Item
5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers.
Appointments
and Resignations of Officers and Directors
Immediately
prior to the Closing Date, the Company’s board of directors (“Board”)
was comprised of four directors. In connection with the closing of the Acquisition each of David Chasteen and Sammy Davis resigned
as members of the Company’s Board. Messrs. Chasteen’s
and Davis’ resignations were not the result of any disagreement with the Company, any matter related to the Company’s operations,
policies or practices, the Company’s management or the Board.
The
Board elected each of
Deborah MacConnel and Kevin Powers to serve as members of the Company’s Board effective immediately to fill the vacancies
created on the Board by the resignations of David Chasteen and Sammy Davis. The newly appointed directors will serve until the Company’s
next annual meeting of stockholders or until their successors are elected and qualified or until
their earlier death, resignation or removal.
In
addition, in connection with the closing of the Acquisition, effective as of the Closing Date, David
Chasteen resigned from his position as President and Chief Executive Officer of the Company and Brian Haugli was appointed as President
and Chief Executive Officer of the Company. Mr. Chasteen will remain with the Company as Executive Vice President of Sales and Marketing
and will receive a one-time severance payment of $100,000 pursuant to the terms of his existing offer letter.
Set
forth below are the biographical summaries of the newly appointed directors.
Deborah
MacConnel
Ms.
MacConnel has been involved in the computer industry for 34 years, retiring recently from International Business Machines Corporation
(“IBM”) (NYSE: IBM) after 28 years. Prior to her retirement, Ms. MacConnel was instrumental in transforming information
technology for IBM’s human resources function, which supported up to 450,000 employees. Ms. MacConnel’s team at IBM was also
responsible for transforming the succession planning process for executive selection and promotion, along with enhancing the processes
for mergers and acquisition management and talent acquisition. Ms. MacConnel has a Bachelor of Science degree in Business Administration
from the University of Texas. The Company believes Ms. MacConnel is qualified to serve as a member of the Company’s Board because
of her experience scaling global teams for technology companies.
Kevin
Powers
Mr.
Powers is the founder and director of the Master of Science in Cybersecurity Policy and Governance Programs at Boston College and has
served as an Assistant Professor of the Practice at Boston College Law School and in Boston College’s Carroll School of Management’s
Business Law and Society Department since November 2015. Mr. Powers has also been a Cybersecurity Research Affiliate at the MIT Sloan
School of Management since June 2018. Mr. Powers has a Bachelor of Art degree in History and Business from Salem State University and
a Juris Doctor degree from Suffolk University Law School. The Company believes Mr. Powers is qualified to serve as a member of the Company’s
Board because of his extensive experience in cybersecurity.
Each
member of the Company’s Board who is not also an executive officer of the Company will receive $10,000 for each fiscal quarter
in which they serve, and an additional $5,000 per quarter for serving as the Chair of a Board committee or Chair of the Board. Such payment
will be made in a combination of half cash and half shares of the Company’s common stock based upon the greater of (i) $0.18 per
share and (ii) the closing price of the Company’s common stock on the first trading day of each quarter. In addition, each
of Mr. Powers and Ms. MacConnel received a one-time grant of 100,000 restricted stock units pursuant to the Company’s 2021
Omnibus Equity Incentive Plan which vest over a period of three years from the date of issuance.
There
are no family relationships between any of Brian Haugli, Deborah MacConnel and Kevin
Powers and any of the Company’s directors or executive officers. Except as set forth herein, there is no arrangement or understanding
between Brian Haugli, Deborah MacConnel or Kevin Powers and any other persons pursuant to
which Messrs. Haugli or Powers or Ms. MacConnel were appointed as officers or directors of the Company, as applicable. There are no related
party transactions involving Messrs. Haugli or Powers or Ms. MacConnel that are reportable under Item 404(a) of Regulation S-K.
Employment
Agreement
On
July 1, 2022, the Company entered into an employment agreement (the “Employment Agreement”) with Brian Haugli pursuant
to which Mr. Haugli shall serve as Chief Executive Officer of the Company. Pursuant to the Employment Agreement, Mr. Haugli shall (i)
receive a base salary of $300,000, which may be increased by the compensation committee of the Board in its sole discretion beginning
on September 30, 2023 and on each September 30th thereafter; (ii) be eligible for an annual equity bonus (payable in shares of Common
Stock or options) equal to $200,000, which may be increased or decreased by the compensation committee and/or the Board, in its sole
discretion; and (iii) be eligible for a yearly discretionary cash bonus with the target amount of 50% of Mr. Haugli’s base salary.
In addition, Mr. Haugli shall receive $200,000 in equity incentive compensation annually. Furthermore, Mr. Haugli shall be reimbursed
for reasonable, out-of-pocket business expenses consistent with the Company’s policies and procedures, in effect from time to time,
and will be entitled to unlimited paid time off. Mr. Haugli shall also be entitled to participate in any employee benefit plans or programs
for which he is eligible that are provided by the Company to its management employees.
The
Employment Agreement shall terminate upon the earliest to occur of the following: (i) Mr. Haugli’s death; (ii) upon written notice
by the Company if Mr. Haugli shall suffer a physical or mental disability which renders Mr. Haugli, in the reasonable judgment of the
compensation committee, unable to perform his duties and obligations under the Employment Agreement for either 90 consecutive days or
180 days in any 12-month period; (iii) upon written notice by Mr. Haugli for any reason other than Good Reason (as defined in the Employment
Agreement); (iv) upon written notice by Mr. Haugli for Cause (as defined in the Employment Agreement); (v) upon written notice by Mr.
Haugli for Good Reason; provided, however, prior to any such termination by Mr. Haugli for Good Reason, Mr. Haugli shall provide the
Company with notice within 15 days of the occurrence of any circumstances that would constitute Good Reason, and the Company has not
cured such circumstances within 15 days following receipt of such notice, with the exception of only five days written notice in the
event the Company reduces Mr. Haugli salary without his consent or fails to pay Mr. Haugli any compensation due to him; and (vi)
upon written notice by Mr. Haugli without Cause.
In
the event Mr. Haugli’s employment is terminated for any reason (not including, however, a termination by the Company for Cause
or a termination as a result of Mr. Haugli’s death or disability) (a “Change of Control Termination”) during
the 12-month period following a Change of Control (as defined in the Employment Agreement) or in anticipation of a Change of Control, the Company shall pay Mr. Haugli a cash severance payment equal to 24 months of his then base
salary, less applicable withholding. In addition, in the event of a Change of Control, all of Mr. Haugli’s equity-based compensation
shall vest over one year regardless of whether Mr. Haugli is retained by the Company or successor following the Change of Control and
any outstanding stock options held by Mr. Haugli shall be able to be exercised by Mr. Haugli until the earlier of (i) one year from the
date of termination and (ii) the latest date upon which such stock options would have expired by their original terms under any circumstances.
In the event Mr. Haugli’s employment is terminated for death, disability, without Good Reason by Mr. Haugli or by the Company for
Cause, (i) Mr. Haugli shall be entitled to salary accrued through the termination date and (ii) any unvested stock options or equity
compensation held by Mr. Haugli shall immediately terminate and be forfeited (unless otherwise provided in the applicable award) and
any previously vested stock options (or if applicable equity compensation) shall be subject to terms and conditions set forth in the
applicable stock incentive plan or equity compensation plan, or award agreement. In the event Mr. Haugli’s employment is terminated
by Mr. Haugli for Good Reason or by the Company without Cause, (i) Mr. Haugli shall be entitled to continue to receive the salary at
the rate in effect upon the termination date for 24 months following the termination date; (ii) subject to certain exceptions and provided
that Mr. Haugli elects to receive continued health insurance coverage through COBRA, the Company will pay Mr. Haugli’s monthly
COBRA contributions for health insurance coverage for 24 months following the termination date ((i) and (ii) are collectively referred
to herein as the “Severance”); (iii) any unvested benefits (whether equity or cash benefits and bonuses will vest
immediately upon such termination and any outstanding stock options or equity previously granted to Mr. Haugli will vest immediately
upon such termination and shall be exercisable by Mr. Haugli until the earlier of (i) one year from the date of termination and (ii)
the latest date upon which such stock options or equity would have expired by their original terms under any circumstances. As a condition
to Mr. Haugli’s right to receive the Severance, Mr. Haugli will be required to execute and deliver to the Company a written release
and may not breach any of the covenants and agreements set forth in the Employment Agreement. The
Employment Agreement also contains covenants with respect to non-competition, confidential information and assignment of certain inventions
and rights.
The
foregoing description of the Employment Agreement is not complete and is qualified in its entirety by reference to the full text of the
Employment Agreement, a copy of which is filed as Exhibit 10.1 to this Current Report on Form
8-K and is hereby incorporated by reference.
Consulting
Agreement
On
July 1, 2022, the Company entered into an independent contractor agreement (the “Independent Contractor Agreement”) with
Sammy Davis, a former member of the Company’s Board, pursuant to which Mr. Davis shall serve as a consultant and strategic advisor
to management and/or the Board as set forth in such agreement. Pursuant to the Independent Contractor Agreement, Mr. Davis shall receive
(i) two $10,000 installments to be paid on September 30, 2022 and December 31, 2022, (ii) 100,000 shares of Common Stock which vested
immediately upon the execution of the Independent Contractor Agreement and (iii) an amount equal to 2% of first year revenue under any
agreement with a customer referred to the Company by Mr. Davis with which the Company had no prior relationship or contact that
is executed during the Term (as defined herein) of the Independent Contractor Agreement. The Independent Contractor Agreement commenced
upon Mr. Davis’ resignation from the Board and shall renew every six months beginning on January 1, 2023 until written
notice of termination is provided by either Mr. Davis or the Company (the “Term”).
The
foregoing description of the Independent Contractor Agreement is not complete and is qualified in its entirety by reference to the full
text of the Independent Contractor Agreement, a copy of which is filed as Exhibit 10.2 to this
Current Report on Form 8-K and is hereby incorporated by reference.
Item
5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
Series
A Preferred Stock Certificate of Designation
In
connection with the closing of the Acquisition, on July 1, 2022, the Company filed a Certificate of Designation of Series A Preferred
Stock (the “Certificate of Designation”) with the Delaware Secretary of State.
Pursuant
to the Certificate of Designation, 100 shares of the Company’s blank check preferred stock have been designated as Series A Preferred
Stock. The Series A Preferred Stock have the following rights, preferences, powers, privileges and restrictions, qualifications and limitations.
Ranking.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any Deemed Liquidation Event (as
defined in the Certificate of Designation), each share of Series A Preferred Stock shall rank on parity to the Common Stock.
Dividends.
The holders of Series A Preferred Stock shall not be entitled to any cash dividends declared or paid on the Common Stock or otherwise.
Voting.
Each holder of outstanding shares of Series A Preferred Stock shall be entitled to such number of votes equal to the number of shares
of Common Stock that such Series A Preferred Stock are convertible into.
Conversion.
Each share of the Series A Preferred Stock is convertible into one share of Common Stock, subject to adjustment as set forth in the Certificate
of Designation. Upon the earliest to occur (the time of such event, the “Mandatory Conversion Time”) of (a) the issuance
of the Second Tranche Shares pursuant to the terms of the Purchase Agreement, (b) the cancellation of the Second Tranche Shares pursuant
to the terms of the Purchase Agreement and (c) the occurrence of an event of a liquidation, dissolution or winding up of the Company
or a Deemed Liquidation Event, all outstanding shares of the Series A Preferred Stock shall automatically be converted into shares of
Common Stock, at the then-applicable conversion ratio, and such shares may not be reissued by the Company.
Appointment
of Directors. The holders of Series A Preferred Stock, exclusively and as a separate class, shall be entitled to elect four directors
of the Company. Any director elected by holders of Series A Preferred Stock may be removed without cause by the affirmative vote of the
holders of shares of Series A Preferred Stock. If the holders of shares of Series A Preferred Stock fail to elect a sufficient number
of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, then
any directorship not so filled shall remain vacant until such time as the holders of the Series A Preferred Stock elect a person to fill
such directorship. In the event of any vacancy of a Series A Preferred director, such vacancy shall be filled by the holders of the Series
A Preferred Stock. In the event that the number of directors of the Company is increased prior to the Mandatory Conversion Time, the
number of directors which the holders of the Series A Preferred Stock shall be entitled to elect, exclusively and as a separate class,
shall be increased to the extent required to provide that the total number of Series A Preferred Stock directors constitutes a majority
of the total number of the directors of the Company.
The
foregoing description of the Certificate of Designation is not complete and is qualified in its entirety by reference to the full text
of the Certificate of Designation, a copy of which is filed as Exhibit 3.1 to this Current Report
and is hereby incorporated by reference.
Name
Change
In
connection with the closing of the Acquisition, on July 1, 2022, the Company filed a Certificate of Amendment (the “Amendment”)
to its Certificate of Incorporation with the Delaware
Secretary of State to change the legal name of the Company from “Cipherloc Corporation” to “SideChannel, Inc.”,
effective immediately upon acceptance of the filing.
A
copy of the Amendment effecting the name change, as filed with the Delaware
Secretary of State is attached hereto as Exhibit 3.2.