CTEK CynergisTek Inc

PART III

ITEM 11.EXECUTIVE COMPENSATION. 

SUMMARY COMPENSATION TABLE

(1)Bonuses and commissions include amounts earned by the individual and accrued by the Company in the year listed but paid to the individual in the subsequent year.  

(2)Represents time-based restricted stock units (“RSU”) awarded to the named executive officers as part of the long-term incentive awards. These RSU awards vest three years from the date of grant.  These values represent the aggregate grant date fair value calculated in accordance with the Financial Accounting Standards Board ASC Topic 718. For additional information relating to the assumptions made in valuing and expensing these awards refer to Note 14 in the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC. 

(3)A discussion of the methods used in calculation of these values may be found in Notes 12 and 13 to the consolidated financial statements which is in Part 2, Item 8 of our Annual Report on Form 10-K for the fiscal  

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year ended December 31, 2021. These values reflect the dollar amount recognized for financial statement reporting purposes with respect to the fiscal years ended December 31, 2021, and December 31, 2020, computed in accordance with ASC Topic 718.

The preceding description of the McMillan Agreement is a summary of its material terms and does not purport to be complete. The Employment Agreement was filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on July 26, 2021.

Paul T. Anthony

Effective January 1, 2016, we entered into an employment agreement with Paul T. Anthony. The agreement provided that Mr. Anthony serve as our Executive Vice President, CFO and Corporate Secretary.  In February 2018, the Company amended the Anthony Agreement to extend the term thereof through December 31, 2020 and increased his base salary to $310,000 for 2019 and 2020. Mr. Anthony earned no bonus for 2020.

On January 4, 2021, the Company entered into a new employment agreement (the “Anthony Agreement”) with Mr. Anthony on substantially the same terms and conditions as Mr. Anthony’s prior employment agreement, which was replaced and superseded by the new agreement.  Pursuant to the Anthony Agreement, Mr. Anthony will have the duties and responsibilities as are commensurate with the positions of Secretary, Treasurer and Chief Financial Officer, as reasonably and lawfully directed by the Company’s Chief Executive Officer and Board of Directors (the “Board”).   The initial term of the Anthony Agreement is 36 months from the Effective Date and the Anthony Agreement will automatically renew for subsequent 12-month terms unless either party provides written notice to the other party of a desire not to renew employment.

Pursuant to the Anthony Agreement, Mr. Anthony’s base salary remained the same for 2021 at $310,000 and increased to $333,250 in 2022.  Subsequent increases to base salary will be subject to the discretion of the Compensation Committee of the Board (the “Compensation Committee”).  Mr. Anthony is entitled to the same incentive bonus compensation of up to 67.5% of his base salary, and equity compensation may be granted from time to time based on the discretion and recommendation of the Compensation Committee and Board.  Mr. Anthony earned a $30,000 bonus for 2021. Mr. Anthony was entitled to one-time, lump-sum amounts equal to the employee tax portion required to be paid plus the amount necessary to put Mr. Anthony in the same after-tax position (taking into account any and all applicable federal, state, and local income, employment and excise taxes, including any income and employment taxes imposed on the payment itself) that he would have been in if he had not incurred any tax liability on settlement of the restricted stock units, as a result of the settlement of the 90,000 restricted stock units that were granted on each of October 8, 2018 and November 13, 2019.  Each such payment was paid within 30 days of settlement of the applicable restricted stock units. The total amount paid for these lump-sum amounts was paid in 2021 and was $130,489. The Company has the right to terminate Mr. Anthony’s employment without cause at any time on thirty (30) days’ advance written notice, at which time Mr. Anthony would receive severance pay for twelve months and be fully vested in all options and warrants granted to date.

The preceding description of the Anthony Agreement is a summary of its material terms and does not purport to be complete. The detailed terms and conditions of the Anthony Agreement were set forth in the Anthony Agreement, which was filed as Exhibit 10.8 to the 2020 Annual Report on Form 10-K filed on March 25, 2021.

Timothy McMullen

Effective October 12, 2021, we entered into an employment agreement with Timothy McMullen (the “McMullen Agreement”) pursuant to which Mr. McMullen serves as Chief Operating Officer and has the duties and responsibilities as are commensurate with such position. The McMullen Agreement provides for an initial employment term of 12 months, with automatic renewal for an additional 12 months, unless either party provides notice of intention not to renew. As compensation for his role as Chief Operating Officer, the Company will pay Mr. McMullen an annual base salary of $300,000, provide Mr. McMullen access to the Company’s incentive-based bonus plan with the potential to receive a discretionary bonus of up to 55% of his base annual salary.  Mr. McMullen earned a $5,000 bonus for 2021. Mr. McMullen will also be eligible from time to time, for a grant of certain equity incentive awards, including an initial grant of 150,000 stock options, issued at fair market value with 1/3 of the options eligible to vest annually and all options eligible to vest after three years. In the event Mr. McMullen’s employment is terminated by the Company for cause or he resigns without good reason, Mr. McMullen will be entitled to receive his base annual salary prorated to the date of such termination but will not be entitled to any additional compensation or payments by the Company. In the event Mr. McMullen’s employment is terminated by

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the Company without cause or he resigns for good reason, he will be entitled to receive his base annual salary prorated to the date of such termination, the acceleration of all unvested stock options and certain other incentive units, and payment based on an additional six months of the base annual salary.

The preceding description of the McMullen Agreement is a summary of its material terms and does not purport to be complete. The McMullen Agreement was filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 14, 2021.

Caleb Barlow

Effective August 1, 2019, we entered into an employment agreement with Caleb Barlow (the “Barlow Agreement”) pursuant to which Mr. Barlow serves as President and Chief Executive Officer and has the duties and responsibilities as are commensurate with such positions. The initial term of the Barlow Agreement was 36 months.

Mr. Barlow’s base salary was $350,000. He was entitled to incentive bonus compensation that offered the potential to receive a discretionary bonus up to 100% of his base salary. For 2020 and 2019, there was no discretionary bonus paid. In addition, he received a retention bonus totaling $500,000, with $200,000 having been paid on August 1, 2019, $150,000 paid on January 1, 2020 and $150,000 paid in January 2021. In connection with the Barlow Agreement, Mr. Barlow also received equity compensation consisting of an option to purchase up to 500,000 shares of the Company’s common stock, subject to vesting, and 50,000 shares of restricted stock units. The options were nonqualified, and the grant was made outside of the Company's 2011 Stock Incentive Plan. The foregoing is only a summary of the Barlow Agreement. The detailed terms and conditions of the full agreement are included as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on July 16, 2019.

On July 26, 2021, Caleb Barlow, notified the Board of Directors (the “Board”) of his resignation as the President and Chief Executive Officer of the Company, effective immediately. Mr. Barlow also informed the Board of his resignation as a member of the Board, to be effective August 26, 2021.  The Board accepted Mr. Barlow’s resignation and, on July 26, 2021, appointed Michael “Mac” McMillan as President and Chief Executive Officer of the Company, effective immediately.  Mr. Barlow’s resignation included a severance payment of approximately $578,000 and issuance of 200,000 shares of common stock as a result of the accelerated vesting and settlement of 200,000 restricted stock units that was paid and settled in October 2021.

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(1)Unless otherwise indicated, all options vest in cumulative annual installments of one-third of the shares commencing one year from the date of grant. 

(2)These Restricted Stock Units (“RSUs”) were granted on November 13, 2019 and had a grant date per share value of $2.92 and vested November 2020. 

(3)  These RSUs were granted on February 11, 2021 and had a grant date per share value of $2.58 and vest after one year of employment or board service.

(4)These warrants were granted on January 16, 2013 and vested according to financial performance measures. This compensation is further described in Note 7 to the Annual Report on Form 10-K filed with the SEC on March 28, 2017. 

(5) These RSUs were granted on November 13, 2021 and had a grant date per share value of $2.92 and vest after three years of employment.

(6) These RSUs were granted on January 12, 2021 and had a grant date per share value of $2.11 and vest after three years of employment.

(7) These stock options were granted on October 22, 2021 at an exercise price of $1.74 and vests in cumulative annual installments of one-third of the shares commencing one year from the date of grant.

(1)A discussion of the methods used in the calculation of these values may be found in Note 14 to the consolidated financial statements of our 2021 Annual Report on Form 10-K. These values reflect the dollar amount recognized for financial statement reporting purposes with respect to the 2021 fiscal year. 

(2)A discussion of the methods used in the calculation of these values may be found in Note 13 to the consolidated financial statements of our 2021 Annual Report on Form 10-K. These values reflect the dollar amount recognized for financial statement reporting purposes with respect to the 2021 fiscal year. 

(3)  During the first half of 2021 Mr. McMillan was a non-employee member of the Board.  

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The director compensation is ordinarily paid in two payments with the first payment made in January and the second payment made at the beginning of July (assuming confirmation of board members election by the stockholders in the annual stockholder meeting).  The Company intends to compensate directors in 2022 at the same levels as 2021; any additional compensation for special committees or other items will be determined on a case by case basis by the Compensation Committee.

The Compensation Committee evaluates and expects to grant RSUs to each board member. The RSUs granted to the board members in 2021 is reflective of expected grants in future years.

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COMPENSATION COMMITTEE REPORT

The following report of the Compensation Committee shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall this report be incorporated by reference into any filing made by the Company under the Securities Act of 1933, as amended, or the Exchange Act.

The Compensation Committee of the Board reviews and establishes compensation strategies and programs to ensure that the Company attracts, retains, properly compensates, and motivates qualified executives and other key associates. The Committee consists of Dana Sellers, who is the Chairperson, Mark Roberson, Robert McCashin, Michael Loria and Theresa Meadows. No member of the Compensation Committee is an employee or officer.

The philosophy of the Compensation Committee is (i) to provide competitive levels of compensation that integrate pay with the individual executive’s performance and the Company’s annual and long-term performance goals; (ii) to motivate key executives to achieve strategic business goals and reward them for their achievement; (iii) to provide compensation opportunities and benefits that are comparable to those offered by other companies in the healthcare services industry, thereby allowing the Company to compete for and retain talented executives who are critical to the Company’ long-term success; and (iv) to align the interests of key executives with the long-term interests of stockholders and the enhancement of stockholder value through the granting of equity compensation. The compensation of our executive officers is currently comprised of annual base salary, a bonus plan pursuant to certain performance criteria being achieved, and long-term performance incentives in the form of stock option or restricted stock unit (RSU) grants under the stock incentive plans.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves, or in the past has served, on the board of directors, or as a member of the compensation committee (or other committee performing an equivalent function) of the board of directors of any entity that has one or more executive officers who serve as members of our Board of Directors or Compensation Committee.

Chief Executive Officer Compensation

In August of 2019 the Board of Directors appointed Caleb Barlow to serve as President and Chief Executive Officer.  The Compensation Committee set Mr. Barlow’s base salary at $350,000. He was entitled to incentive bonus compensation that offers the potential to receive a discretionary bonus up to 100% of his base salary. For 2020, his discretionary bonus could have totaled a maximum of $350,000 of which he received $0 for 2020, largely due to the impact of the COVID-19 pandemic.  For 2019, his discretionary bonus could have totaled a maximum of $85,000 of which he received $0 for 2019.  The incentive bonus plan is based on a number of factors established by the Board. In addition, he received a retention bonus totaling $500,000, with $200,000 paid on August 1, 2019, $150,000 paid on January 1, 2020 and $150,000 paid in January 2021.

Mr. Barlow also received equity compensation consisting of an option to purchase up to 500,000 shares of the Company’s common stock, subject to vesting, and 50,000 shares of restricted stock units. The options are nonqualified, and the grant was made outside of the Company’s 2011 Stock Incentive Plan.

Mr. Barlow resigned as President and CEO on July 26, 2021 and Mr. McMillan was appointed to serve in such positions effective as of such date.  Mr. Barlow’s resignation includes a severance payment of approximately $578,000 and the issuance of 200,000 shares of common stock as a result of the accelerated vesting and settlement of 200,000 restricted stock units.

In July of 2021 the Board of Directors appointed Michael H. McMillan as President and Chief Executive Officer for an initial term of 12 months. Mr. McMillan’s base salary is $300,000. Except in the event that Mr. McMillan’s employment is terminated for cause, the base salary is guaranteed and shall, in any event, be paid through the end of the initial 12-month term.

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Compensation-Related Investor Feedback

At our 2021 annual meeting, 71% of shareholders expressed support for the compensation of our named executives.

In advance of the 2022 annual meeting, and as part of our outreach after the 2021 meeting, we made efforts to engage with our shareholders to better understand their concerns related to our executive compensation programs and to the factors impacting their say-on-pay vote. This was in addition to the engagement by our investor relations department as well as the engagement we do with retail investors. The majority of investors with whom we engaged indicated that they were supportive of the Compensation Committee’s actions overall. In particular, investors indicated that they were supportive of:

·Taking action to attract and retain key talent during a period of uncertainty for the company; 

·Focusing on incorporating performance metrics that are aligned with operational accountability for our executives; 

·Ongoing efforts to align executive pay with results for shareholders through equity; and 

Investors had concerns about the following actions by the Management Development & Compensation Committee:

·Granting executive pay at levels that are misaligned with multi-year share performance. 

Compensation Committee Response

As part of its assessment of CynergisTek’s executive compensation programs, the Compensation Committee reviewed these voting results, evaluated investor feedback and considered other factors discussed in this proxy statement and the Company’s Form 10-K, including the importance of maintaining the right leadership team to guide the company, alignment of our compensation program with the long-term interests of our shareholders and the relationship between risk-taking and the incentive compensation we provide to our named executives.

After considering these factors, the committee decided to take the following actions to increase management accountability and more closely align management’s interests with shareholders:

·Continue to shift executive compensation away from cash-based programs and to equity more broadly (beyond our named executive officers); 

·Grant stock options and restricted stock units to a broader swath of our leadership; 

·Change the performance metrics for 2022 to incorporate operating metrics that more closely align with a total shareholder return. 

By the Compensation Committee,

Dana Sellers, Chair

Mark Roberson

Theresa Meadows

Robert McCashin

Michael Loria

April 29, 2022

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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 

BENEFICIAL OWNERSHIP OF SECURITIES

* Less than 1% of the outstanding shares of Common Stock.

(1)The address for all officers and directors is c/o CynergisTek, Inc., 11940 Jollyville Road, Austin, TX 78759.  

(2)Unless otherwise indicated, the named persons possess sole voting and investment power with respect to the shares listed (except to the extent such authority is shared with spouses under applicable law).  The percentages are based upon 13,256,570 shares outstanding as of March 31, 2022, except for certain parties who hold stock options and warrants that are presently exercisable or exercisable within 60 days and shares of Common Stock potentially issuable upon the vesting of restricted stock units within 60 days, whose percentages are based upon the sum of shares outstanding as of March 31, 2022 plus the number of shares subject to stock options and warrants that are presently exercisable or exercisable within 60 days, or shares of Common Stock potentially issuable upon the vesting of restricted stock units within 60 days held by them, as indicated in the following notes.  

(3)Includes 102,779 shares issuable upon exercise of stock options and warrants. 

(4)Includes 25,000 shares issuable upon exercise of vested restricted stock units. 

(5)Includes 50,000 shares issuable upon exercise of vested restricted stock units. 

(6)Includes 20,000 shares issuable upon exercise of vested restricted stock units. 

(7)Includes 50,000 shares issuable upon exercise of vested restricted stock units. 

(8)Includes 53,334 shares issuable upon exercise of stock options and vested restricted stock units. 

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(9)Includes 30,000 shares issuable upon exercise of vested restricted stock units. 

(10) Based solely on Form 13F filed on 12/31/2021. The address for Horton Capital Partners is 1717 Arch Street, Suite 3920, Philadelphia, PA 19103.

(1)These plans consist of the 2011 Stock Incentive Plan and the 2020 Equity Incentive Plan, each as amended. 

(2)Represents restricted stock units issued under the 2011 Stock Incentive Plan and the 2020 Equity Incentive Plan. Since this plan includes option grants, number of securities remaining available for future issuances is combined. 

(3)From time to time and at the discretion of the Board, we may issue options or warrants to our key individuals or officers as compensation. 

(4)Includes warrants to purchase 524,170 shares of common stock in consideration of a Securities Purchase Agreement with an existing investor. 

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ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES. 

registered public accounting firm and management periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with these pre-approvals, and the fees for the services performed to date. All of the professional services rendered by Haskell & White LLP for fiscal years 2021 and 2020 were pre-approved by the Audit Committee of our Board in accordance with applicable SEC rules.