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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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On June 1, 2020 the Board
of Directors of the Company determined that certain stock options granted on May 20, 2020 under the Company’s 2014 Stock
Incentive Plan (as amended, the “Plan”) had exceeded applicable limitations on grants in the Plan. The subject options
were issued in excess of the overall reserve of shares subject to the Plan and certain of the options exceeded the individual number
of options that may be issued to a recipient in any given fiscal year. In response, the Board approved the rescission (and forfeiture
by the holders) of aggregate stock option awards to purchase 2,380,000 shares of the Company’s common stock (the “Rescinded
Options”) that had been granted to certain employees, including options to purchase 960,000 and 480,000 shares of common
stock issued to Rick Mills, Chief Executive Officer, and Will Logan, Chief Financial Officer, respectively.
In addition, the Board
approved the grant to each holder of a Rescinded Option of a new option to purchase an equal number of shares of the Company’s
common stock (the “New Options”) as was set forth in the Rescinded Option, to be issued under the Plan; provided that
the New Options provide that they may not be exercised in full or in part until the Company’s shareholders have approved
an increase in the number of shares authorized under the Plan sufficient to permit the issuance of the shares underlying the New
Option, and the removal of the individual limit set forth in the Plan. The exercise price of the New Options is $2.53, which is
the higher of the closing prices on the date of issuance of the Rescinded Options and the closing price on the date of issuance
of the New Options. Because the New Options are replacing the Rescinded Options, these transactions will not have a significant
impact on dilution for the Company’s shareholders.
Also on June 1, 2020, the
Company entered into letter agreements, in the form filed with this report as Exhibit 10.1 and incorporated herein by reference,
with each holder of a Rescinded Option. Pursuant to the letter agreements, each such holder agreed to forfeit his or her Rescinded
Option, and the Company agreed to grant the holder a New Option.
The New Options issued
to Executive Officers
Messrs. Mills and Logan
received ten-year New Options to purchase 480,000 and 240,000 shares of common stock, respectively, which vest in three equal installments
on each anniversary of the issuance.
Messrs. Mills and Logan
also received ten-year options to purchase 480,000 and 240,000 shares of common stock, respectively, which vest in equal installments
over a three-year period subject to satisfying the Company revenue target and EBITDA (earnings before interest, taxes, depreciation
and amortization) target for the applicable year. In each of calendar years 2020, 2021 and 2022, one-third of the total shares
may vest (if the revenue and EBITDA targets are met), and the shares that are subject to vesting each year are allocated equally
to each of the revenue and EBITDA targets for such year.
These options includes
a catch-up provision, where any options that did not vest during a prior year due to the Company’s failure to meet a prior
revenue or EBITDA target may vest in a subsequent vesting year if the revenue or EBITDA target, as applicable, is met in the future
year. The revenue and EBITDA targets for the following three years are as follows:
Calendar Year
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Revenue
Target
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EBITDA Target
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2020
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$32 million
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$2.2
million
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2021
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$35 million
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$3.1
million
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2022
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$38 million
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$3.5
million
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