Item 5.02.
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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On October 26, 2020, the board
of directors (the “Board”) of CleanSpark, Inc., a Nevada corporation (the “Company”), upon recommendation
of the compensation committee of the Board (the “Compensation Committee”) approved certain executive compensation changes
for executives of the Company following the Company’s fiscal year ended September 30, 2020. The changes described below were
made in an ordinary course annual review of executive compensation by the independent directors of the Compensation Committee and
take into account the lack of formal executive compensation policies and written employment agreements for executives of the Company
for fiscal year 2020 and industry standards moving forward for fiscal year 2021.
Executive Summary and Background
The goals
of our compensation programs are to ensure that the interests of our employees, including our named executive officers, are aligned
with the interests of our stockholders and our business goals and that the total compensation paid to each of our named executive
officers is fair, reasonable and competitive.
We provide
our executive officers with a significant portion of their compensation through cash incentive compensation based upon the achievement
of corporate objectives for the year as well as through equity compensation, including premium priced stock options, which are
options with exercise prices above the fair market value of the Common Stock on the date of grant. These two elements of executive
compensation are aligned with the interests of our stockholders because the amount of compensation ultimately received will vary
with our corporate and operational performance and, in the case of options, will result in value for the named executive officers
only if our stock price increases.
Key elements
of our compensation programs include the following:
Compensation
Element
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Purpose
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Features
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Base salary
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To attract and retain experienced and highly skilled executives.
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Fixed component of pay to provide financial stability, based on responsibilities, experience, individual contributions and benchmarked company data.
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Annual
cash
incentive
bonuses
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To promote and reward the achievement of key short-term strategic and business goals of the Company as well as individual performance; to motivate and attract executives.
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Variable component of pay based on annual corporate quantitative and qualitative goals.
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Long-term
Equity
incentive
compensation
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To encourage executives and other employees to focus on long-term Company performance; to drive long-term stockholder value; to promote retention; to reward outstanding Company and individual performance.
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Typically subject to vesting based on continued service and are primarily in the form of stock options, premium priced stock options and restricted stock, the value of which depends on the performance of our Common Stock price, in order to align employee interests with those of our stockholders over the longer-term.
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In addition
to our direct compensation elements, the following features of our compensation program are designed to align our executive team
with stockholder interests and with market best practices:
What We Do
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What We Don't Do
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ü Maintain
a benchmarking process, utilizing third-party independent tools
ü Target
pay based on market norms
ü Deliver
executive compensation primarily through performance-based compensation
ü Offer
market-competitive benefits for executives that are consistent with the rest of our employees
ü Hold
a say-on-pay vote at least once every 3 years
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× Allow hedging of equity
× Provide excessive
perquisites
× Provide supplemental
executive retirement plans
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During 2020,
we made significant progress on our business goals. Our innovative technology enables distributed assets to function optimally
in multiple applications. Our solutions meet the needs of an ongoing paradigm shift in the power, energy, and transportation industries
to address the need for economic optimization and energy security, while meeting sustainability goals.
2020
results showcase the best year in the Company's history, setting the stage for meaningful future growth. These results include
the following achievements that impacted executive compensation for the fiscal year ending September 30, 2020:
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Revenues more than doubled compared to the prior year,
while navigating a global pandemic
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The Company successfully listing on Nasdaq
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Acquisition and integration of two companies that are
cash flow positive
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Stock price improvement over the prior 12 months
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Software, service and related revenues have increased
to be a larger percentage of total revenues to resulting in gross margin increasing significantly since October 2019
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Significantly improved cash balance and balance sheet
Setting Executive Compensation
The Compensation Committee
is responsible for reviewing, and recommending to the Board for approval, the compensation of our executive officers, including
our named executive officers. The Compensation Committee is composed entirely of non-employee directors who are "independent"
as that term is defined in the applicable Nasdaq Rules. In making its recommendations regarding executive compensation, our Compensation
Committee annually reviews the performance of our executives with our Chief Executive Officer, and our Chief Executive Officer
makes recommendations to our Compensation Committee with respect to the appropriate base salary, annual incentive bonuses and performance
measures, and grants of long-term equity incentive awards for each of our executives.
The Compensation Committee
makes its determination regarding executive compensation and then makes a recommendation to the Board for approval. The Board discusses
the Compensation Committee's recommendations ultimately approves the compensation of the executive officers.
In setting executive base salaries and bonuses
and granting equity incentive awards, the Compensation Committee and the Board consider compensation for comparable positions in
the market, the historical compensation levels of our executives, individual performance as compared to our expectations and objectives,
our desire to motivate our employees to achieve short- and long-term results that are in the best interests of our stockholders,
and a long-term commitment to our Company. We generally target a competitive position, based on independent third-party benchmark
analytics to inform the mix of compensation of base salary, bonus or long-term
Comparing
Compensation to Market Benchmarks
In evaluating
the total compensation of our named executive officers, our Compensation Committee, our Compensation Committee uses data from
the Radford Global Technology executive compensation survey (the "Radford Survey"), to evaluate the competitive market
when formulating its recommendation for the total direct compensation packages for our executive officers. The Radford Survey
provides compensation market intelligence and is widely used within the technology industry.
Due to the
nature of our business, we also compete for executive talent with other companies, including public companies that are larger and
more established than we are or that possess greater resources than we do, and with smaller private companies that may be able
to offer greater equity compensation potential. While competitive practice is an important component of our compensation philosophy,
it is not the sole determinant of executive compensation and benefit practices and programs and we do not automatically target
our executive compensation at a specific percentage of the peer group average. Instead the Compensation Committee focuses on a
balance of annual and long-term compensation, which is weighted toward "at risk" performance-based compensation.
Executive Employment
Agreements
On October 26, 2020, the Company
entered into new employment agreements (the “Employment Agreements”) with Zachary Bradford, Lori Love, Amanda Kabak,
Amer Tadayon and S. Matthew Schultz (the “Executives”).
Zachary Bradford Employment
Agreement
Mr. Bradford’s Employment Agreement provides
for an annual base salary of $500,000 payable according to the Company’s normal payroll practices. In addition, Mr. Bradford
will be entitled to receive: (i) an annual discretionary cash bonus based on the annual gross revenues of the Company and other
benchmarks that may be identified at the discretion of the board of directors that is equivalent to no less than 50% of base salary,
and (ii) a combination of restricted stock and stock options as incentive compensation that is at least 50% in value to base salary.
Mr. Bradford’s Employment Agreement can
be terminated (i) with cause by the Company after at least three-fifths (or more than 60%) of the Board determines that cause exists
(ii) by Mr. Bradford for any reason upon 10 days advanced prior written notice and (iii) by the Company for any reason upon 10
days advanced prior written notice.
Furthermore, Mr. Bradford, (i) upon termination
for cause and upon signing and returning an effective waiver and release of claims, shall be entitled to receive severance equal
to three (3) months of base salary and other employment benefits if terminated in the first twelve (12) months of employment and
six (6) months of the base salary and other employment benefits (including COBRA) thereafter, and (ii) upon termination without
cause, all unvested securities shall immediately vest and become exercisable in full and, upon signing and returning an effective
waiver and release of claims, shall be entitled to receive severance of equal to six (6) months of the base salary and other employment
benefits if terminated in the first twelve (12) months of employment and twelve (12) months of the base salary and other employment
benefits thereafter and the Company shall pay Mr. Bradford an amount equal to 100% of the bonus paid to the Employee during the
prior six (6) months, with the severance and the bonus payable in equal payments over 12 months following the effective date of
the termination and subject to all applicable withholdings and taxes.
As compensation for performance during the
most recent fiscal year ended September 30, 2020, Mr. Bradford was issued 75,000 shares of fully-vested common stock and granted
fully-vested options to purchase 25,000 shares of common stock at an exercise price of $9.00.
For fiscal year 2021, Mr. Bradford was issued
69,000 shares of restricted stock subject to vesting conditions and which shall vest only upon achievement of certain corporate
milestones set by the Compensation Committee and options to purchase 30,000 shares of common stock at an exercise price of $9.00
which shall vest upon achievement of certain corporate milestones set by the Compensation Committee.
Lori Love Employment Agreement
Ms. Love’s Employment Agreement provides
for an annual base salary of $350,000 payable according to the Company’s normal payroll practices. In addition, Ms. Love
will be entitled to receive: (i) an annual discretionary cash bonus based on EBITDA improvement of the Company and other benchmarks
that may be identified at the discretion of the board of directors that is equivalent to no less than 20% of base salary, and (ii)
a combination of restricted stock and stock options as incentive compensation that is at least 50% in value to base salary.
Ms. Love’s Employment Agreement can be
terminated (i) with cause by the Company after at least three-fifths (or more than 60%) of the Board determines that cause exists
(ii) by Ms. Love for any reason upon 10 days advanced prior written notice and (iii) by the Company for any reason upon 10 days
advanced prior written notice.
Furthermore, Ms. Love, (i) upon termination
for cause and upon signing and returning an effective waiver and release of claims, shall be entitled to receive severance equal
to three (3) months of base salary and other employment benefits if terminated in the first twelve (12) months of employment and
six (6) months of the base salary and other employment benefits (including COBRA) thereafter, and (ii) upon termination without
cause, all unvested securities shall immediately vest and become exercisable in full and, upon signing and returning an effective
waiver and release of claims, shall be entitled to receive severance of equal to six (6) months of the base salary and other employment
benefits if terminated in the first twelve (12) months of employment and twelve (12) months of the base salary and other employment
benefits thereafter and the Company shall pay Ms. Love an amount equal to 100% of the bonus paid to the Employee during the prior
six (6) months, with the severance and the bonus payable in equal payments over 12 months following the effective date of the termination
and subject to all applicable withholdings and taxes.
As compensation for performance during the
most recent fiscal year ended September 30, 2020, Ms. Love was issued 38,000 shares of fully-vested common stock and granted fully-vested
options to purchase 12,500 shares of common stock at an exercise price of $9.00.
For fiscal year 2021, Ms. Love was issued 13,250
shares of restricted stock subject to vesting conditions and which shall vest only upon achievement of certain corporate milestones
set by the Compensation Committee and options to purchase 10,000 shares of common stock at an exercise price of $9.00 which shall
vest upon achievement of certain corporate milestones set by the Compensation Committee.
Amanda Kabak Employment Agreement
Ms. Kabak’s Employment Agreement provides
for an annual base salary of $290,000 payable according to the Company’s normal payroll practices. In addition, Ms. Kabak
will be entitled to receive: (i) an annual discretionary cash bonus based on the software enhancements and delivery targets of
the Company and other benchmarks that may be identified at the discretion of the board of directors that is equivalent to no less
than 30% of base salary, and (ii) a combination of restricted stock and stock options as incentive compensation that is at least
50% in value to base salary.
Ms. Kabak’s Employment Agreement can
be terminated (i) with cause by the Company after at least three-fifths (or more than 60%) of the Board determines that cause exists
(ii) by Ms. Kabak for any reason upon 10 days advanced prior written notice and (iii) by the Company for any reason upon 10 days
advanced prior written notice.
Furthermore, Ms. Kabak, (i) upon termination
for cause and upon signing and returning an effective waiver and release of claims, shall be entitled to receive severance equal
to three (3) months of base salary and other employment benefits if terminated in the first twelve (12) months of employment and
six (6) months of the base salary and other employment benefits (including COBRA) thereafter, and (ii) upon termination without
cause, all unvested securities shall immediately vest and become exercisable in full and, upon signing and returning an effective
waiver and release of claims, shall be entitled to receive severance of equal to six (6) months of the base salary and other employment
benefits if terminated in the first twelve (12) months of employment and twelve (12) months of the base salary and other employment
benefits thereafter and the Company shall pay Ms. Kabak an amount equal to 100% of the bonus paid to the Employee during the prior
six (6) months, with the severance and the bonus payable in equal payments over 12 months following the effective date of the termination
and subject to all applicable withholdings and taxes.
As compensation for performance during the
most recent fiscal year ended September 30, 2020, Ms. Kabak was issued 13,000 shares of fully-vested common stock and granted fully-vested
options to purchase 5,000 shares of common stock at an exercise price of $9.00.
For fiscal year 2021, Ms. Kabak was issued
15,000 shares of restricted stock subject to vesting conditions and which shall vest only upon achievement of certain corporate
milestones set by the Compensation Committee and options to purchase 20,000 shares of common stock at an exercise price of $9.00
which shall vest upon achievement of certain corporate milestones set by the Compensation Committee.
Amer Tadayon Amended and Restated Employment
Agreement
Mr. Tadayon’s Employment Agreement, which
amends, restates and supersedes his prior employment agreement dated as of January 31, 2020, provides for an annual base salary
of $250,000 payable according to the Company’s normal payroll practices. In addition, Mr. Tadayon will be entitled to receive:
(i) an annual discretionary cash bonus based on the annual gross revenue of the Company and other benchmarks that may be identified
at the discretion of the board of directors that is equivalent to no less than 20% of base salary, and (ii) a combination of restricted
stock and stock options as incentive compensation that is at least 50% in value to base salary. Mr. Tadayon is also entitled to
receive a commission-based bonus on an annual basis which includes a non-recoverable draw at the annual rate of not less than Fifty
Thousand Dollars (USD $50,000). Commission payments will not be made until such commissions exceed the draw, measured on an annual
basis.
Mr. Tadayon’s Employment Agreement can
be terminated (i) with cause by the Company after at least three-fifths (or more than 60%) of the Board determines that cause exists
(ii) by Mr. Tadayon for any reason upon 10 days advanced prior written notice and (iii) by the Company for any reason upon 10 days
advanced prior written notice.
Furthermore, Mr. Tadayon, (i) upon termination
for cause and upon signing and returning an effective waiver and release of claims, shall be entitled to receive severance equal
to three (3) months of base salary and other employment benefits if terminated in the first twelve (12) months of employment and
six (6) months of the base salary and other employment benefits (including COBRA) thereafter, and (ii) upon termination without
cause, all unvested securities shall immediately vest and become exercisable in full and, upon signing and returning an effective
waiver and release of claims, shall be entitled to receive severance of equal to six (6) months of the base salary and other employment
benefits if terminated in the first twelve (12) months of employment and twelve (12) months of the base salary and other employment
benefits thereafter and the Company shall pay Mr. Tadayon an amount equal to 100% of the bonus paid to the Employee during the
prior six (6) months, with the severance and the bonus payable in equal payments over 12 months following the effective date of
the termination and subject to all applicable withholdings and taxes.
For fiscal year 2021, Mr. Tadayon was granted
options to purchase 30,000 shares of common stock at an exercise price of $9.00 which shall vest monthly over the next 12 months.
S. Matthew Schultz Employment Agreement
Mr. Schultz’s Employment Agreement provides
for an annual base salary of $350,000 payable according to the Company’s normal payroll practices. In addition, Mr. Schultz
will be entitled to receive: (i) an annual discretionary cash bonus based on the annual gross revenues of the Company and other
benchmarks that may be identified at the discretion of the board of directors that is equivalent to no less than 50% of base salary,
and (ii) a combination of restricted stock and stock options as incentive compensation that is at least 50% in value to base salary.
Mr. Schultz’s Employment Agreement can
be terminated (i) with cause by the Company after at least three-fifths (or more than 60%) of the Board determines that cause exists
(ii) by Mr. Schultz for any reason upon 10 days advanced prior written notice and (iii) by the Company for any reason upon 10 days
advanced prior written notice.
Furthermore, Mr. Schultz, (i) upon termination
for cause and upon signing and returning an effective waiver and release of claims, shall be entitled to receive severance equal
to three (3) months of base salary and other employment benefits if terminated in the first twelve (12) months of employment and
six (6) months of the base salary and other employment benefits (including COBRA) thereafter, and (ii) upon termination without
cause, all unvested securities shall immediately vest and become exercisable in full and, upon signing and returning an effective
waiver and release of claims, shall be entitled to receive severance of equal to six (6) months of the base salary and other employment
benefits if terminated in the first twelve (12) months of employment and twelve (12) months of the base salary and other employment
benefits thereafter and the Company shall pay Mr. Schultz an amount equal to 100% of the bonus paid to the Employee during the
prior six (6) months, with the severance and the bonus payable in equal payments over 12 months following the effective date of
the termination and subject to all applicable withholdings and taxes.
As compensation for performance during the
most recent fiscal year ended September 30, 2020, Mr. Schultz was issued 60,000 shares of fully-vested common stock and granted
fully-vested options to purchase 20,000 shares of common stock at an exercise price of $9.00.
For fiscal year 2021, Mr. Schultz was issued
55,000 shares of restricted stock subject to vesting conditions and which shall vest only upon achievement of certain corporate
milestones set by the Compensation Committee and options to purchase 24,000 shares of common stock at an exercise price of $9.00
which shall vest upon achievement of certain corporate milestones set by the Compensation Committee.
The foregoing description of the terms of the
above Employment Agreements do not purport to be complete, and are qualified in their entirety by reference to the full text of
the Employment Agreements, copies of which are attached hereto as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 and incorporated herein
by reference.
Appointment of S. Matthew
Schultz as Executive Chairman
Concurrently with the above
changes, the Board appointed its current Chairman of the Board and former Chief Executive Officer, S. Matthew Schultz, to an executive
position as Executive Chairman in recognition of the day-to-day responsibilities Mr. Schultz has been handling with the Company
since his departure as CEO. Mr. Schultz will report to the Company’s current CEO and will still continue to serve as the
Chairman of the Board. There was no previously occupant of the role.
There is no arrangement or understanding between Mr. Schultz and any other person pursuant to which Mr. Schultz was appointed as
an executive officer. There are no family relationships between Mr. Schultz and any of the Company’s directors, executive
officers or persons nominated or chosen by the Company to become a director or executive officer. Mr. Schultz is not a participant
in, nor is Mr. Schultz to be a participant in, any related-person transaction or proposed related-person transaction required to
be disclosed by Item 404(a) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).