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Item 5.02.
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
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Resignation of Todd Oseth as Chief Executive Officer
and President
The Board of Directors
(the “Board”) of FalconStor Software, Inc. (the “Company”) accepted the resignation of Todd Oseth from
his position as Chief Executive Officer and President of the Company. Mr. Oseth will assist in the transition of the Chief Executive
Officer role until his departure from the Company. Mr. Oseth’s resignation was not the result of any disagreement related
to any matter involving the Company’s operations, policies or practices.
In connection with
Mr. Oseth’s departure, on August 15, 2017 the Company and Mr. Oseth entered into a Separation Agreement and General Release
(the “Oseth Separation Agreement”) attached hereto as Exhibit 10.1. Under the terms of the Oseth Separation Agreement,
the Company will, among other things, pay Mr. Oseth his current salary through March 1, 2018 and any COBRA expenses through February
15, 2018 to the extent that Mr. Oseth’s health insurance is not covered by the health insurance plan of another entity.
The foregoing description
of the Oseth Separation Agreement does not purport to be complete and is qualified in its entirety by reference to the Oseth Separation
Agreement, which is attached as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.
Appointment of Todd Brooks as Chief Executive
Officer
As of August 14, 2017,
the Board appointed Todd Brooks as Chief Executive Officer effective August 14, 2017.
Mr. Brooks, 53, served
as Chief Operating Officer of Aurea Software Inc., an enterprise software platform within ESW Capital, Inc., from December 2012
to October 2016, and has held various executive positions within ESW Capital, Inc. since he joined the company in July 2006. During
the last 20 years Mr. Brooks has held executive positions with Intellinet Corporation, Fractional Group, LLC and eFuel, Inc. Mr.
Brooks holds a B.S. degree in Aerospace and Ocean Engineering from Virginia Tech and has served on the advisory board of Virginia
Tech’s Apex Center for Innovation & Entrepreneurship since 2015.
Mr. Brooks does not
have any family relationships with any of the directors, executive officers, or any people nominated or chosen by the Company to
become a director or executive officer. Mr. Brooks is not a party to any transaction listed in Item 404(a) of Regulation S-K.
In connection with
Mr. Brooks’ appointment as Chief Executive Officer, the Board approved an offer letter to Mr. Brooks (the “Brooks Offer
Letter”), which was executed on August 14, 2017. The Brooks Offer Letter provides that Mr. Brooks is entitled to receive
an annualized base salary of $350,000, payable in regular installments in accordance with the Company’s general payroll practices.
Mr. Brooks will also be eligible for a cash bonus of $17,500 for any quarter that is free cash flow positive on an operating basis
and additional incentive compensation of an annual bonus of up to $200,000, subject to attainment of performance objectives to
be mutually agreed upon and established. Pursuant to the Brooks Offer Letter, it is the intention of the Company to create an equity
plan for all employees subject to stockholder approval, for up to 15% of the equity of the Company on a fully diluted basis at
the time the equity plan is adopted following stockholder approval. Vesting of the equity issued under the plan would occur only
upon a sale of the Company’s assets or capital stock at a premium to the valuation of the Company at the time the equity
plan is adopted.
Mr. Brooks’ employment
can be terminated at will. If Mr. Brooks’ employment is terminated by the Company other than for cause he is entitled to
receive severance equal to twelve (12) months of his base salary if (i) he has been employed by the Company for at least twelve
(12) months at the time of termination or (ii) a change of control has occurred within six (6) months of Mr. Brooks’ employment.
Except as set forth in the preceding sentence, Mr. Brooks is entitled to receive severance equal to six (6) months of his base
salary if he has been employed by the Company for less than six (6) months and his employment was terminated by the Company without
cause. Mr. Brooks is also entitled to vacation and other employee benefits in accordance with the Company’s policies as well
as reimbursement for an apartment.
The foregoing description
of the Brooks Offer Letter does not purport to be complete and is qualified in its entirety by reference to the Brooks Offer Letter,
which is attached as Exhibit 10.2 to this Current Report on Form 8-K and incorporated herein by reference.
Resignation of Daniel Murale as Executive Vice
President, Chief Financial Officer, and Treasurer
The Board accepted
the resignation of Daniel Murale from his positions as Executive Vice President, Chief Financial Officer and Treasurer of the Company
effective August 28, 2017. Mr. Murale will assist in the transition of the Chief Financial Officer role until his departure from
the Company. Mr. Murale’s resignation was not the result of any disagreement related to any matter involving the Company’s
operations, policies or practices.
In connection with
Mr. Murale’s departure, on August 16, 2017 the Company and Mr. Murale entered into a Separation Agreement and General Release
(the “Murale Separation Agreement”) attached hereto as Exhibit 10.3. Under the terms of the Murale Separation Agreement,
the Company will, among other things, pay Mr. Murale his current salary for four (4) weeks and any COBRA expenses for six (6) months
to the extent that Mr. Murale’s health insurance is not covered by the health insurance plan of another entity.
The foregoing description
of the Murale Separation Agreement does not purport to be complete and is qualified in its entirety by reference to the Murale
Separation Agreement, which is attached as Exhibit 10.3 to this Current Report on Form 8-K and incorporated herein by reference.
Appointment of Patrick McClain as Executive Vice
President, Chief Financial Officer and Treasurer
On August 14, 2017,
the Board appointed Patrick McClain to serve as the Company’s Executive Vice President, Chief Financial Officer and Treasurer.
Mr. McClain shall also assume the roles of principal financial officer and principal accounting officer of the Company.
Mr. McClain, 61, served
as Chief Financial Officer of Aurea Software Inc., an enterprise software platform within ESW Capital, Inc., from January 2013
to July 2016. Mr. McClain served as Senior Vice President and Chief Financial Officer of Rules-Based Medicine Inc., a biotechnology
company, from September 2002 to December 2011. During the preceding 15 years, Mr. McClain operated a professional consulting company
providing Chief Financial Services to over 20 privately held technology companies. Mr. McClain began his professional career with
Price Waterhouse were he served as audit manager for 6 years. Mr. McClain holds a BBA degree in Accounting from Ohio University.
Mr. McClain does not
have any family relationships with any of the directors, executive officers, or any people nominated or chosen by the Company to
become a director or executive officer. Mr. McClain is not a party to any transaction listed in Item 404(a) of Regulation S-K.
In connection with
Mr. McClain’s appointment as Chief Financial Officer, the Board approved an offer letter to Mr. McClain (the “McClain
Offer Letter”), which was executed on August 17, 2017. The McClain Offer Letter provides that Mr. McClain is entitled to
receive an annualized base salary of $240,000, payable in regular installments in accordance with the Company’s general payroll
practices. Mr. McClain will also be eligible for a cash bonus of $10,000 for any quarter that is free cash flow positive on an
operating basis and additional incentive compensation of an annual bonus of up to $80,000, subject to attainment of performance
objectives to be mutually agreed upon and established.
Mr. McClain’s
employment can be terminated at will. If Mr. McClain’s employment is terminated by the Company other than for cause he is
entitled to receive severance equal to six (6) months of his base salary if (i) he has been employed by the Company for at least
twelve (12) months at the time of termination or (ii) a change of control has occurred within six (6) months of Mr. McClain’s
employment. Except as set forth in the preceding sentence, Mr. McClain is entitled to receive severance equal to three (3) months
of his base salary if he has been employed by the Company for less than six (6) months and his employment was terminated by the
Company without cause. Mr. McClain is also entitled to vacation and other employee benefits in accordance with the Company’s
policies.
The foregoing description
of the McClain Offer Letter does not purport to be complete and is qualified in its entirety by reference to the McClain Offer
Letter, which is attached as Exhibit 10.4 to this Current Report on Form 8-K and incorporated herein by reference.