmative defenses, it seems likely that this issue will be pertinent to the remedy analysis , and development of the factual record will be necessary to determine the relationship of the 2019 Agreement to the 2018 Agreement, am ong other things

. 74 Purchase Agreement § 5.9

. 75 Id. § 4.8.20

Claims for reimbursement for legal expenses under a prevailing

- party provision are pre mature in that judicial fee

- shifting is awarded “in relation to the results obtained” in the underlying litigation. 76 Claims for indemnification like those

a t issue here are not ripe for adjudication until the underlying breach has been properly resolved a nd the breaching par ty has refused to honor its obligations

. 77 L

5’s claims for contractual fee

- shifting and indemnification are thus premature, unripe

. D. Alphatec’s Affirmative Defenses Alphatec argues that its affirmative defenses of acquiescence and estop pel are
sufficient to defeat L

- 5’s motion for judgment on the pleadings. Alphatec argues in briefing that L

- 5 goaded Alphatec into triggering its preemption rights by remaining silent after the 2018 Agreement was executed and that such conduct gives rise to estoppel and acquiescence defenses. 78 L

- 5 responds that these defenses are conclusory and unsupported by the facts as plead in Alphatec’s answer. 79

76 Mooney v. Echo Therapeutics, Inc. , 2015 WL 3413272, at *12 (Del. Ch. May 28, 2015).
77 See, e.g. , LaPoint v. AmerisourceBergen Corp. , 970 A.2d 185, 194 (Del. 2009) (holding that claims stemming from a “right to indemnification did not ripen until [defendant] was judged to be in breach of the Merger Agreement and [defendant] refused to honor its indemnification obligation”).
78 Def.’s Answering Br. at 27

– 29

. 79 Pl.’s Reply Br. at 14

– 16.21

Generally speaking, affirmative defenses that amount to “rhythmic incantation[s]” of the menu options of defenses set forth in Court of Chancery
Rule 12 will not suffice to defeat a motion for judgment on the pleadings. 80 A party

m ust plead or otherwise support the basis for those defenses when faced with a Rule 12(c) motion. In this case, Alphatec has ass erted counterclaims, and Alphatec is entitled to inferences that may be drawn from the factual assertions plead in its counterclaim s
. 81 Accepting those assertions as true, the c ourt finds non

- frivolous bases for Alphatec’s affirmative defenses which, if pr oven, could entitle Alphatec to relief from its contractual obligations. T he facts as presented warrant further discovery and preclude judgment on the pleadings in L

- 5’s favor.

80 GreenStar IH Rep , LLC v. Tutor Perini Corp. , 2017 WL 5035567, at *8 & nn.73

– 74 (Del. Ch. Oct. 31, 2017) (collecting cases).
81 See, e.g. , Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II , L.P. , 624 A.2d 1199, 1206 (Del. 1993) (a party moving for judgment on the pleadings “concede[s] all well

- pleaded allegations to be true ”) ; Airborne Health 984 A.2d at 130 (including counterclaims as pleadings to be considered on a motion for judgment on the pleadings) ; see also Ct. Ch. R. 12(c) (“[A] ny party may move for judgment on the pleadings”); Ct. Ch. R. 13(a) (“ A pleading shall state as a counterclaim any claim, which at the time of serving the pleading the pleader has against any opposing party, i f it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim

. . . . ”). Alphatec’s counterclaim is part and parcel of its pleading answering L

- 5’s Complaint and asserts facts arising from the same transaction t hat is the subject matter of L

- 5’s claim. It is thus a pleading to be considered on this 12(c) motion for judgment on the pleadings.22

III. CONCLUSION For the foregoing reasons, L

- 5 is entitled to a declaration that the 2019 Agreement and 2019 Issuance triggered L

- 5’s preemption rights and that the Proposal did not constitute an “offer” compliant with Section 4.18(a) of the Purchase Agreement. This decision does not resolve Alphatec’ s affirmative de fenses, what terms and conditions would be required to match Alphatec’s 2019 Agreement with Squadron, or whether L

- 5 is entitled to its reasonable attorneys’ fees and other costs

. The motion for partial judgment on the pleadings is GRANTED in part and DENIED in part

.