ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Board
of Directors
The
following table sets forth the name, age and positions of each director as of April 28, 2023:
Name |
|
Age |
|
Director
Since |
|
Position
with the Company |
Thomas M. Wittenschlaeger |
|
65 |
|
December 2021 |
|
Chief Executive Officer; Director |
Joshua Silverman |
|
53 |
|
August 2016 |
|
Chairman of the Board |
Sebastian Giordano |
|
65 |
|
February 2013 |
|
Director |
Greg Schiffman |
|
65 |
|
February 2018 |
|
Director |
Zvi Joseph |
|
56 |
|
January 2018 |
|
Director |
George Devlin |
|
69 |
|
May 2020 |
|
Director |
Wayne R. Walker |
|
64 |
|
November 2020 |
|
Director |
The
following sets forth biographical information and the qualifications and skills for each director:
Thomas
M. Wittenschlaeger. Mr. Wittenschlaeger is an experienced executive with a background in the electric vehicle (“EV”)
industry and vehicle technologies businesses. Mr. Wittenschlaeger has served as the Company’s Chief Executive Officer since September
2021. From August 2019 to September 2021, Mr. Wittenschlaeger served as chief executive officer of Nantmobility, Inc., an EV company
in the micromobility segment. From February 2015 to July 2019, he served as an executive at FOX Factory, Inc., a developer of off-road
and performance vehicle components, serving as President of its Powered Vehicles Group from February 2015 to June 2018, and as Chief
Strategy Officer from June 2018 to July 2019. Prior to joining FOX Factory, Inc., Mr. Wittenschlaeger served as President of NantTronics,
Inc., a wireless infrastructure and enabling technologies company, from November 2012 to January 2015. From December 2011 to November
2012, he served as chairman and chief executive officer of KeyOn Communications Holdings, Inc., during which time he guided the company
through a business rationalization, comprehensive financial restructuring, asset divestiture and controlled wind-down and restored two
businesses to operations from a shutdown state. During a 16-year stint at the Hughes Aircraft Company, he researched advanced technology
products for the automotive market as well as for the military transport market decades in advance of their ultimate adoption. Mr. Wittenschlaeger
holds a B.S. in electrical engineering from the United States Naval Academy and is a graduate of the Executive Program in Management,
Business Administration, and Operations at the Anderson School of Management, University of California at Los Angeles. His portfolio
of patents includes IP in vehicle damper tuning, wireless infrastructure, cyber resiliency and supercomputing.
Joshua
Silverman. Mr. Silverman has been our director since May 28, 2020, and currently serves as Chairman of the Board. Prior to the
Merger, Mr. Silverman had served as a member of the DropCar Board of Directors since the 2018 Merger (as defined below). Mr. Silverman
currently serves as the managing member of Parkfield Funding LLC. Mr. Silverman was the co-founder of, and was previously a principal
and managing partner of, Iroquois Capital Management, LLC (“Iroquois”), an investment advisory firm. From its inception in
2003 until July 2016, Mr. Silverman served as co-chief investment officer of Iroquois. While at Iroquois, he designed and executed complex
transactions, structuring and negotiating investments in both public and private companies, and was often called upon by such companies
to solve inefficiencies relating to corporate structure, cash flow, and management. From 2000 to 2003, Mr. Silverman served as co-chief
investment officer of Vertical Ventures, LLC, a merchant bank. Prior to forming Iroquois, Mr. Silverman was a director of Joele Frank,
a boutique consulting firm specializing in mergers and acquisitions. Previously, Mr. Silverman served as assistant press secretary to
the President of the United States. Mr. Silverman currently serves as a director of MYMD Pharmaceuticals, Inc. (NASDAQ: MYMD), Pharmacyte,
Inc. (NASDAQ: PMCB), Synaptogenix, Inc. (NASDAQ: SNPX) and Petros Pharmaceutical, Inc. (NASDAQ: PTPI), all of which are public companies.
He previously served as a director of National Holdings Corporation from July 2014 through August 2016 and as a director of Marker Therapeutics,
Inc. from August 2016 until October 2018. Mr. Silverman received his B.A. from Lehigh University in 1992. Mr. Silverman’s qualifications
to sit on the Board include his experience as an investment banker, management consultant and director of numerous public companies.
Sebastian
Giordano. Mr. Giordano served as a member of the DropCar Board of Directors since the completion of the business combination
with DropCar, Inc. (“Private DropCar”) and DC Acquisition Corporation, pursuant to which Private DropCar became a wholly
owned subsidiary of WPCS International Incorporated (“WPCS”), which then changed its name to DropCar on January 30, 2018
(the “2018 Merger”), and, prior to that time, served as a director of WPCS since February 2013, and has continued to serve
as a director of the Company following the Merger. Mr. Giordano served as the Interim Chief Executive Officer of WPCS from August 2013
until April 25, 2016, when the interim label was removed from his title. He served as the Chief Executive Officer of WPCS since such
time through the closing of the 2018 Merger. Mr. Giordano has served as Chairman and Chief Executive Officer of Transportation and Logistics
Systems, Inc. (OTCQB: TLSS) since January 2022. Since 2002, Mr. Giordano has been Chief Executive Officer of Ascentaur, LLC, a business
consulting firm providing comprehensive strategic, financial and business development services to start-up, turnaround and emerging growth
companies. From 1998 to 2002, Mr. Giordano was Chief Executive Officer of Drive One, Inc., a safety training and education business.
From 1992 to 1998, Mr. Giordano was Chief Financial Officer of Sterling Vision, Inc., a retail optical chain. Mr. Giordano received B.B.A.
and MBA degrees from Iona College. Mr. Giordano’s qualifications to sit on the Board include his broad management experience, including
having served as Chief Executive Officer of WPCS.
Greg
Schiffman. Mr. Schiffman served as a member of the DropCar Board of Directors since the closing of the 2018 Merger and has continued
to serve as a director of the Company following the Merger. Mr. Schiffman has served as the Chief Financial Officer of privately-held
AbSci, LLC since April 2020. He previously served as the Chief Financial Officer of Vineti, Inc. from October 2017 through April 2018.
He also previously served as the Chief Financial Officer of each of Iovance Biotherapeutics (formerly Lion Biotechnologies), from October
2016 through June 2017, Stem Cells, Inc., from January 2014 through September 2016, Dendreon Corporation, from December 2006 through
December 2013 and Affymetrix Corporation, from August 2001 through November 2006. He currently serves on the boards of directors of several
private companies. Mr. Schiffman holds a B.S. in Accounting from DePaul University and an MM (MBA) from Northwestern University Kellogg
Graduate School of Management. Mr. Schiffman’s qualifications to sit on the Board include his financial background, business experience
and education.
Zvi
Joseph. Mr. Joseph served as a member of the DropCar Board of Directors since the closing of the 2018 Merger and has continued
to serve as a director of the Company following the Merger. He has served as Deputy General Counsel of Amdocs Limited, a publicly traded
corporation that provides software and services to communications and media companies, since October 2005. He received his A.A.S. in
Business Administration from Rockland Community College, his B.A. in Literature from New York University and his J.D. from Fordham University
School of Law. He also holds a Certificate in Business Excellence from Columbia University School of Business and a Corporate Director
Certificate, Corporate Governance, from Harvard Business School. Mr. Joseph is NACD Directorship Certified®. Mr. Joseph’s qualifications
to sit on the Board include his legal experience and education.
George
Devlin. Mr. Devlin has, since 2007, managed his own consulting business, Venture Connections (G&L Devlin Limited), primarily
focused on helping early-stage companies with fundraising, commercialization and strategic planning. From 2005 to 2007, Mr. Devlin worked
in operations at Texas Pacific Group (TPG – Private Equity), where he supported deal partners on due diligence and transformation
activities involved in deals. From 2002 to 2005, Mr. Devlin served as Chief Executive Officer of Vivecon, a Stanford University start-up
in Supply Chain Risk Management solutions. From 2001 to 2002, he served as Chief Operations Officer of Converge, Inc. From 1998 to 2001,
Mr. Devlin worked at Compaq Computer Corporation, eventually holding the post of Senior Vice President of Global Operations based in
Houston, Texas. He is a native of Scotland and graduated with a Business Studies diploma and a postgraduate diploma in Human Resources
from Glasgow Polytechnic, now called Caledonian University. Mr. Devlin’s qualifications to serve on the Board include his international
experience and expertise, ranging from a successful career as an executive in a major global corporation (supply chain and operations)
to becoming an entrepreneur and helping many early-stage start-up technology companies globally.
Wayne
R. Walker. Mr. Walker has over 35 years of experience in corporate governance, turnaround management, corporate restructuring
and bankruptcy matters. In 1998, Mr. Walker founded Walker Nell Partners, Inc., an international business consulting firm, and has served
as its president from its founding to the present. Before founding Walker Nell Partners, Inc., Mr. Walker worked for 15 years at the
DuPont Company in Wilmington, Delaware in the Securities and Bankruptcy group, where he worked in the Corporate Secretary’s office
and served as Senior Counsel. From 2018 to the present, Mr. Walker has served as a director of Wrap Technologies, Inc. (NASDAQ: WRAP),
an innovator of modern policing solutions, where he also serves as Chair of the Nominating and Governance Committee and of the Compensation
Committee. From 2018 to the present, Mr. Walker has served as a director of Pitcairn Company and as the Chair of its Compensation Committee.
From 2013 to 2014, Mr. Walker served as Chairman of the Board of Directors of BridgeStreet Worldwide, Inc., a global provider of extended
corporate housing. From 2016 to 2018, Mr. Walker served as Chairman of the Board of Directors of Last Call Operating Companies, an owner
of various national restaurants. From 2013 to 2020, Mr. Walker served as Chairman of the Board of Trustees of National Philanthropic
Trust, a public charity. From 2018 to 2020, Mr. Walker served as Vice President of the Board of Education of the City of Philadelphia.
From 2020 to the present, Mr. Walker has served as a director of Petros Pharmaceuticals, Inc. (NASDAQ: PTPI), which focuses on men’s
health, where he also serves as Chair of the Nominating and Governance Committee. Mr. Walker has also served on the Board of Directors
for the following companies and foundations: Seaborne Airlines, Inc., Green Flash Brewery, Inc., and Eagleville Hospital and Foundation.
Mr. Walker has a J.D. from Catholic University (Washington, DC) and a B.A. from Loyola University (New Orleans). He is an attorney licensed
by the State Bar of Georgia. He is a member of the State Bar Association of Georgia, American Bar Association, American Bankruptcy Institute
and Turnaround Management Association. Mr. Walker’s qualifications to serve on the Board include his business experience and his
extensive board experience.
Executive
Officers
The
following table sets forth the names, ages and positions of our executive officers as of April 28, 2023:
Name |
|
Age |
|
Officer
Since |
|
Position
with the Company |
Thomas M. Wittenschlaeger |
|
65 |
|
September 2021 |
|
Chief Executive Officer |
David E. Hollingsworth |
|
43 |
|
January 2022 |
|
Chief Financial Officer |
Please
see the biography of Mr. Wittenschlaeger on page 3 of this Amendment.
David
E. Hollingsworth. Mr. Hollingsworth is a senior level accounting professional with extensive experience in financial reporting,
analysis, regulation, and supervision. Mr. Hollingsworth has served as the Company’s Chief Financial Officer since August 2022
and as its Interim Chief Financial Officer from January 2022 to August 2022. From March 2021 until January 2022, Mr. Hollingsworth served
as a consultant with Bridgepoint Consulting, a provider of financial, technology, and management consulting services, and served as the
Company’s Controller under a consulting agreement between the Company and Bridgepoint Consulting. From January 2020 until March
2021, he served as Controller at Wondercide LLC, a pest control manufacturer. Before that, he worked as a Controller Consultant at Bridgepoint
Consulting from October to December 2019. From September 2018 to September 2019, Mr. Hollingsworth served as Financial Controller of
CPI Products, a manufacturer of plastic products, where he oversaw accounting and financial functions, directed human resources for corporate
staff at three manufacturing locations, and designed and implemented department performance criteria and tracking. From May 2015 until
August 2018, Mr. Hollingsworth served as Corporate Controller of Sunworks, Inc., a provider of solar power systems. Mr. Hollingsworth holds
an MBA from Weber State University and a B.S. in Accounting from Brigham Young University - Idaho.
Family
Relationships
There
are no family relationships among any of our directors and executive officers.
Delinquent
Section 16(a) Reports
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our officers and directors and persons
who beneficially own more than 10% of our ordinary shares to file reports of ownership and changes in ownership of such ordinary shares
with the SEC. These persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. As a matter
of practice, our legal team assists our officers and directors in preparing initial reports of ownership and reports of changes in ownership
and files those reports on their behalf. Based solely on our review of the copies of such forms we have received, we believe that all
required Section 16(a) reports were timely filed during our fiscal year ended December 31, 2022, except for the following: (i) Joshua
Silverman made a late Form 4 filing on November 3, 2022 with respect to one transaction, a broker-assisted sale of common stock; (ii)
Zvi Joseph made a late Form 4 filing on November 3, 2022 with respect to one transaction, a broker-assisted sale of common stock; (iii)
Sebastian Giordano made a late Form 4 filing on November 3, 2022 with respect to one transaction, a broker-assisted sale of common stock;
and (iv) Greg Schiffman made a late Form 4 filing on November 3, 2022 with respect to one transaction, a broker-assisted sale of common
stock.
Corporate
Code of Conduct and Ethics and Whistleblower Policy
We
have adopted a Corporate Code of Conduct and Ethics and Whistleblower Policy (the “Code of Conduct”) that applies to all
of our associates, as well as each of our directors and certain persons performing services for us. The Code of Conduct addresses, among other things, competition and fair dealing, conflicts of interest, protection
and proper use of Company assets, government relations, compliance with laws, rules and regulations and the process for reporting
violations of the Code of Conduct, employee misconduct, improper conflicts of interest
or other violations. Our Code of Conduct is available on our website at https://ayro.com/
in the “Governance” section found under the “Investors” tab. We intend to disclose any amendments to, or
waivers from, our Code of Conduct at the same web address provided above.
Director
Nominations by Security Holders
There
have been no material changes to the procedures by which security holders may recommend nominees to our Board since those procedures
were described in our proxy statement for our 2022 Annual Meeting of Stockholders.
Audit
Committee
Our
Audit Committee is responsible for, among other matters:
● |
approving and retaining
the independent auditors to conduct the annual audit of our financial statements; |
● |
reviewing the proposed
scope and results of the audit; |
● |
reviewing and pre-approving
audit and non-audit fees and services; |
● |
reviewing accounting and
financial controls with the independent auditors and our financial and accounting staff; |
● |
reviewing and approving
transactions between us and our directors, officers and affiliates; |
● |
recognizing and preventing
prohibited non-audit services; |
● |
establishing procedures
for complaints received by us regarding accounting matters; |
● |
overseeing internal audit
functions, if any; and |
● |
preparing the report of
the audit committee that the rules of the SEC require to be included in our annual meeting proxy statement. |
Our
Audit Committee is composed of Greg Schiffman (chairman), Zvi Joseph and Joshua Silverman. Our Board has determined that Messrs. Schiffman,
Joseph and Silverman are independent in accordance with NASDAQ Rules and Rule 10A-3 under the Exchange Act. Our Board has also reviewed
the education, experience and other qualifications of each member of the Audit Committee. Based upon that review, our Board has determined
that Greg Schiffman qualifies as an “audit committee financial expert,” as defined by the rules of the SEC.
ITEM
11. EXECUTIVE COMPENSATION
The
following is a discussion of the material components of the executive compensation arrangements of our named executive officers, comprised
of (i) all individuals who served as our principal executive officer during the fiscal year ended December 31, 2022, (ii) our two most
highly compensated executive officers, other than individuals who served as our principal executive officer, who were serving as executive
officers, as determined in accordance with the rules and regulations promulgated by the SEC, as of December 31, 2022, with compensation
during the fiscal year ended December 31, 2022 of $100,000 or more, and (iii) up to two additional individuals for whom disclosure would
have been provided pursuant to clause (ii) but for the fact that such individuals were not serving as executive officers on December
31, 2022 (the individuals falling within categories (i), (ii) and (iii) are collectively referred to as the “named executive officers”).
Our
named executive officers for 2022 were as follows:
● |
Thomas M. Wittenschlaeger, Chief Executive Officer |
● |
David E. Hollingsworth, Chief Financial Officer; |
● |
Curtis Smith, Former Chief Financial Officer; |
● |
Richard Perley, Former Chief Marketing Officer. |
Change
in Management
From
September 2021 through January 2022, we underwent a change in management. In September 2021, Mr. Wittenschlaeger joined the Company as
Chief Executive Officer. Following the hiring of Mr. Wittenschlaeger, in January 2022 Messrs. Smith and Perley resigned from their respective
positions as Chief Financial Officer and Chief Marketing Officer and Mr. Hollingsworth was hired as the Company’s Interim Chief
Financial Officer. On August 22, 2022, the Company appointed Mr. Hollingsworth as Chief Financial Officer.
Compensation
Philosophy and Process
The
responsibility for establishing, administering and interpreting our policies governing the compensation and benefits for our executive
officers lies with our senior management, subject to the review and approval of our Board.
The
goals of our executive compensation program are to attract, motivate and retain individuals with the skills and qualities necessary to
support and develop our business within the framework of our size and available resources. In 2022, we designed our executive compensation
program to achieve the following objectives:
● |
attract and retain executives
experienced in developing and delivering products such as our own; |
● |
motivate and reward executives
whose experience and skills are critical to our success; |
● |
reward performance; and |
● |
align the interests of
our executive officers and other key employees with those of our stockholders by motivating our executive officers and other key
employees to increase stockholder value. |
Summary
Compensation Table
The
following table sets forth all compensation earned, in all capacities, during the fiscal years ended December 31, 2022, and 2021 by the
Company’s named executive officers.
Name and Principal Position | |
Year | |
Salary ($) | | |
Bonus ($) | | |
Stock Awards ($) (1) | | |
Option Awards ($) (1) | | |
All other compensation ($) | | |
Total ($) | |
Thomas M. Wittenschlaeger (2) | |
2022 | |
| 263,700 | | |
| 132,500 | | |
| - | | |
| - | | |
| - | | |
| 396,200 | |
Chief Executive Officer | |
2021 | |
| 71,106 | | |
| - | | |
| 1,117,092 | | |
| - | | |
| - | | |
| 1,188,198 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
David E. Hollingsworth (3) | |
2022 | |
| 209,675 | | |
| 87,100 | | |
| 2,760 | | |
| - | | |
| - | | |
| 299,535 | |
Chief Financial Officer | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Curtis Smith (4) | |
2022 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 245,833 | | |
| 245,833 | |
Former Chief Financial Officer | |
2021 | |
| 226,506 | | |
| 50,000 | | |
| - | | |
| - | | |
| - | | |
| 276,506 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Richard Perley (5) | |
2022 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 245,833 | | |
| 245,833 | |
Former Chief Marketing Officer | |
2021 | |
| 149,998 | | |
| 50,002 | | |
| - | | |
| - | | |
| - | | |
| 200,000 | |
|
(1) |
The dollar amounts in this
column represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. The assumptions underlying the
determination of fair value of the awards are set forth in Note 3 of the financial statements included in our Annual Report on Form
10-K filed with the SEC on March 23, 2022 |
|
(2) |
Appointed as an officer
of the Company effective as of September 23, 2021. |
|
(3) |
Appointed as an officer
of the Company effective as of January 14, 2022. |
|
(4) |
Resigned effective as of
January 14, 2022. |
|
(5) |
Terminated engagement with
the Company effective as of January 14, 2022. |
Narrative
Disclosure to Summary Compensation Table
The
Company has entered into an executive employment agreement with Mr. Wittenschlaeger. Prior to the Merger, AYRO Operating had entered
into an employment agreement with Mr. Smith. Immediately prior to the effective time of the Merger AYRO Operating entered into an amendment
to the current executive employment agreement with Mr. Smith, effective upon completion of the Merger.
Mr.
Perley provided services as a contractor to AYRO Operating pursuant to an independent contractor agreement AYRO Operating entered into
with an entity controlled by Mr. Perley.
The
material terms of the employment agreements and the independent contractor agreements with the named executive officers of the Company
are summarized below.
Executive
Employment Agreement with Thomas M. Wittenschlaeger
On
September 23, 2021, the Company entered into an executive employment agreement (the “Wittenschlaeger Employment Agreement”)
with Mr. Wittenschlaeger setting forth the terms and conditions of Mr. Wittenschlaeger’s employment as the Company’s Chief
Executive Officer, effective September 23, 2021. Pursuant to the Wittenschlaeger Employment Agreement, Mr. Wittenschlaeger will serve
as the Chief Executive Officer of the Company for a two-year initial term commencing on September 23, 2021, which term may be renewed
for up to three successive one-year terms, unless earlier terminated by either party in accordance with the terms of the Wittenschlaeger
Employment Agreement. Subject to the approval of the Company’s stockholders, Mr. Wittenschlaeger also serves as a member of the
Board.
The
Wittenschlaeger Employment Agreement provides that Mr. Wittenschlaeger is entitled to receive an annual base salary of two hundred-eighty
thousand dollars ($280,000), payable in equal installments semi-monthly pursuant to the Company’s normal payroll practices. For
the 2021 fiscal year, Mr. Wittenschlaeger was eligible to receive a partial bonus as determined by the Board, based upon the achievement
of short-term target objectives and performance criteria as agreed upon by Mr. Wittenschlaeger and the Board, with such partial bonus
payable no later than March 15, 2022. Mr. Wittenschlaeger is also eligible to receive, for subsequent fiscal years during the term of
his employment, periodic bonuses up to 50% of his annual base salary upon achievement of target objectives and performance criteria,
payable on or before March 15 of the fiscal year following the fiscal year to which the bonus relates. For the fiscal year ended December
31, 2022, Mr. Wittenschlaeger was awarded a bonus of $132,500. For Targets and performance criteria shall be established by the Board
after consultation with Mr. Wittenschlaeger, but the evaluation of Mr. Wittenschlaeger’s performance shall be at the Board’s
sole discretion. The Wittenschlaeger Employment Agreement also entitles Mr. Wittenschlaeger to receive customary benefits and reimbursement
for ordinary business expenses and relocation expenses of $15,000.
In
connection with Wittenschlaeger’s appointment and as an inducement to enter into the Wittenschlaeger Employment Agreement, the
Company granted Mr. Wittenschlaeger 450,000 shares of the Company’s restricted common stock, pursuant to a restricted stock award
agreement entered into by the Company with Mr. Wittenschlaeger on September 23, 2021,
which shares shall vest in tranches of 90,000 shares upon the achievement of certain stock price, market capitalization and business
milestones.
The
Company may terminate Mr. Wittenschlaeger’s employment due to death or disability, for cause (as defined in the Wittenschlaeger
Employment Agreement) at any time after providing written notice to Mr. Wittenschlaeger, and without cause at any time upon thirty days’
written notice. Mr. Wittenschlaeger may terminate his employment without good reason (as defined in the Wittenschlaeger Employment Agreement)
at any time upon thirty days’ written notice or with good reason, which requires delivery of a notice of termination within ninety
days after Mr. Wittenschlaeger first learns of the existence of the circumstances giving rise to good reason, and failure of the Company
to cure the circumstances giving rise to the good reason within thirty days following delivery of such notice.
If
Mr. Wittenschlaeger’s employment is terminated by the Company for cause or if Mr. Wittenschlaeger resigns, Mr. Wittenschlaeger
shall receive, within thirty days of such termination, any accrued but unpaid base salary and expenses required to be reimbursed pursuant
to the Wittenschlaeger Employment Agreement. If Mr. Wittenschlaeger’s employment is terminated due to his death or disability,
Mr. Wittenschlaeger or his estate will receive the accrued obligation Mr. Wittenschlaeger would have received upon termination by the
Company for cause or by Mr. Wittenschlaeger by resignation, and any earned, but unpaid, bonus for services rendered during the year preceding
the date of termination.
If
Mr. Wittenschlaeger’s employment is terminated by the Company without cause (as defined in the Wittenschlaeger Employment Agreement)
or upon non-renewal or by Mr. Wittenschlaeger for good reason, Mr. Wittenschlaeger is entitled to receive the accrued obligation Mr.
Wittenschlaeger would have received upon termination by the Company for cause or by Mr. Wittenschlaeger by resignation, and any earned,
but unpaid, bonus for services rendered during the year preceding the date of termination. In addition, subject to compliance with the
restrictive covenants set forth in the Wittenschlaeger Employment Agreement and the execution of a release of claims in favor of the
Company, the Company will pay the following severance payments and benefits: (i) an amount equal to twelve months’ base salary,
payable in equal monthly installments over a twelve-month severance period; (ii) an amount equal to the greater of (x) the most recent
annual bonus earned by Mr. Wittenschlaeger, (y) the average of the immediately preceding two year’s annual bonuses earned by Mr.
Wittenschlaeger, or (z) if Mr. Wittenschlaeger’s termination of employment occurs during the first calendar year of the initial
employment term before any annual bonus for a full twelve-month period of service has been paid, then the target bonus Mr. Wittenschlaeger
is eligible for under the Wittenschlaeger Employment Agreement; provided that, other than the first year of the Wittenschlaeger Employment
Agreement, no bonus amount shall be payable if the bonuses for the year of termination are subject to achievement of performance goals
and such performance goals are not achieved by the Company for such year; and (iii) an amount intended to assist Mr. Wittenschlaeger
with his post-termination health coverage, provided however, he is under no obligation to use such amounts to pay for continuation of
coverage under the Company’s group health plan pursuant to COBRA.
If
Mr. Wittenschlaeger’s employment is terminated by the Company without cause or by Mr. Wittenschlaeger for good reason or upon non-renewal
within 12 months following a change in control (as defined in the Wittenschlaeger Employment Agreement), Mr. Wittenschlaeger shall receive
the severance payments and benefits he would receive in the event that the Company terminates Mr. Wittenschlaeger’s employment
without cause or upon non-renewal or by Mr. Wittenschlaeger for good reason set forth above. In addition, certain performance milestones
for his equity award will be waived, and certain unvested restricted shares shall immediately vest and no longer be subject to any holding
period.
The
Wittenschlaeger Employment Agreement also contains customary provisions relating to, among other things, confidentiality, non-competition,
non-solicitation, non-disparagement, and assignment of inventions requirements.
Executive
Employment Agreement with David E. Hollingsworth
In
connection with Mr. Hollingsworth’s appointment as the Company’s Chief Financial Officer, on August 23, 2022, the Company
entered into an executive employment agreement (the “Hollingsworth Employment Agreement”) with Mr. Hollingsworth setting
forth the terms and conditions of Mr. Hollingsworth’s employment, effective August 23, 2022. Pursuant to the Hollingsworth Employment
Agreement, Mr. Hollingsworth will serve as the Chief Financial Officer of the Company for a two-year initial term commencing on August
23, 2022, which term may be renewed for up to two successive one-year terms, unless earlier terminated by either party in accordance
with the terms of the Hollingsworth Employment Agreement.
The
Hollingsworth Employment Agreement provides that Mr. Hollingsworth is entitled to receive an annual base salary of two hundred-thirty
thousand dollars ($230,000), payable in equal installments semi-monthly pursuant to the Company’s normal payroll practices. For
each fiscal year during the term of his employment, Mr. Hollingsworth is eligible to receive periodic bonuses of up to 40% of his annual
base salary upon achievement of target objectives and performance criteria, payable on or before March 15 of the fiscal year following
the fiscal year to which the bonus relates. Targets and performance criteria shall be established by the Board after consultation with
Mr. Hollingsworth and the Company’s Chief Executive Officer, but the evaluation of Mr. Hollingsworth’s performance shall
be at the Board’s sole discretion. For the fiscal year ended December 31, 2022, Mr. Hollingsworth was awarded a bonus of $87,100.
The Hollingsworth Employment Agreement also entitles Mr. Hollingsworth to receive customary benefits and reimbursement for ordinary business
expenses.
In
connection with Mr. Hollingsworth’s appointment and as an inducement to enter into the Hollingsworth Employment Agreement, the
Company granted Mr. Hollingsworth 100,000 shares of the Company’s restricted common stock, which shares shall vest in tranches
of 25,000 shares upon the achievement of certain stock price, market capitalization and business milestones.
The
Company may terminate Mr. Hollingsworth’s employment due to death or disability, for cause (as defined in the Hollingsworth Employment
Agreement) at any time after providing written notice to Mr. Hollingsworth, and without cause at any time upon thirty days’ written
notice. Mr. Hollingsworth may terminate his employment without good reason (as defined in the Hollingsworth Employment Agreement) at
any time upon thirty days’ written notice or with good reason, which requires delivery of a notice of termination within ninety
days after Mr. Hollingsworth first learns of the existence of the circumstances giving rise to good reason, and failure of the Company
to cure the circumstances giving rise to the good reason within thirty days following delivery of such notice.
If
Mr. Hollingsworth’s employment is terminated by the Company for cause, as a result of Mr. Hollingsworth’s resignation or
as a result of the expiration of the term of the Hollingsworth Employment Agreement, Mr. Hollingsworth shall receive, within thirty days
of such termination, any accrued but unpaid base salary and expenses required to be reimbursed pursuant to the Hollingsworth Employment
Agreement. If Mr. Hollingsworth’s employment is terminated due to his death or disability, Mr. Hollingsworth or his estate will
receive the accrued obligations Mr. Hollingsworth would have received upon termination by the Company for cause or by Mr. Hollingsworth
by resignation, and any earned, but unpaid, bonus for services rendered during the year preceding the date of termination.
If
Mr. Hollingsworth’s employment is terminated by the Company without cause (as defined in the Hollingsworth Employment Agreement)
or by Mr. Hollingsworth for good reason, Mr. Hollingsworth is entitled to receive the accrued obligations he would have received upon
termination by the Company for cause or by Mr. Hollingsworth by resignation, and any earned, but unpaid, bonus for services rendered
during the year preceding the date of termination. In addition, subject to compliance with the restrictive covenants set forth in the
Hollingsworth Employment Agreement and the execution of a release of claims in favor of the Company, the Company will pay the following
severance payments and benefits: (i) an amount equal to twelve months’ base salary, payable in equal monthly installments over
a twelve-month severance period; (ii) an amount equal to the greater of (x) the most recent annual bonus earned by Mr. Hollingsworth,
(y) the average of the immediately preceding two year’s annual bonuses earned by Mr. Hollingsworth, or (z) if Mr. Hollingsworth’s
termination of employment occurs during the first calendar year of the initial employment term before any annual bonus for a full twelve-month
period of service has been paid, then the target bonus Mr. Hollingsworth is eligible for under the Hollingsworth Employment Agreement;
provided that no bonus amount shall be payable if the bonuses for the year of termination are subject to achievement of performance goals
and such performance goals are not achieved by the Company for such year; and (iii) an amount intended to assist Mr. Hollingsworth with
his post-termination health coverage, provided, however, that he is under no obligation to use such amounts to pay for continuation of
coverage under the Company’s group health plan pursuant to COBRA.
The
Hollingsworth Employment Agreement also contains customary provisions relating to, among other things, confidentiality, non-competition,
non-solicitation, non-disparagement, and assignment of inventions requirements.
Executive
Employment Agreement with Curtis Smith
Pre-Merger
Smith Employment Agreement
Pursuant
to his employment agreement, effective March 8, 2018, and to subsequent actions by AYRO Operating’s board of directors, Curtis
E. Smith was entitled to a base salary of $200,000 and a target annual bonus in the amount of 25% of his annual base salary. The target
annual bonus was based on Mr. Smith’s performance, as determined by AYRO Operating’s board of directors in its sole discretion,
against fundamental corporate and/or individual objectives to be determined by AYRO Operating’s board of directors. Mr. Smith was
eligible to participate in the AYRO Operating Equity Plan (as defined below), subject to the discretion of AYRO Operating’s board
of directors, if and when the board of directors determined to make a grant to him. Pursuant to Mr. Smith’s employment agreement,
as consideration for entering into the employment agreement, AYRO Operating granted nonqualified options to acquire 109,072 shares of
AYRO Operating common stock (giving effect to the Exchange Ratio and Reverse Split) with an exercise price of $2.446 in March 2018.
Smith
Employment Agreement Amendment
On
May 28, 2020, immediately prior to the effective time of the Merger, AYRO Operating entered into an amendment to its executive employment
agreement with Mr. Smith (the “Smith Amendment”). The Smith Amendment provided that if Mr. Smith’s employment was terminated
upon either party’s failure to renew or by Mr. Smith without good reason, then all of Mr. Smith’s vested, outstanding stock
options would remain exercisable until the earlier of the expiration of the option’s term or the date that is two years following
the termination. The Smith Amendment further provided that if Mr. Smith’s employment was terminated by AYRO Operating without cause
or by Mr. Smith for good reason, then all outstanding equity awards granted to Mr. Smith pursuant to his employment agreement would be
fully and immediately vested, to the extent not previously vested, and all of his then vested, outstanding stock options would remain
exercisable until the earlier of the expiration of the options’ term or the date that is two years following termination. On September
29, 2020, Mr. Smith was awarded options to purchase 169,906 shares of our common stock, at an exercise price of $3.17 per share. One-third
of the shares underlying the options vested on the first anniversary of the date of grant, and the remaining optioned shares would vest
in twenty-four substantially equal monthly installments on each of the next twenty-four monthly anniversaries of the initial vesting
date, provided that Mr. Smith had remained continuously employed by or had been providing services to us through the applicable vesting
date.
Resignation
of Chief Financial Officer and General Release and Severance Agreement
Effective
as of January 14, 2022 (the “Smith Resignation Date”), Mr. Smith resigned from his role as an officer and employee of the
Company.
On
January 14, 2022, in connection with Mr. Smith’s resignation, the Company and Mr. Smith entered into a General Release and Severance
Agreement (the “Smith Severance Agreement”). Pursuant to the Smith Severance Agreement, Mr. Smith was entitled to receive
a cash separation payment in the amount of $237,500.00, less applicable tax deductions and withholdings, payable in a lump sum within
8 days of January 21, 2022.
The
Smith Severance Agreement provided Mr. Smith the opportunity to revoke his acceptance of the Smith Severance Agreement within eight calendar
days of the Smith Resignation Date, in which case the Smith Severance Agreement would not be effective and would be deemed void.
In
exchange for the consideration provided to Mr. Smith in the Smith Severance Agreement, Mr. Smith and the Company agreed to mutually waive
and release any claims in connection with Mr. Smith’s hiring, compensation, benefits, employment, or separation from employment
with the Company.
In
connection with the execution of the Smith Severance Agreement, Mr. Smith’s existing executive employment agreement, as amended,
was terminated; provided, however, that certain surviving customary confidentiality provisions and related covenants remain in full force
and effect. The Smith Severance Agreement also provides for certain customary mutual covenants regarding confidentiality, indemnification
and non-disparagement.
Under
the Smith Severance Agreement, the treatment of any outstanding equity awards to Mr. Smith shall be determined in accordance with the
terms of the AYRO Operating Equity Plan and the applicable award agreement.
Independent
Contractor Agreement with Richard Perley
On
September 9, 2019, AYRO Operating appointed Mr. Perley as Chief Marketing Officer. AYRO Operating initially paid Mr. Perley $8,333 per
month, based on 50% normal business hours utilization, upon receipt of invoice, which was later increased to $16,667 per month on October
1, 2019, when Mr. Perley became a full-time associate. Such amount may have been increased or decreased based on actual hours worked.
AYRO Operating was to pay Mr. Perley quarterly management by objectives (“MBO”) targeted at $12,500 per quarter, based on
MBOs mutually agreed upon by the parties, payment of which will commence after the completion of the Merger. Mr. Perley was also eligible
to participate in a commission pooling plan with the other sales team participants. Pursuant to an independent contractor agreement between
the Company and PerlTek, a corporation owned and controlled by Mr. Perley, dated August 27, 2018 (along with any statements of work and
addenda thereto, the “Perley Independent Contractor Agreement”), AYRO Operating granted Mr. Perley options to purchase 54,536
shares of AYRO Operating common stock pursuant to the AYRO Operating Equity Plan (as defined below), with such share numbers giving effect
to the Exchange Ratio and Reverse Split.
Either
Mr. Perley or AYRO Operating could terminate the Perley Independent Contractor Agreement at any time and for any reason with 90 days’
advance written notice.
If
AYRO Operating had terminated the contract for cause or if Mr. Perley had terminated the contract without good reason, Mr. Perley would
have received his earned fees, commissions and quarterly MBO payment. If the contract was terminated by Mr. Perley for good reason or
by AYRO Operating without cause, Mr. Perley would have received his earned fees, commissions and quarterly MBO payment and continued
payments of fees, quarterly MBO payment and commissions owned based on the mutually agreed commission plan for six months following their
termination date in an aggregate amount equal to the greater of (1) Mr. Perley’s monthly fees, quarterly MBO and qualifying commissions
for the year in which the termination date occurred, or (2) Mr. Perley’s monthly fees, quarterly MBO and qualifying commissions
averaged for 6 months prior to the termination date. In addition, pursuant to the option award agreements executed upon each option grant
made to Mr. Perley, upon termination by AYRO Operating not for cause (as defined in such option agreements), Mr. Perley may have exercised
the options vested as of the date of his termination by the earlier of (i) the date that was 3 months following Mr. Perley’s termination
or (ii) the expiration date (unless being exercised by his estate).
The
Perley Independent Contractor Agreement also contained certain standard covenants regarding non-solicitation, confidentiality, indemnification
and assignment of work products.
On
September 29, 2020, Mr. Perley was awarded options to purchase 56,147 shares of our common stock at an exercise price of $3.17 per share.
One-third of the shares underlying the options vested on the first anniversary of the date of grant, and the remaining optioned shares
were to vest in twenty-four substantially equal monthly installments on each of the next twenty-four monthly anniversaries of the initial
vesting date, provided that Mr. Perley had remained continuously employed by or had been providing services to us through the applicable
vesting date.
Termination
of Engagement of Chief Marketing Officer and General Release Agreement
Effective
as of January 14, 2022 (the “Perley Termination Date”), Mr. Perley terminated his engagement with the Company. As such, the
Perley Independent Contractor Agreement was terminated; provided, however, that certain surviving customary confidentiality provisions
and related covenants remain in full force and effect.
On
January 14, 2022, in connection with the termination of the Perley Independent Contractor Agreement, the Company and Mr. Perley entered
into a General Release Agreement (the “Perley Release Agreement”). Pursuant to the Perley Release Agreement, Mr. Perley was
entitled to receive a cash separation payment in the amount of $237,500.00, payable in a lump sum following the expiration of 8 days
following January 14, 2022.
In
exchange for the consideration provided to Mr. Perley in the Perley Release Agreement, Mr. Perley and the Company agreed to mutually
waive and release any claims in connection with Mr. Perley’s compensation, engagement, or cessation from engagement with the Company.
The Perley Release Agreement also provides for certain customary mutual covenants regarding confidentiality, indemnification and non-disparagement.
Under
the Perley Release Agreement, the treatment of any outstanding equity awards to Mr. Perley shall be determined in accordance with the
terms of the AYRO Operating Equity Plan and the applicable award agreement.
Equity
Compensation
AYRO,
Inc. 2020 Long-Term Incentive Plan
On
April 21, 2020, our Board adopted the AYRO, Inc. 2020 Long-Term Incentive Plan (the “Plan,” or the “2020 LTIP”), subject to stockholder approval, which was obtained on May 28, 2020. Our outside directors and our employees, including
the principal executive officer, principal financial officer and other named executive officers, and certain contractors are all
eligible to participate in the Plan. The Plan was amended by stockholder vote on November 9, 2020, to increase the total number of
shares of our common stock authorized for issuance under the Plan to 4,089,650 shares.
Purpose.
The purpose of the Plan is to enable us to remain competitive and innovative in our ability to attract and retain the services of key
employees, key contractors, and non-employee directors of the Company or any of our subsidiaries. The Plan provides for the granting
of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance
awards, dividend equivalent rights, and other awards, which may be granted singly, in combination, or in tandem, and which may be paid
in cash or shares of our common stock. The Plan is expected to provide flexibility to our compensation methods in order to adapt the
compensation of our key employees, key contractors, and non-employee directors to a changing business environment, after giving due consideration
to competitive conditions and the impact of applicable tax laws.
Effective
Date and Expiration. The Plan was approved by our Board on April 21, 2020 (the “Effective Date”), subject to the Plan’s
approval by our stockholders. The Plan will terminate on the tenth anniversary of the Effective Date, unless sooner terminated by our
Board. No award may be made under the Plan after its termination date, but awards made prior to the termination date may extend beyond
that date in accordance with their terms.
Share
Authorization. Subject to certain adjustments, the maximum number of shares of our common stock that may be issued pursuant to awards
under the Plan is 4,089,650 shares, 100% of which may be delivered as incentive stock options.
Shares
to be issued may be made available from authorized but unissued shares of our common stock, shares held by us in our treasury, or shares
purchased by us on the open market or otherwise. During the term of the Plan, we will at all times reserve and keep enough shares available
to satisfy the requirements of the Plan. If an award under the Plan is cancelled, forfeited, or expires, in whole or in part, the shares
subject to such forfeited, expired, or cancelled award may again be awarded under the Plan. In the event that previously acquired shares
are delivered to us in full or partial payment of the option price upon the exercise of a stock option or other award granted under the
Plan, the number of shares available for future awards under the Plan shall be reduced only by the net number of shares issued upon the
exercise of the stock option or settlement of an award. Awards that may be satisfied either by the issuance of common stock or by cash
or other consideration shall be counted against the maximum number of shares that may be issued under the Plan only during the period
that the award is outstanding or to the extent the award is ultimately satisfied by the issuance of shares. An award will not reduce
the number of shares that may be issued pursuant to the Plan if the settlement of the award will not require the issuance of shares,
as, for example, a stock appreciation right that can be satisfied only by the payment of cash. Only shares forfeited back to us; shares
cancelled on account of termination, expiration, or lapse of an award; shares surrendered in payment of the option price of an option;
or shares withheld for payment of applicable employment taxes and/or withholding obligations resulting from the exercise of a stock option
shall again be available for grant as incentive stock options under the Plan, but shall not increase the maximum number of shares described
above as the maximum number of shares that may be delivered pursuant to incentive stock options.
Administration.
The Plan shall be administered by our Board or such committee of the Board as it designated by it to administer the Plan (the “Committee”).
At any time there is no Committee to administer the Plan, any reference to the Committee is a reference to the Board. The Committee will
determine the persons to whom awards are to be made; determine the type, size, and terms of awards; interpret the Plan; establish and
revise rules and regulations relating to the Plan; establish performance goals for awards and certify the extent of their achievement;
and make any other determinations that it believes are necessary for the administration of the Plan. The Committee may delegate certain
of its duties to one or more of our officers as provided in the Plan.
Eligibility.
Employees (including any employee who is also a director or an officer), contractors, and non-employee directors of the Company or any
of our subsidiaries, whose judgment, initiative, and efforts contributed to or may be expected to contribute to our successful performance,
are eligible to participate in the Plan. As of the date hereof, we had 43 employees, one contractor and six non-employee directors who
would be eligible for awards under the Plan.
Stock
Options. The Committee may grant either incentive stock options (“ISOs”) qualifying under Section 422 of the Internal
Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options, provided that only employees of the Company
and our subsidiaries (excluding subsidiaries that are not corporations) are eligible to receive ISOs. Stock options may not be granted
with an option price less than 100% of the fair market value of a share of common stock on the date the stock option is granted. If an
ISO is granted to an employee who owns or is deemed to own more than 10% of the combined voting power of all classes of our stock (or
of any parent or subsidiary), the option price shall be at least 110% of the fair market value of a share of common stock on the date
of grant. The Committee will determine the terms of each stock option at the time of grant, including, without limitation, the methods
by or forms in which shares will be delivered to participants or registered in their names. The maximum term of each option, the times
at which each option will be exercisable, and provisions requiring forfeiture of unexercised options at or following termination of employment
or service generally are fixed by the Committee, except that the Committee may not grant stock options with a term exceeding 10 years
or, in the case of an ISO granted to an employee who owns or is deemed to own more than 10% of the combined voting power of all classes
of our stock (or of any parent or subsidiary), a term exceeding five years.
Recipients
of stock options may pay the option price (i) in cash, check, bank draft, or money order payable to the order of the Company; (ii) by
delivering to us shares of common stock (included restricted stock) already owned by the participant having a fair market value equal
to the aggregate option price and that the participant has not acquired from us within six months prior to the exercise date; (iii) by
delivering to us or our designated agent an executed irrevocable option exercise form, together with irrevocable instructions from the
participant to a broker or dealer, reasonably acceptable to us, to sell certain of the shares purchased upon the exercise of the option
or to pledge such shares to the broker as collateral for a loan from the broker and to deliver to us the amount of sale or loan proceeds
necessary to pay the purchase price; (iv) by requesting us to withhold the number of shares otherwise deliverable upon exercise of the
stock option by the number of shares having an aggregate fair market value equal to the aggregate option price at the time of exercise
(i.e., a cashless net exercise); and (v) by any other form of valid consideration that is acceptable to the Committee in its sole
discretion.
Stock
Appreciation Rights. The Committee is authorized to grant stock appreciation rights (“SARs”) as a stand-alone award (or
freestanding SARs) or in conjunction with options granted under the Plan (or tandem SARs). SARs entitle a participant to receive an amount
equal to the excess of the fair market value of a share of common stock on the date of exercise over the fair market value of a share
of our common stock on the date of grant. The grant price of a SAR cannot be less than 100% of the fair market value of a share of our
common stock on the date of grant. The Committee will determine the terms of each SAR award at the time of the grant, including, without
limitation, the methods by or forms in which shares will be delivered to participants or registered in their names. The maximum term
of each SAR award, the times at which each SAR award will be exercisable, and provisions requiring forfeiture of unexercised SARs at
or following termination of employment or service generally are fixed by the Committee, except that no freestanding SAR may have a term
exceeding 10 years and no tandem SAR may have a term exceeding the term of the option granted in conjunction with the tandem SAR. Distributions
to the recipient may be made in common stock, cash, or a combination of both as determined by the Committee.
Restricted
Stock and Restricted Stock Units. The Committee is authorized to grant restricted stock and restricted stock units. Restricted stock
consists of shares of our common stock that may not be sold, assigned, transferred, pledged, hypothecated, encumbered, or otherwise disposed
of, and that may be forfeited in the event of certain terminations of employment or service, prior to the end of the restricted period
as specified by the Committee. Restricted stock units are the right to receive shares of common stock at a future date in accordance
with the terms of such grant upon the attainment of certain conditions specified by the Committee, which include a substantial risk of
forfeiture and restrictions on their sale or other transfer by the participant. The Committee determines the eligible participants to
whom, and the time or times at which, grants of restricted stock or restricted stock units will be made; the number of shares or units
to be granted; the price to be paid, if any; the time or times within which the shares covered by such grants will be subject to forfeiture;
the time or times at which the restrictions will terminate; and all other terms and conditions of the grants. Restrictions or conditions
could include, but are not limited to, the attainment of performance goals (as described below), continuous service with us, the passage
of time, or other restrictions or conditions. Except as otherwise provided in the Plan or the applicable award agreement, a participant
shall have, with respect to shares of restricted stock, all of the rights of a stockholder of the Company holding the class of common
stock that is the subject of the restricted stock, including, if applicable, the right to vote the common stock and the right to receive
any dividends thereon.
Dividend
Equivalent Rights. The Committee is authorized to grant a dividend equivalent right to any participant, either as a component of
another award or as a separate award, conferring upon the participant the right to receive credits based on the cash dividends that would
have been paid on the shares of common stock specified in the award as if such shares were held by the participant. The terms and conditions
of the dividend equivalent right shall be specified in the grant. Dividend equivalents credited to the holder of a dividend equivalent
right may be paid currently or may be deemed to be reinvested in additional shares. Any such reinvestment shall be at the fair market
value at the time thereof. A dividend equivalent right may be settled in cash, shares, or a combination thereof.
Performance
Awards. The Committee may grant performance awards payable at the end of a specified performance period in cash, shares of common
stock, units, or other rights based upon, payable in, or otherwise related to our common stock. Payment will be contingent upon achieving
pre-established performance goals (as described below) by the end of the applicable performance period. The Committee will determine
the length of the performance period, the maximum payment value of an award, and the minimum performance goals required before payment
will be made, so long as such provisions are not inconsistent with the terms of the Plan, and to the extent an award is subject to Section
409A of the Code, are in compliance with the applicable requirements of Section 409A of the Code and any applicable regulations or guidance.
In certain circumstances, the Committee may, in its discretion, determine that the amount payable with respect to certain performance
awards will be reduced from the maximum amount of any potential awards. If the Committee determines, in its sole discretion, that the
established performance measures or objectives are no longer suitable because of a change in our business, operations, corporate structure,
or for other reasons that the Committee deems satisfactory, the Committee may modify the performance measures or objectives and/or the
performance period.
Performance
Goals. Awards of restricted stock, restricted stock units, performance awards, and other awards under the Plan may be made subject
to the attainment of performance goals relating to one or more business criteria which shall consist of one or more or any combination
of the following criteria (“Performance Criteria”): cash flow; cost; revenues; sales; ratio of debt to debt plus equity;
net borrowing, credit quality, or debt ratings; profit before tax; economic profit; earnings before interest and taxes; earnings before
interest, taxes, depreciation, and amortization; gross margin; earnings per share (whether on a pre-tax, after-tax, operational, or other
basis); operating earnings; capital expenditures; expenses or expense levels; economic value added; ratio of operating earnings to capital
spending or any other operating ratios; free cash flow; net profit; net sales; net asset value per share; the accomplishment of mergers,
acquisitions, dispositions, public offerings, or similar extraordinary business transactions; sales growth; price of the shares; return
on assets, equity, or stockholders’ equity; market share; inventory levels, inventory turn or shrinkage; or total return to stockholders.
Any Performance Criteria may be used to measure our performance as a whole or of any of our business units and may be measured relative
to a peer group or index. Any Performance Criteria may include or exclude (i) events that are of an unusual nature or indicate infrequency
of occurrence, (ii) gains or losses on the disposition of a business; (iii) changes in tax or accounting regulations or laws; (iv) the
effect of a merger or acquisition, as identified in our quarterly and annual earnings releases; or (v) other similar occurrences. In
all other respects, Performance Criteria shall be calculated in accordance with our financial statements, under generally accepted accounting
principles, or under a methodology established by the Committee prior to the issuance of an award, which is consistently applied and
identified in the Company’s audited financial statements, including in footnotes, or the Compensation Discussion and Analysis section
of the Company’s annual report.
Other
Awards. The Committee may grant other forms of awards, based upon, payable in, or that otherwise relate to, in whole or in part,
shares of our common stock, if the Committee determines that such other form of award is consistent with the purpose and restrictions
of the Plan. The terms and conditions of such other form of award shall be specified in the grant. Such other awards may be granted for
no cash consideration, for such minimum consideration as may be required by applicable law, or for such other consideration as may be
specified in the grant.
Vesting,
Forfeiture and Recoupment, Assignment. The Committee, in its sole discretion, may determine that an award will be immediately vested,
in whole or in part, or that all or any portion may not be vested until a date, or dates, subsequent to its date of grant, or until the
occurrence of one or more specified events, subject in any case to the terms of the Plan. If the Committee imposes conditions upon vesting,
then, subsequent to the date of grant, the Committee may, in its sole discretion, accelerate the date on which all or any portion of
the award may be vested.
The
Committee may impose on any award at the time of grant or thereafter, such additional terms and conditions as the Committee determines,
including terms requiring forfeiture of awards in the event of a participant’s termination of service. The Committee will specify
the circumstances on which performance awards may be forfeited in the event of a termination of service by a participant prior to the
end of a performance period or settlement of such awards. Except as otherwise determined by the Committee, restricted stock will be forfeited
upon a participant’s termination of service during the applicable restriction period. In addition, we may recoup all or any portion
of any shares or cash paid to a participant in connection with any award in the event of a restatement of the Company’s financial
statements as set forth in the Company’s clawback policy, if any, as such policy may be approved or modified by our Board from
time to time.
Awards
granted under the Plan generally are not assignable or transferable except by will or by the laws of descent and distribution, except
that the Committee may, in its discretion and pursuant to the terms of an award agreement, permit transfers of nonqualified stock options
or SARs to (i) the spouse (or former spouse), children, or grandchildren of the participant (“Immediate Family Members”);
(ii) a trust or trusts for the exclusive benefit of such Immediate Family Members; (iii) a partnership in which the only partners are
(a) such Immediate Family Members and/or (b) entities which are controlled by the participant and/or his or her Immediate Family Members;
(iv) an entity exempt from federal income tax pursuant to Section 501(c)(3) of the Code or any successor provision; or (v) a split interest
trust or pooled income fund described in Section 2522(c)(2) of the Code or any successor provision, provided that (x) there shall be
no consideration for any such transfer, (y) the applicable award agreement pursuant to which such nonqualified stock options or SARs
are granted must be approved by the Committee and must expressly provide for such transferability, and (z) subsequent transfers of transferred
nonqualified stock options or SARs shall be prohibited except those by will or the laws of descent and distribution.
Adjustments
Upon Changes in Capitalization. In the event that any dividend or other distribution (whether in the form of cash, shares of our
common stock, other securities or other property), recapitalization, stock split, reverse stock split, rights offering, reorganization,
merger, consolidation, split-up, spin-off, split-off, combination, subdivision, repurchase, or exchange of shares of common stock or
other securities of the Company, issuance of warrants or other rights to purchase shares of common stock or other securities of the Company,
or other similar corporate transaction or event affects the fair value of an award, then the Committee shall adjust any or all of the
following so that the fair value of the award immediately after the transaction or event is equal to the fair value of the award immediately
prior to the transaction or event: (i) the number of shares and type of common stock (or the securities or property) which thereafter
may be made the subject of awards; (ii) the number of shares and type of common stock (or other securities or property) subject to outstanding
awards; (iii) the number of shares and type of common stock (or other securities or property) specified as the annual per-participant
limitation under the Plan; (iv) the option price of each outstanding stock option; (v) the amount, if any, we pay for forfeited shares
in accordance with the terms of the Plan; and (vi) the number of or exercise price of shares then subject to outstanding SARs previously
granted and unexercised under the Plan, to the end that the same proportion of our issued and outstanding shares of common stock in each
instance shall remain subject to exercise at the same aggregate exercise price; provided, however, that the number of shares of common
stock (or other securities or property) subject to any award shall always be a whole number. Notwithstanding the foregoing, no such adjustment
shall be made or authorized to the extent that such adjustment would cause the Plan or any stock option to violate Section 422 or Section
409A of the Code. All such adjustments must be made in accordance with the rules of any securities exchange, stock market, or stock quotation
system to which we are subject.
Amendment
or Discontinuance of the Plan. Our Board may, at any time and from time to time, without the consent of participants, alter, amend,
revise, suspend, or discontinue the Plan in whole or in part; provided, however, that (i) no amendment that requires stockholder approval
in order for the Plan and any awards under the Plan to continue to comply with Sections 421 and 422 of the Code (including any successors
to such sections or other applicable law) or any applicable requirements of any securities exchange or inter-dealer quotation system
on which our stock is listed or traded, shall be effective unless such amendment is approved by the requisite vote of our stockholders
entitled to vote on the amendment; and (ii) unless required by law, no action by our Board regarding amendment or discontinuance of the
Plan may adversely affect any rights of any participants or obligations of the Company to any participants with respect to any outstanding
awards under the Plan without the consent of the affected participant.
On
February 1, 2022, pursuant to the Plan, the Company issued 442,249 shares of restricted stock to non-executive directors at a value of
$1.29 per share. Such shares vested in four equal installments on each quarterly anniversary of
the grant date, provided that each director remained continuously employed by or provided services to the Company through the
applicable vesting date subject to the terms and conditions of the Plan.
On
August 23, 2022, pursuant to the Hollingsworth Employment Agreement, the Company issued 100,000 shares
of the Company’s restricted common stock to Mr. Hollingsworth at a value of $0.03 per share, which shares shall vest in tranches
of 25,000 shares upon the achievement of certain stock price, market capitalization and business milestones.
On
February 1, 2023, pursuant to the Plan, the Company issued an aggregate of 760,668 shares of restricted stock to its non-employee directors
at a value of $0.75 per share. Such shares vested in four equal installments on each quarterly anniversary of the grant date, provided
that each director remained continuously employed by or provided services to the Company through the applicable vesting date subject
to the terms and conditions of the Plan.
Outstanding
Equity Awards at Fiscal Year-End
The
following table includes certain information with respect to all unexercised stock options and unvested shares of common stock outstanding
owned by the named executive officers as of December 31, 2022.
Named Executive Officer or Director | |
Number of securities underlying unexercised options (#) exercisable | | |
Number of securities underlying unexercised options (#) unexercisable | | |
Option exercise price($) | | |
Option expiration date | | |
Number of shares or units of stock that have not yet vested (#) | | |
Market value of shares or units of stock that have not vested($)(3) | |
Thomas M. Wittenschlaeger, Chief Executive Officer and Director | |
| - | | |
| - | | |
| - | | |
| - | | |
| 450,000 | (1) | |
| 171,000 | |
David E. Hollingsworth Chief Financial Officer | |
| - | | |
| - | | |
| - | | |
| - | | |
| 100,000 | (2) | |
| 38,000 | |
Curtis Smith
Former Chief Financial Officer
| |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Richard Perley Former Chief Marketing Officer | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
|
(1)
|
These shares vest in five
tranches upon the achievement of certain stock price, market capitalization and business milestones. |
|
(2) |
These shares vest in four
tranches upon the achievement of certain stock price, market capitalization and business milestones. |
|
(3) |
Calculated based on the closing price of our common stock on December 30,
2022, which was $0.38. |
Retirement
Benefits
We
do not currently have plans providing for the payment of retirement benefits to our officers or directors, other than as described under
“Narrative Disclosure to Summary Compensation Table” above.
Change
in Control Agreements
We
do not currently have any change-of-control or severance agreements with any of our executive officers or directors, other than as described
under “Narrative Disclosure to Summary Compensation Table” above. In the event of the termination of employment of the named
executive officers, any and all unexercised stock options shall expire and no longer be exercisable after a specified time following
the date of the termination, other than as described under “Narrative Disclosure to Summary Compensation Table” above.
DIRECTOR
COMPENSATION
The
following table sets forth summary information concerning the total compensation earned by the non-employee directors during the year
ended December 31, 2022, for services to the Company.
Name | |
Fees Earned or Paid in Cash ($) | | |
Stock Awards ($) (1) | | |
All other compensation | |
Total ($) | |
Greg Schiffman | |
| 59,750 | | |
| 84,500 | | |
| - | | |
| 144,250 | |
Joshua Silverman | |
| 139,250 | | |
| 148,000 | | |
| - | | |
| 287,250 | |
Sebastian Giordano | |
| 47,250 | | |
| 84,500 | | |
| 60,000 | | |
| 191,750 | |
Zvi Joseph | |
| 58,750 | | |
| 84,500 | | |
| - | | |
| 143,250 | |
George Devlin | |
| 47,250 | | |
| 84,500 | | |
| - | | |
| 131,750 | |
Wayne R. Walker | |
| 47,250 | | |
| 84,500 | | |
| - | | |
| 131,750 | |
|
(1) |
Amounts reflect the full
grant-date fair value of stock awards granted during the relevant fiscal year computed in accordance with ASC Topic 718, rather than
the amounts paid to or realized by the named individual. We provided information regarding the assumptions used to calculate the
value of all stock awards and option awards made to our executive officers in Note 11 to the audited consolidated financial statements
for the year ended December 31, 2022. |
On
February 1, 2022, the Board approved annual director compensation for the director compensation cycle beginning on February 1, 2022.
The Board approved the following annual cash retainer fees for the members of the Board: (A) to each non-employee director, an annual
cash retainer fee of $47,250; (B) to the Chairman of the Board, an additional annual cash retainer fee of $84,000; and (C) to the chair
of each Board committee, additional cash compensation as follows: (x) $12,500 to the Audit Committee Chair, (y) $11,500 to the Compensation
and Human Resources Committee Chair, and (z) $8,000 to the Nominating and Corporate Governance Committee Chair. The Board further approved
compensation for Mr. Giordano in the amount of $60,000 in connection with his service on the Company’s Budget and Strategy Committee.
Additionally, on February 1, 2022, pursuant to the Plan, the Company issued an aggregate of 442,249 shares of restricted stock to its
non-employee directors, as shown in the following table:
Director | |
Awarded Shares | | |
Vesting
Schedule |
Josh Silverman | |
| 114,729 | | |
See (1) below |
George Devlin | |
| 65,504 | | |
See (1) below |
Sebastian Giordano | |
| 65,504 | | |
See (1) below |
Zvi Joseph | |
| 65,504 | | |
See (1) below |
Greg Schiffman | |
| 65,504 | | |
See (1) below |
Wayne Walker | |
| 65,504 | | |
See (1) below |
(1) |
Vests in four equal installments
on each quarterly anniversary of the date of the grant, provided that the director has continuously provided services to the Company
through that date. |
On
January 24, 2023, the Board approved annual director compensation for the director compensation cycle beginning on February 1, 2023.
The Board approved the following annual cash retainer fees for the members of the Board: (A) to each non-employee director, an annual
cash retainer fee of $47,250; (B) to the Chairman of the Board, an additional annual cash retainer fee of $84,000; and (C) to the chair
of each Board committee, additional cash compensation as follows: (x) $12,500 to the Audit Committee Chair, (y) $11,500 to the Compensation
and Human Resources Committee Chair, and (z) $8,000 to the Nominating and Corporate Governance Committee Chair. Additionally, on February
1, 2023, pursuant to the Plan, the Company issued an aggregate of 760,668 shares of restricted stock to its non-employee directors, as
shown in the following table:
Director | |
Awarded Shares | | |
Vesting
Schedule |
Josh Silverman | |
| 197,333 | | |
See (1) below |
George Devlin | |
| 112,667 | | |
See (1) below |
Sebastian Giordano | |
| 112,667 | | |
See (1) below |
Zvi Joseph | |
| 112,667 | | |
See (1) below |
Greg Schiffman | |
| 112,667 | | |
See (1) below |
Wayne Walker | |
| 112,667 | | |
See (1) below |
(1) |
Vests in four equal installments
on each quarterly anniversary of the date of the grant, provided that the director has continuously provided services to the Company
through that date. |