Item 5.02.
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
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Departure of Stephen ONeil
Effective
October 1, 2017, Stephen ONeil resigned as a member of the Board of Directors (the Board) of the Company and its operating subsidiary, Alphatec Spine, Inc. (Spine). Mr. ONeil also was a member of the
Boards Nominating, Governance and Compensation Committee. Mr. ONeils resignation was not the result of any disagreements between Mr. ONeil and the Company on any matter relating to the Companys operations,
policies or practices. In connection with his departure from the Companys Board, Mr. ONeil and the Company entered into a Vesting Acceleration Agreement (the Vesting Agreement). Pursuant to the Vesting Agreement, as of
October 1, 2017, all outstanding options to purchase the Companys common stock and any restricted common stock held by Mr. ONeil as of October 1, 2017, became vested and exercisable. In addition, the term during which
Mr. ONeil may exercise any stock option was extended until the earlier of: (i) October 1, 2019 (or the following business day if such day is not a business day of the Company), or (ii) the expiration date that would apply
to such stock option. This summary of the Vesting Agreement is qualified in its entirety by reference to the full text of the Vesting Agreement, which is filed hereto as Exhibit 10.3.
Appointment of Quentin Blackford
On October 1,
2017, the Board appointed Quentin Blackford to fill the vacancy created by Mr. ONeils resignation and to serve as a director for a term commencing on October 2, 2017 and expiring at the Annual Meeting of Stockholders of the
Company in 2018 and until his successor is duly elected and qualifies, unless he sooner dies, retires or resigns. The Board of Directors has determined that Mr. Blackford satisfies the current independent director standards
established by the rules of The Nasdaq Stock Market.
Mr. Blackford, age 38, currently serves as the Chief Financial Officer of DexCom, Inc.
(DexCom), a company focused on developing and marketing continuous glucose monitoring systems for ambulatory use by people with diabetes and by healthcare providers. Prior to joining DexCom in August 2017, Mr. Blackford served since
August 2016 as the Executive Vice President, Chief Financial Officer, Head of Strategy and Corporate Integrity of NuVasive, Inc. (NuVasive), a medical device company focused on developing minimally disruptive surgical products and
procedures for the spine. In this role, Mr. Blackford was responsible for leading NuVasives Finance, Strategy and Corporate Development, Compliance and Regulatory functions. From August 2014 until August 2016, Mr. Blackford served as
NuVasives Executive Vice President, Chief Financial Officer. From July 2012 to August 2014, Mr. Blackford served as NuVasives Executive Vice President of Finance and Investor Relations, and from January 2011 to June 2012, he served
as NuVasives Vice President, Finance. Mr. Blackford joined NuVasive in 2009 as its Corporate Controller and was previously employed at Zimmer Holdings, Inc., including most recently as the Director of Finance and Controller for
Zimmers Dental Division. He obtained his Certified Public Accounting license (currently inactive) following the achievement of dual Bachelor of Science degrees in Accounting and Business Administration, with an emphasis in Accounting, from
Grace College.
The Board selected Mr. Blackford to serve on the Board because it believes that his knowledge and experience in the areas of finance,
strategy and corporate development, along with his knowledge and experience in the medical device industry contribute to the breadth of knowledge of the Board of Directors.
Mr. Blackford will receive the following annual cash and equity compensation in accordance with the Companys standard compensation program for
independent directors: (i) an annual grant of nonqualified options equivalent in value to $30,000 on the date of grant with three-year vesting; (ii) an annual grant of shares of restricted stock equivalent in value to $45,000 on the date
of grant with
one-year
vesting; (iii) an annual cash retainer of $25,000, which is paid quarterly; and (iv) an annual payment of $8,000, paid quarterly, to each independent director that serves as a
member of a Board committee. In addition, it is anticipated that Mr. Blackford will enter into the Companys standard form of indemnification agreement for
non-employee
directors, a copy of which is
attached as Exhibit 10.5 to the Companys Quarterly Report on Form
10-Q
for the quarter ended March 31, 2009, filed with the SEC on May 5, 2009, and incorporated herein by reference.
There are no other arrangements or understandings between Mr. Blackford and any other person pursuant to which he was selected to serve on the Board.
There are no family relationships between Mr. Blackford and any director or executive officer of the Company, and he has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation
S-K.
Appointment of Patrick Miles
On October 1, 2017, the Board fixed the number of directors to serve on the Board at eight members and appointed Patrick Miles as Executive Chairman of
the Company and Spine, effective October 2, 2017. In connection with Mr. Miles appointment, director Mortimer Berkowitz III stepped down from his position as Chairman of the Board, but remains a director of the Company. Due to
Mr. Miles employment as an officer of the Company (as detailed below), the Board of Directors has determined that Mr. Miles does not satisfy the current independent director standards established by the rules of The
Nasdaq Stock Market and, effective October 2, 2017, it appointed Mr. Berkowitz as the Lead Director of the Board.
Mr. Miles, age 51, has
over 20 years of experience in the orthopaedic industry and most recently served, from September 2016 to September 2017, as the Vice Chairman of NuVasive. As Vice Chairman, Mr. Miles was responsible for enhancing the Companys strategic
plans for the future of spine surgery and supporting technology development. Mr. Miles served as a member of NuVasives Board of Directors since August 2016 until his resignation in September 2017. Prior to that, Mr. Miles served as
NuVasives President
and Chief Operating Officer from February 2015 to September 2016. He previously served as NuVasives President of Global Products and Services from October 2011 to January 2015, President of
the Americas from January 2010 to September 2011, Executive Vice President of Product Marketing and Development from January 2007 to December 2009, Senior Vice President of Marketing from December 2004 to January 2007, and as its Vice President,
Marketing from January 2001 to December 2004. Prior to those positions, he served as Director of Marketing for ORATEC Interventions, Inc., a medical device company, and as a Director of Marketing for Minimally Invasive Systems and Cervical Spine
Systems for Medtronic Sofamor Danek, and held several positions with Smith & Nephew. Mr. Miles received a B.S. in Finance from Mercer University.
The Board selected Mr. Miles to serve as Executive Chairman because it believes that he possesses specific attributes, perspective and experience gained
as an executive and director of both private and publicly-traded medical device companies that qualify him to serve as the Companys Executive Chairman.
There are no family relationships by or between Mr. Miles and any director or executive officer of the Company, and he has no direct or indirect material
interest in any transaction required to be disclosed pursuant to Item 404(a) of
Regulation S-K.
In
connection with his appointment, the Company entered into an employment letter agreement with Mr. Miles, effective as of October 2, 2017, setting forth Mr. Miles compensation and certain other terms. Mr. Miles
employment is
at-will.
Pursuant to his employment letter agreement, Mr. Miles will be paid an annual base salary of $550,000 and he will be eligible to receive an annual target cash bonus equal to 110%
(prorated to 50% for fiscal 2017) of his annual base salary upon the Companys and his achievement of goals to be established by the Companys Board each fiscal year. Mr. Miles is also entitled to participate in all of the
Companys benefits programs available to management employees and to receive reimbursement of reasonable expenses he incurs in connection with his service to the Company.
Pursuant to the employment letter agreement, in connection with the commencement of his employment on October 2, 2017, Mr. Miles will receive
restricted stock units (RSUs) covering 1,000,000 shares of the Companys common stock (with the grant of such RSUs made subject to, and effective on, the date on which the Company files a Registration Statement on Form
S-8
registering the shares of common stock issuable upon settlement of the RSUs, which filing is expected to occur later this month) under the Companys 2016 Employment Inducement Award Plan, for which the
Board approved an amendment in order to increase the shares reserved thereunder by 1,000,000 shares to 2,550,000 shares, effective October 2, 2017. Such awards were granted to Mr. Miles as a material inducement to his entering into
employment with the Company, pursuant to NASDAQ rules. The RSUs will vest in equal installments on each of the first three anniversaries of Mr. Miles first date of employment, subject to Mr. Miles continued service with the
Company through the applicable vesting date. In addition, the RSUs will fully vest upon a change in control (as defined in the 2016 Employment Inducement Award Plan, as amended) of the Company.
The Company and Mr. Miles also entered into a severance agreement and a change in control agreement, each effective October 2, 2017. The severance
agreement provides that in the event Mr. Miles employment is terminated without cause, he will be eligible to receive the following severance and other benefits, subject to his execution of a release of claims against the Company and
certain other conditions: (a) the payment of cash severance in a lump sum equal to one and one half times his regular annual base salary and his annual target bonus in effect for the calendar year in which the termination of the employment
occurs; (b) the Company will pay premiums for the continuation of his health and dental insurance coverage pursuant to COBRA for a period of 18 months; and (c) the post-termination exercise period for any vested stock options held by
Mr. Miles at the date of termination will be extended through the later of (i) 90 days after his date of termination or (ii) the remaining term of such awards.
Under the change in control agreement, in the event Mr. Miles employment is terminated without cause or for good reason (as defined in the
agreement), and such termination occurs within 24 months following a change in control (as defined in the agreement), he will be eligible to receive the following severance and other benefits, subject to his execution of a release of claims against
the Company: (1) a
lump-sum
cash severance payment in an amount equal to the sum of (a) two times his annual compensation; (b) the product of (x) his Long-term Incentive Award Value,
multiplied
by (y) a fraction, the numerator of which is the number of full and partial calendar months between January 1 of the year of Separation from Service and the date of the Executives Separation from Service (provided,
however, that such numerator shall not exceed six) and the denominator of which is twelve; and (c) the product of (x) the greater of (A) his target annual bonus amount for the year in which the Separation from Service occurs, or
(B) the highest annual bonus paid to him out of the three prior bonuses paid to the him prior to the his Separation from Service,
multiplied
by (y) a fraction, the numerator of which is the number of full and partial calendar months
between January 1 of the year of Separation from Service and the date of the Executives Separation from Service and the denominator of which is twelve (12); (2) the Company will pay premiums for the continuation of his health and dental
insurance coverage pursuant to COBRA for a period of 18 months; and (3) all of his outstanding equity awards will become fully vested to the extent that such vesting is based on service with the Company.
The foregoing description of the employment letter agreement, severance agreement, and change in control agreement does not purport to be complete and is
qualified in its entirety by reference to the full text of such agreements, copies of which will be filed with the Companys Quarterly Report on Form
10-Q
for the quarter ending September 30, 2017.
Amendment of Inducement Award Plan
On October 1, 2017, the Board approved the Third Amendment to the Companys 2016 Employment Inducement Award Plan, as amended (the Plan),
to increase the shares of common stock reserved for issuance under the plan by 1,000,000 shares, to a total of 2,550,000 shares. A complete copy of the Plan amendment is filed as Exhibit 10.4 hereto and incorporated herein by reference. The above
summary of the Plan amendment does not purport to be complete and is qualified in its entirety by reference to such exhibit.