|12 Months Ended|
Dec. 31, 2020
|Subsequent Events [Abstract]|
NOTE 13 — SUBSEQUENT EVENT
On January 22, 2021, Donald B. Pettigrew, President and Chief Executive Officer, resigned his employment effective immediately. Also, on January 22, 2021, James M. Beck, currently serving as a director, was appointed as Chief Executive Officer on an interim basis. Mr. Beck has remained a director, and Robert Allen, also currently a director, replaced Mr. Beck as Chairman of the Compensation Committee.
In connection with Mr. Pettigrew’s resignation, he entered into a Separation and General Release Agreement with the Company wherein the parties agreed that the Company will continue to pay Mr. Pettigrew his base salary and healthcare benefits for twelve months, and Mr. Pettigrew has forfeited all right to exercise his vested performance-based stock options. Mr. Pettigrew will have the right to exercise 1,000,000 of his non-qualified stock options for a period of 90 days. On February 16, 2021, Mr. Pettigrew exercised 1,000,000 shares of vested options at a strike price of $1.23 totaling $1,230,000 pursuant to his option agreements dated September 4, 2018 and January 22, 2021.
On February 5, 2021, the Company entered into an employment agreement dated as of January 22, 2021 with Mr. Beck, the Company’s interim Chief Executive Officer. The following is a summary of Mr. Beck’s employment agreement.
On March 15, 2021, Linda Tharby entered into an employment agreement with the Company providing for her appointment as President and Chief Executive Officer of KORU Medical Systems, effective April 12, 2021. Mr. Beck will resign from that position upon the appointment of Ms. Tharby, and will continue as a member of the Board of Directors.
Pursuant to this agreement, Ms. Tharby will receive an annual base salary of $550,000 and be eligible to earn an annual bonus, paid 70% in cash and 30% in shares of the Company’s common stock, with a target of 80% of her base salary, based on achievement of objectives set in accordance with the Company’s management incentive compensation plan for executives, payable by March 15 of the following year.
Under the agreement, Ms. Tharby received non-qualified stock options pursuant to the Company’s 2015 Stock Option Plan, as amended, to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $3.875 per share, subject to vesting as follows, provided she is then employed by the Company: 25% on March 15, 2021 and 25% each twelve months thereafter.
In addition, Ms. Tharby will receive three restricted stock awards on April 12, 2021 as follows, each vesting subject to employment on the respective vesting date:
(1) 600,000 shares of common stock to vest vesting as follows: if the Company’s Net Sales Growth (defined below) for any of the fiscal years ended December 31, 2022, 2023, 2024 or 2025 (each, a “Target Year”) is at least the applicable Net Sales Target set forth on the schedule to the restricted stock award agreement, then, on the applicable Vesting Date, a corresponding portion of the restricted stock award will vest as set forth on such schedule. Additionally, if Net Sales Growth is less than any of the Net Sales Targets set forth in such schedule in any Target Year (a “Miss Year”), vesting of the restricted stock award in the following Target Years (each such subsequent Target Year, a “Catch-up Year”) shall be further subject to the following catch-up vesting provisions: if the Net Sales Growth in the Miss Year(s) when averaged with the Net Sales in each Catch-up Year(s) equals or exceeds a Net Sales Target in any single Miss Year that has not previously been obtained, then on the applicable Vesting Date, an additional portion of the Award shall vest as if the applicable Net Sales Target had been met in the Miss Year(s). Notwithstanding the foregoing, the restricted stock award shall automatically vest in full upon the Company maintaining, for a period of at least two consecutive fiscal quarters after January 1, 2022, at least a specified run rate over the previous four fiscal quarters, as reported in the Company’s filings pursuant to the Securities Exchange Act of 1934, as amended.
(2) 200,000 shares of common stock vesting 25% on April 12, 2022 and 25% on each twelve months thereafter.
(3) 200,000 shares of common stock, vesting as follows: (i) 50,000 shares on the first date on which the Company’s Market Capitalization for a period of 90 consecutive days has been, or there has been a Change of Control (as defined in the employment agreement) of the Company with an enterprise value of, at least $500,000,000 but less than $600,000,000; (ii) 50,000 shares on the first date on which the Company’s Market Capitalization for a period of 90 consecutive days has been, or there has been a Change of Control of the Company with an enterprise value of, at least $600,000,000 but less than $750,000,000; and (iii) 100,000 shares on the date on which the Company’s Market Capitalization for a period of 90 consecutive days has been, or there has been a Change of Control of the Company with an enterprise value of, at least $750,000,000. “Market Capitalization” shall be determined by (A) multiplying the number of shares reported as outstanding on the cover of the Company’s most recent Form 10-K or 10-Q, as applicable, as filed with the Securities and Exchange Commission, by (B) the Fair Market Value of the Common Stock (as defined in the Company’s 2015 Stock Option Plan, as amended) on each day. Notwithstanding the foregoing, no portion of the restricted stock award shall vest on or following the fifth anniversary of the award date.
Upon termination of Ms. Tharby’s employment by the Company without “cause” or by Ms. Tharby for “good reason” (as defined in the employment agreement) within 3 months prior to or 12 months following a “change of control” (as defined in the employment agreement) of the Company, all equity awards pursuant to the employment agreement will become fully vested.
Should the Company terminate Ms. Tharby’s employment without “cause” or should she leave the Company for “good reason,” she will be eligible for a severance package comprised of (i) base salary for 12 months, calculated at the rate of her then base salary, to be paid in accordance with the Company’s normal payroll practices; (ii) her Annual Bonus as if earned for the year of termination; and (iii) if termination occurs on or after January 1, 2022, acceleration of her stock options and restricted stock award set forth under (2) above for the year of termination (i.e., 25% of total award), if not then vested. For the same period, the Company will also cover the cost of health insurance, which is continued by Ms. Tharby through COBRA election.
The employment agreement contains customary confidentiality and assignment of invention provisions and mutual non-disparagement covenant, as well as one-year non-competition and non-solicitation covenants. The Company has agreed to reimburse Ms. Tharby up to $12,500 in legal fees associated with the employment agreement.
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef