ITEM 5.02
DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS, COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.
On October 16, 2018, the Company and Richard Palmer, the Company’s Chief Executive Officer, entered into a new employment agreement and a convertible promissory note.
During the past eight years, Mr. Palmer has agreed to defer more than $1.7 million of his salary and annual bonus payable to him under his prior employment agreement with the Company. On October 16, 2018, because of the Company’s financial condition, Mr. Palmer agreed to defer $1 million of his accrued salary and bonus for an additional two years. In order to evidence the foregoing deferral, the Company and Mr. Palmer entered into a $1 million Convertible Promissory Note. The Convertible Promissory Note accrues simple interest on the outstanding principal balance of the note at the annual rate of five percent (5%) and matures and becomes due and payable on October 15, 2020. Under the note, Mr. Palmer has the right, exercisable at any time until the Convertible Promissory Note is fully paid, to
convert all or any portion of the outstanding principal balance and accrued and unpaid interest into shares of Company’s common stock at an exercise price of $0.0154 per share.
On October 16, 2018, the Company and Mr. Palmer also entered into a new Executive Employment Agreement (the “
Employment Agreement
”) that replaced his prior employment agreement. Under the Employment Agreement, Mr. Palmer agreed to serve as the Company’s President and Chief Executive Officer through October 15, 2023. Under the Employment Agreement, Mr. Palmer’s annual base salary was increased from $250,000 per year to $300,000 per year. Consistent with his prior employment agreement, Mr. Palmer is entitled to receive an annual bonus of up to 50% of his annual base salary if Mr. Palmer meets certain performance targets established by the Company’s Compensation Committee. If Mr. Palmer’s employment is terminated as a result of his death or disability, or by him for “Good Reason” as defined in the Employment Agreement, in addition to the Company’s payment of all outstanding sums due and owing to him at the time of separation, the Company is required to pay Mr. Palmer (or his estate) an amount equal to twelve (12) months of Mr. Palmer’s then-current base salary in the form of salary continuation, plus payment of Mr. Palmer’s and his family’s medical insurance premiums.
Under the Employment Agreement, the Company agreed to grant, and did grant, Mr. Palmer a non-qualified option (“
Option
”) to purchase shares of the Company’s common stock at an exercise price of $0.0154, subject to the Company’s achievement of certain market capitalization goals. Under the Option, Mr. Palmer will vest, and can exercise the Option, with respect to 40,000,000 shares when the Company’s market capitalization first reaches $7 million, another 40,000,000 shares will vest under the Option when the Company’s market capitalization reaches $20 million, and 30,000,000 shares will vest when the Company’s market capitalization first reaches $25 million. The term “market capitalization” is defined in the Employment Agreement to mean the product of the number of shares of common stock issued and outstanding at the time market capitalization is calculated, multiplied by the average closing price of the common stock for the thirty (30) consecutive trading days prior to the date of calculation as reported on the principal securities trading system on which the Company’s common stock is then listed for trading, including the Pink Sheets, the NASDAQ Stock Market, or any other applicable stock exchange. The Option expires after five (5) years.
