REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of Paragon 28 under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The primary purpose of the Audit Committee is to oversee our financial reporting processes on behalf of our Board. The Audit Committee’s functions are more fully described in its charter, which is available on our website at https://ir.paragon28.com/governance/governance-documents/default.aspx. Management has the primary responsibility for our financial statements and reporting processes, including our systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management Paragon 28’s audited financial statements as of and for the year ended December 31, 2021.

The Audit Committee has discussed with Deloitte & Touche LLP (“Deloitte”), the Company’s independent registered public accounting firm, the matters required to be discussed by Auditing Standard 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (the “PCAOB”). In addition, the Audit Committee has received the written disclosures and the letter from Deloitte required by PCAOB Ethics and Independence Rule 3526, “Communication with Audit Committees Concerning Independence”, and the Audit Committee has discussed with Deloitte their independence from the Company and its management. Finally, the Audit Committee discussed with Deloitte, with and without management present, the scope and results of Deloitte’s audit of such financial statements.

Based on these reviews and discussions, the Audit Committee has recommended to our Board that such audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2021 for filing with the SEC.

Audit Committee

Thomas Schnettler

Alf Grunwald

Kristina Wright

 

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CORPORATE GOVERNANCE

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and ethics is available on our website at https://ir.paragon28.com/governance/governance-documents/default.aspx. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website. The reference to our web address does not constitute incorporation by reference of the information contained at or available through our website.

Corporate Governance Guidelines

We believe in sound corporate governance practices and have adopted formal Corporate Governance Guidelines to enhance our effectiveness. Our Board adopted these Corporate Governance Guidelines in order to ensure that it has the necessary practices in place to review and evaluate our business operations as needed and to make decisions that are independent of our management. The Corporate Governance Guidelines are also intended to align the interests of directors and management with those of our stockholders. The Corporate Governance Guidelines set forth the practices our Board follows with respect to Board and committee composition and selection, Board meetings, Chief Executive Officer performance evaluation and succession planning. A copy of our Corporate Governance Guidelines is available on our website at https://ir.paragon28.com/governance/governance-documents/default.aspx.

Independence of the Board of Directors

Under New York Stock Exchange rules and regulations, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by such board. The Board consults with the Company’s counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent New York Stock Exchange listing standards, as in effect from time to time.

Consistent with these considerations, our Board has determined that all of our current directors, other than Messrs. DaCosta and Schnettler, qualify as “independent” directors in accordance with the New York Stock Exchange listing requirements. Mr. DaCosta is not considered independent because he is our current President and Chief Executive Officer and Mr. Schnettler is not considered independent as we have paid Piper Sandler Companies, where Mr. Schnettler serves as Vice Chairman, underwriting fees in connection with our initial public offering in excess of 2% of our revenue. The New York Stock Exchange’s independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us. In addition, as required by New York Stock Exchange rules, our Board has made a subjective determination as to each independent director that no relationships exist, which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our Board reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management. There are no family relationships among any of our directors or executive officers.

As required under New York Stock Exchange rules and regulations, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present. All of the committees of our Board are comprised entirely of directors determined by the Board to be independent within the meaning of New York Stock Exchange rules and regulations.

 

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Leadership Structure of the Board

Our amended and restated bylaws and corporate governance guidelines provide our Board with flexibility to combine or separate the positions of Chairman of our Board and Chief Executive Officer and to implement a lead director in accordance with its determination that utilizing one or the other structure would be in our best interest. Mr. DaCosta, our President and Chief Executive Officer, currently serves as the Chairman of our Board. The Board believes that the company’s Chief Executive Officer is best situated to serve as Chairman because he is the director most familiar with the Company’s business and industry and most capable of effectively identifying strategic priorities and leading the consideration and execution of strategy. The board of directors believes that the combined position of Chairman and Chief Executive Officer promotes the development of policy and plans and facilitates information flow between management and the board of directors, which is essential to effective governance.

In addition, because Mr. DaCosta is our chairman and is not an “independent director” as defined in the listing standards of the New York Stock Exchange, the Board has appointed Mr. Drake to serve as our lead director. As lead director, Mr. Drake will preside over periodic meetings of our independent directors, serve as a liaison between our chairman and our independent directors and perform such additional duties as the Board may otherwise determine and delegate.

Our Board has concluded that our current leadership structure is appropriate at this time. However, our Board will continue to periodically review our leadership structure and may make such changes in the future as it deems appropriate.

Role of Board in Risk Oversight Process

The Board has extensive involvement in the oversight of risk management related to us and our business and accomplishes this oversight primarily through the audit committee. To that end, our audit committee will meet quarterly with our Chief Financial Officer and our independent auditors where it will receive regular updates regarding our management’s assessment of risk exposures including liquidity, credit and operational risks and the process in place to monitor such risks and review results of operations, financial reporting and assessments of internal controls over financial reporting.

Board Committees

Our Board has the following standing committees: an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee and a Quality, Technology and Regulatory Committee. Our Board may establish other committees to facilitate the management of our business. The composition and functions of each committee are described below.

Audit Committee

Our Audit Committee oversees our corporate accounting and financial reporting process and assists the Board in its oversight of (i) the integrity of our financial statements, (ii) our risk assessment and risk management program, (iii) the performance of our independent auditor and (iv) the design and implementation of our internal audit function and internal controls, code of business conduct and ethics and legal and regulatory matters. In addition, our audit committee is responsible for, among other things:

 

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appointing, compensating, meeting independently with and retaining and overseeing the work of our independent auditor and any other registered public accounting firm engaged for the purpose of preparing or issuing an audit report or related work or performing other audit, review or attest services for us;

 

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establishing policies regarding hiring employees from our independent registered public accounting firm;

 

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reviewing and approving any related person transactions;

 

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discussing with our independent auditor any audit problems or difficulties and management’s response;

 

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pre-approving all audit and permitted non-audit services provided to us by our independent auditor (other than those provided pursuant to appropriate preapproval policies established by the audit committee or exempt from such requirement under the rules of the SEC);

 

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reviewing and discussing our annual and quarterly financial statements and any material issues regarding accounting principles and financial statement presentations with management and our independent auditor;

 

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preparing the audit committee report required by SEC rules;

 

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reviewing and assessing, at least annually, the adequacy of the audit committee’s charter;

 

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performing, at least annually, an evaluation of the performance of the audit committee; and

 

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establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters, and for the confidential and anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.

The current members of our Audit Committee are Messrs. Schnettler and Grunwald and Ms. Wright. Mr. Schnettler serves as the chairperson of the committee. All members of our Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. Our Board has determined that Mr. Schnettler is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite financial sophistication as defined under the applicable rules and regulations of the New York Stock Exchange. Pursuant to the rules of the SEC, members of the Audit Committee also meet heightened independence standards, except for Thomas Schnettler. The Audit Committee operates under a written charter that satisfies the applicable standards of the SEC and the New York Stock Exchange. A copy of the Audit Committee charter is available to security holders on the Company’s website at https://ir.paragon28.com/governance/governance-documents/default.aspx.

Compensation Committee

Our Compensation Committee oversees our compensation policies, plans and benefits programs. In addition, our compensation committee is responsible for, among other things:    

 

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reviewing and approving corporate goals and objectives with respect to the compensation of our Chief Executive Officer, evaluating our Chief Executive Officer’s performance in light of these goals and objectives and setting compensation;

 

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reviewing and setting or making recommendations to the Board regarding the compensation of our other executive officers;

 

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reviewing and making recommendations to the Board regarding director compensation;

 

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reviewing and approving or making recommendations to the Board regarding our incentive compensation and equity-based plans and arrangements;

 

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assisting the Board in developing and reviewing potential candidates for executive positions;

 

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overseeing and administering our cash and equity incentive plans;

 

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reviewing, considering, and selecting, to the extent determined to be advisable, a peer group of appropriate companies for the purpose of benchmarking and analysis of compensation for our executive officers and directors;

 

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preparing, if required, the compensation committee report on executive compensation for inclusion in our annual proxy statement in accordance with the proxy rules;

 

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overseeing our compliance with applicable SEC rules regarding stockholder approval of certain executive compensation matters;

 

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reviewing and assessing, at least annually, the adequacy of the Compensation Committee’s charter;

 

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performing, on an annual basis, an evaluation of the performance of the Compensation Committee; and

 

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appointing and overseeing any compensation consultants, legal counsel, or other advisor, and determining the compensation and independence of such consultant or advisor.

The current members of our Compensation Committee are Mses. Johnson, Scanlon and Wright, and Mr. Schnettler. Ms. Johnson serves as the chairperson of the committee. Each of the members of our Compensation Committee are independent under the applicable rules and regulations of the New York Stock Exchange, except for Mr. Schnettler, are a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act and are an “outside director” as that term is defined in Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended. The Compensation Committee operates under a written charter that satisfies the applicable standards of the SEC and Nasdaq. A copy of the Compensation Committee charter is available to security holders on the Company’s website at https://ir.paragon28.com/governance/governance-documents/default.aspx.

Our executive officers submit proposals to our Compensation Committee regarding our executive compensation. Our Chief Executive Officer, Mr. DaCosta, also serves on our board of directors. By serving multiple roles, Mr. DaCosta is uniquely positioned to help the board and the Compensation Committee in many of its compensation decisions as he possesses detailed knowledge of the issues, opportunities and challenges facing the company, its business and its industry, which help him to identify the key performance measures and indicators that may be used in setting incentive-based compensation. In his role as our Chief Executive Officer, Mr. DaCosta is also close enough to Paragon 28’s day-to-day operations to be able to identify key contributors and top performers within the company, so as to ensure that their compensation accurately reflects their responsibilities, performance, future expectations and experience levels. While Mr. DaCosta recuses himself from any Board discussions that involve his own compensation, his recommendations and feedback, along with the feedback and recommendations of our other senior executive officers, are often taken into consideration by our Compensation Committee when setting compensation levels.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee oversees and assists the Board in reviewing and recommending nominees for election as directors. In addition, our Nominating and Corporate Governance Committee is responsible for, among other things:

 

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identifying individuals qualified to become members of the Board, consistent with criteria approved by our board of directors and receiving nominations for such qualified individuals;

 

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recommending to the Board the nominees for election to the Board and to each committee of the Board at annual meetings of our stockholders;

 

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overseeing the self-evaluations of the Board and management;

 

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reviewing and recommending committee slates on an annual basis;

 

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overseeing the maintenance and presentation to the Board of management’s plans for succession to senior management positions at Paragon 28;

 

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reviewing and assessing, at least annually, the adequacy of the Nominating and Corporate Governance Committee’s charter;

 

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performing, on an annual basis, an evaluation of the performance of the Nominating and Corporate Governance Committee; and

 

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developing and recommending to the Board any proposed changes to our corporate governance guidelines and principles and reviewing the guidelines and principles on at least an annual basis.

The current members of our Nominating and Corporate Governance Committee are Dr. Oesterle, Ms. Johnson and Mr. Drake. Dr. Oesterle serves as the chairperson of the committee.

In evaluating the suitability of individual candidates (both new candidates and current members), the Nominating and Corporate Governance Committee, in recommending candidates for election, and the Board, in approving (and, in the case of vacancies, appointing) such candidates, may take into account many factors, including but not limited to the following:

 

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the candidate’s experience in corporate management, such as serving as an officer or former officer of a publicly held company;

 

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the candidate’s experience as a board member of another publicly held company;

 

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the candidate’s professional and academic experience relevant to Paragon 28’s industry;

 

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the strength of the candidate’s leadership skills;

 

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the candidate’s experience in finance and accounting and/or executive compensation practices;

 

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whether the candidate has the time required for preparation, participation and attendance at Board meetings and committee meetings, if applicable; and

 

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the candidate’s geographic background, gender, age and ethnicity.

Currently, our Board evaluates each individual in the context of the Board as a whole, with the objective of assembling a group that can best maximize the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas.

The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders. For a stockholder to make any nomination for election to the Board at an annual meeting, the stockholder must provide notice to the Company, which notice must be delivered to, or mailed and received at, the Company’s principal executive offices not less than 90 days and not more than 120 days prior to the one-year anniversary of the preceding year’s annual meeting; provided, that if the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, the stockholder’s notice must be delivered, or mailed and received, not later than 90 days prior to the date of the annual meeting or, if later, the 10th day following the date on which public disclosure of the date of such annual meeting is made. Further updates and supplements to such notice may be required at the times, and in the forms, required under our bylaws. As set forth in our bylaws, submissions must include the name and address of the proposed nominee, information regarding the proposed nominee that is required to be disclosed in a proxy statement or other filings in a contested election pursuant to Section 14(a) under the Exchange Act, information regarding the proposed nominee’s indirect and direct interests in shares of the Company’s common stock, and a completed and signed questionnaire, representation and agreement of the proposed nominee. Our bylaws also specify further requirements as to the form and content of a stockholder’s notice. We recommend that any stockholder wishing to make a nomination for director review a copy of our bylaws, as amended and restated to date, which is available, without charge, from our Corporate Secretary, at 14445 Grasslands Drive, Englewood, Colorado 80112.

Quality, Technology and Regulatory Committee    

Our Quality, Technology and Regulatory Committee assists the Board in its oversight of matters relating to regulatory compliance and the quality and safety of our products and services. In addition, our Quality, Technology and Regulatory Committee is responsible for, among other things:

 

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assessing our overall quality strategy and the systems in place to monitor the quality and safety of our products and services at all stages of the product life cycle;

 

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reviewing and overseeing our quality internal audit program and the results of any product quality and quality system assessments we may conduct or may be conducted by external regulators, and our response to such assessments;

 

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accessing the processes and procedures relating to compliance with relevant laws and regulations administered by competent authorities, notified bodies, and ministries of health, such as the FDA, NMPA, European Commission;

 

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advising the Board of any significant issues, developments or trends presented by changes in the global regulatory environment;

 

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advising the Board of any significant product quality, safety or regulatory registration or compliance issues that arise;

 

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advising the Board of any significant product quality, safety or regulatory registration or compliance issues identified in due diligence with respect to any acquired business and the related integration plans for such business; and

 

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reviewing any shareholder proposals that relate to matters within the purview of the Quality, Technology and Regulatory Committee’s scope of responsibilities, and making recommendations to the Board regarding such proposals.

The members of the Quality, Technology and Regulatory Committee are Dr. Oesterle, Mr. Grunwald and Ms. Scanlon. Dr. Oesterle serves as the chair of the committee.

Meetings of the Board of Directors, Board and Committee Member Attendance and Annual Meeting Attendance

Our Board met 11 times and acted by unanimous written consent zero times during 2021. The Audit Committee met four times during 2021. The Compensation Committee met four times during 2021. The Nominating and Corporate Governance Committee met three times during 2021. The Quality, Technology and Regulatory Committee met one time during 2021. During 2021, each Board member attended at least 75% of the meetings of the Board and of the committees of the Board on which he or she served, in each case, to the extent appointed as a Board member at the relevant time of each meeting. Our directors are expected to spend the time and effort necessary to properly discharge his or her responsibilities. Accordingly, our directors are expected to regularly prepare for and attend meetings of the Board and all committees on which the director sits (including separate meetings of the Independent Directors), with the understanding that, on occasion, a director may be unable to attend a meeting. A director who is unable to attend a meeting of the Board or a committee of the Board is expected to notify the Executive Chairman of the Board or the Chairperson of the appropriate committee in advance of such meeting, and, whenever possible, participate in such meeting via teleconference in the case of an in-person meeting.

Stockholder Communications with the Board of Directors

Should stockholders wish to communicate with the Board or any specified individual directors, such correspondence should be sent to the attention of the Corporate Secretary, at 14445 Grasslands Drive, Englewood, Colorado 80112. The Corporate Secretary will forward the communication to the Board members.

Compensation Committee Interlocks and Insider Participation

During the year ended December 31, 2021, our Compensation Committee consisted of Mr. Drake, Dr. Oesterle and Mr. Schnettler. None of the members of the Compensation Committee is currently, or has been at any time, one of our executive officers or employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board or on our Compensation Committee.

 

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Hedging Policy

Our Insider Trading Compliance Policy provides for guidelines regarding hedging transactions. Pursuant to our Insider Trading Compliance Policy, hedging transactions by all officers, directors, employees and certain consultants of the Company, involving the Company’s equity securities, including but not limited to zero-cost collars and forward sale contracts, are prohibited.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following is a description of transactions since January 1, 2021 to which we have been a party, in which the amount involved exceeds $120,000, and in which any of our directors, executive officers or beneficial owners of more than 5% of our capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest.

Director and Executive Officer Compensation

Please see the sections titled “Director Compensation” and “Executive Compensation” for information regarding the compensation of our directors and executive officers.

Employment Agreements

We have entered into employment agreements with our executive officers. For more information regarding these agreements, see the section titled “Executive Compensation—Executive Compensation Arrangements.”

Indemnification Agreements and Directors’ and Officers’ Liability Insurance

We have entered into indemnification agreements with each of our directors and executive officers. These agreements will require us to, among other things, indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys’ fees, judgments, penalties, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services as a director or executive officer. We have obtained an insurance policy that insures our directors and officers against certain liabilities, including liabilities arising under applicable securities laws.

Amended and Restated Investors’ Rights Agreement

We entered into an amended and restated investors’ rights agreement with the purchasers of shares of our convertible preferred stock, including certain of executive officers, directors and entities with which certain of our directors are affiliated, which were outstanding prior to our initial public offering in October 2021 and which converted into shares of common stock in connection therewith. As of December 31, 2021, the holders of 20.4 million shares of our common stock were entitled to rights with respect to the registration of their shares under the Securities Act. The amended and restated investors’ rights agreement also contains covenants requiring us to comply with the reporting requirements under the Exchange Act. The amended and restated investors’ rights agreement also provided for certain voting arrangements and other affirmative covenants that were terminated upon the consummation of the initial public offering in October 2021.

Other Transactions

Biedermann License Agreement

We have a license agreement dated July 1, 2017 for certain intellectual property with Biedermann, a company affiliated with Mr. Grunwald, one of our directors, under which we pay a royalty of four percent (4%) of net sales related to the licensed intellectual property for the 15 years following the date of first sale, included a minimum annual payment of $250,000. The term of the agreement is 20 years, and automatically renews for five-year periods thereafter. Payments to Biedermann under this license agreement totaled $87,000 for 2021. Amounts payable to Biedermann as of December 31, 2021 were $209,000.

Jarboe Legal Services

We retained legal services of Jarboe Law Firm, PLC (Jarboe), owned by Carl F. Jarboe, the father of our Chief Commercial Officer. Payments to Jarboe totaled $542,000 for 2021. Amounts payable to Jarboe as of December 31, 2021 and 2019 were $66,000.

 

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Policies and Procedures for Related Party Transactions

The Board has adopted a written related person transaction policy setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest, including without limitation purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our Audit Committee is tasked to consider all relevant facts and circumstances, including but not limited to whether the transaction is on terms comparable to those that could be obtained in an arm’s length transaction with an unrelated third party and the extent of the related person’s interest in the transaction.

 

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EXECUTIVE OFFICERS

The following table sets forth information regarding our executive officers as of April 1, 2022:

 

Name		Age				Position/Office Held With the Company
Albert DaCosta			48			Chairman, President and Chief Executive Officer
Stephen M. Deitsch			50			Chief Financial Officer
Matthew Jarboe			39			Chief Commercial Officer
Jonathan Friedman			51			General Counsel and Corporate Secretary
Frank Bono			59			Chief Technology Officer

Mr. DaCosta’s biographical information is set forth in “Proposal No. 1–Election of Directors” in this proxy statement.

Stephen M. Deitsch has served as our Chief Financial Officer since September 2020. He previously served as Senior Vice President and Chief Financial Officer of BioScrip, Inc. (Nasdaq: “BIOS”), which is now part of Option Care Health, Inc. (Nasdaq: “OPCH”), from April 2017 to August 2019. From August 2015 to April 2017, Mr. Deitsch served as Executive Vice President, Chief Financial Officer and Corporate Secretary of Coalfire, Inc., a leading cyber-security firm. Mr. Deitsch served as the Chief Financial Officer of the Zimmer Biomet Spine, Bone Healing, and Microfixation business from July 2014 to July 2015 and as Vice President Finance, Biomet Corporate Controller from February 2014 to July 2014. Mr. Deitsch was the Chief Financial Officer of Lanx, a privately held medical device company, from September 2009 until it was acquired by Biomet in October 2013. From 2002 to 2009, Mr. Deitsch also served in various senior financial leadership roles at Zimmer Holdings, Inc. (now part of Zimmer Biomet, Inc. (NYSE: “ZBH”)), including Vice President Finance, Reconstructive and Operations, and Vice President Finance, Europe. Mr. Deitsch has served on the board of directors of Auddia Inc.(Nasdaq: “AUUD”), a publicly traded software company, since 2021, and Green Sun Medical, a privately held medical device company, since 2017. Mr. Deitsch holds a B.S. in Accounting from Ball State University and has an in-active CPA license.

Matthew Jarboe has served as our Chief Commercial Officer since 2018. Mr. Jarboe joined Paragon 28 in December 2012 as a Regional Sales Manager, and was later promoted to National Sales Manager, where he was tasked with building and training our U.S. Sales Force and Sales Management Teams. He has since been promoted to Director of Sales, then to Executive Vice President of Sales and most recently to Chief Commercial Officer and he now oversees our sales, marketing, national accounts, commercial operations and international business. Prior to joining Paragon 28, Mr. Jarboe spent six years as a foot and ankle sales representative with Wright Medical. Mr. Jarboe began his career in medical device as an Associate Sales Representative with Stryker Endoscopy. Mr. Jarboe graduated from Kalamazoo College (Kalamazoo, MI) with a B.A. in Economics and Business.

Jonathan Friedman has served as our General Counsel & Secretary since August 2021. He has previously served as Senior Vice President, General Counsel and Secretary of DentsplySirona, Inc. (Nasdaq XRAY) from February of 2016 to October of 2018 and served as Senior Vice President, General Counsel and Secretary of its predecessor company, Sirona Dental Systems, Inc, (Nasdaq SIRO) from August of 2007 to February of 2016. From January of 2000 to June of 2007, Mr. Friedman was Chief Legal Officer, Chief Compliance Officer & Secretary of National Medical Health Card Systems, Inc., (Nasdaq NMHC). Mr. Friedman was an associate at a major New York City law firm from September 1995 to January 2000. Mr. Friedman has served as an advisor, consultant and Board Member to several emerging growth companies. Mr. Friedman holds a J.D. (graduating cum laude) from St. John’s University School of Law, where he was also the Articles and Notes Editor of the Law Review.

 

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Frank Bono is one of our cofounders. He has served as our Chief Technology Officer since 2012 and was appointed to our Board in March 2012 and resigned from the Board in November 2021. Mr. Bono has over 30 years of experience in the medical device industry. Prior to Paragon 28, he served as Senior V.P. & CTO of Wright Medical. Mr. Bono was also employed by Medtronic Spine & Biologics, serving as their V.P. of Product Development and New Ventures Technology. Previous to that, he was employed by DePuy/Johnson & Johnson, holding various technical positions where he ultimately served as Global V.P. of R&D for their Spinal Division. Mr. Bono earned a Masters in Mechanical Engineering (MSME) from the University of Arizona and a Bachelor of Science in Mechanical Engineering (BSME) from Purdue University.

 

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DIRECTOR COMPENSATION

Compensation Prior to the Initial Public Offering

Prior to our initial public offering, we did not have a formalized non-employee director compensation program. In addition, we reimburse our non-employee directors for travel and other necessary business expenses incurred in the performance of their services for us. Effective January 1, 2021, we entered into a director agreement with Dr. Stephen Osterle with respect to his service on our board of directors commencing December 30, 2020. Pursuant to the director agreement, Dr. Osterle received annual compensation in cash of $50,000 for each year of service on his board. In addition, pursuant to the director agreement, in January 2021, he was granted an option to purchase 50,000 shares of our common stock (250,000 shares following the stock split we implemented in connection with our initial public offering) with an exercise price per share of $33.00 ($6.6 following the stock split we implemented in connection with our initial public offering), which was the fair market value of our common stock on the date of grant. The option shall vest and become exercisable as to one-third of the shares on each anniversary of December 31, 2020, subject to Dr. Osterle’s continued service on the board through the applicable vesting date. Effective July 30, 2021, we entered into a director agreement with Scott Drake with respect to his service on our board of directors commencing July 28, 2021. Pursuant to the director agreement, Mr. Drake was granted an option to purchase 32,500 shares of our common stock (162,500 shares following the stock split we implemented in connection with our initial public offering) with an exercise price per share of $68.53 ($13.706 following the stock split we implemented in connection with our initial public offering), which was the fair market value of our common stock on the date of grant. The option shall vest and become exercisable as to one-fourth of the shares on each anniversary of July 30, 2021, subject to Mr. Drake’s continued service on the board through the applicable vesting date.

Non-Employee Director Compensation Policy

In preparation for our initial public offering, our Board adopted a non-employee director compensation program, as summarized below, which became effective with respect to each of our directors in November 2021 after our initial public offering. The non-employee director compensation policy was determined after consultation with Compensia, an independent compensation consultant.

Cash Compensation. All non-employee directors are entitled to receive the cash compensation as set forth in the tables below.

Board Service

 

Non-Employee Director:		$	45,000

Additional Board Service

 

Lead Independent Director:		$	50,000

Additional Committee Service

 

		Chair				Non-Chair
Audit Committee Member		$	20,000			$	10,000
Compensation Committee Member		$	15,000			$	7,500
Nominating and Corporate Governance Committee Member		$	10,000			$	5,000

Director fees will be payable in cash in arrears in four equal quarterly installments not later than 30 days following the final day of each calendar quarter, provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our board.

 

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Directors may elect to receive all or a portion of their cash fees in restricted stock units (“RSUs”), with each such RSU award covering a number of shares calculated by dividing (i) the amount of the annual retainer by (ii) the average per share closing trading price of our common stock over the most recent 30 trading days as of the grant date (the “30 day average price”). Such RSUs will be automatically granted on the fifth day of the month following the end of the calendar quarter to which the corresponding director fees were earned and will be fully vested on grant.

Equity Compensation. Non-employee directors are entitled to receive all types of awards (except incentive stock options) under the 2021 Incentive Award Plan (the “2021 Plan”) (or the applicable equity plan in place at the time of grant), including discretionary awards not covered under the outside director compensation policy. Under the non-employee director compensation program, nondiscretionary, automatic grants of stock options are made to our non-employee directors as follows:

 

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Initial option grant: Unless otherwise provided by the board prior to commencement of service of an applicable director, each non-employee director will automatically be granted that number of RSUs upon the director’s initial appointment or election to our board of directors, referred to as the Initial Grant, calculated by dividing (i) $300,000 by (ii) the 30 day average price. The Initial Grant will vest as to one-third of the underlying shares on each anniversary of the grant date, subject to continued service through each applicable vesting date.

 

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Annual option grant: Each non-employee director who (i) has been serving on the board for four months prior to an annual meeting following the initial public offering and (ii) will continue to service on the board following such annual meeting will automatically be granted that number of RSUs upon each annual meeting we have following the listing, referred to as the Annual Grant, calculated by dividing (i) $150,000 by (ii) the 30 day average price. The Annual Grant will vest on the earlier of the first anniversary of the date of grant or the date of the next annual stockholder’s meeting to the extent unvested as of such date, subject to continued service through each applicable vesting date

 

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IPO Equity Grants: Each non-employee director who (i) has been serving on the board as of the initial public offering and (ii) will continue to service on the board following this offering will automatically be granted that number of RSUs upon the effectiveness of this registration statement, referred to as the IPO Grant, calculated by dividing (i) $112,500 (or $300,000 for Messrs. Grunwald and Schnettler) by (ii) the price listed on this registration statement. The IPO Grant will vest on the earlier of the first anniversary of the date of grant or immediately prior to the date of the next annual stockholder’s meeting to the extent unvested as of such date (or for Messrs. Grunwald and Schnettler as to one-third of the shares on each anniversary of the grant date), subject to continued service through each applicable vesting date

All equity awards granted to members of our Board will fully vest if the Company experiences a change in control, subject to the applicable Board member’s continued service through the vesting date. In addition, each director may elect to defer all or a portion of their RSUs they receive under the non-employee director compensation program until the earliest of a fixed date properly elected by the director, the director’s termination of service or a change in control.

2021 Director Compensation

The following table sets forth information for 2021 regarding the compensation awarded to, earned by or paid to our non-employee directors. Directors who are also our employees receive no additional compensation

 

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for their service as directors. Effective April 1, 2022, Meghan M. Scanlon joined our board of directors, but she is not included in the table below since she did not serve on the board at any time in 2021.

 

Name		Fees Earned or Paid in Cash ($)(1)				Option Awards ($)(2)				Stock Awards ($)(2)				Total ($)
Stephen Oesterle, M.D.			52,500				805,500				112,500				970,500
Alf Grunwald			15,000				—				300,000				315,000
Thomas Schnettler			18,125				—				300,000				318,125
Scott Drake(3)			18,750				1,105,650				112,500				1,236,900
B. Kristine Johnson(4)			4,792				—				300,000				304,792
Kristina Wright(5)			4,583				—				300,000				304,583

 

(1)	The amounts reported represent the aggregate dollar amount of all fees earned or paid in cash to each non-employee director for their service as a director during 2021, including any annual retainer fees, committee and/or chairmanship fees. Cash fees are paid quarterly in arrears.

(2)

Amounts shown represents the grant date fair value of stock options and RSUs granted during fiscal year 2021 as calculated in accordance with FASB ASC 718, Compensation —Stock Compensation (ASC Topic 718) and the assumptions outlined in Note 11 of our financial statements included in our 2021 Annual Report on Form 10-K. These amounts do not correspond to the actual value that may be recognized by the director upon exercise of the applicable awards or sale of the underlying shares of stock.

(3)	Mr. Drake joined our board in July 2021.

(4)	Ms. Johnson joined our board in December 2021.

(5)	Ms. Wright joined our board in December 2021.

The table below shows the aggregate numbers of option awards (exercisable and unexercisable) and unvested stock awards held as of December 31, 2021 by each non-employee director who was serving as of December 31, 2021.

 

Name		Options Outstanding at Fiscal Year End				Unvested RSUs Outstanding at Fiscal Year End
Stephen Oesterle, M.D.			250,000				7,031
Alf Grunwald			—				18,750
Thomas Schnettler			—				18,750
Scott Drake			162,500				7,031
B. Kristine Johnson			—				14,162
Kristina Wright			—				14,162

 

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