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18. RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2019

18.

RELATED PARTY TRANSACTIONS

Director Compensation

During the year ended December 31, 2018, the Company released and issued a total of 12,500 vested shares of common stock (related to previous years grants to each of three directors of 15,000 shares which vest on a pro rata basis over a three year period), with a per share fair value of $7.50, or $93,750 (based on the market price at the time of the agreement), to three directors for their service as defined in their respective Restricted Stock Grant Agreements. The $93,750 was expensed during the year ended December 31, 2018.

Effective March 27, 2018, based on authorization initially approved by the Board of Directors on December 19, 2017, and confirmed by resolutions adopted by the Board on March 27, 2018, the Company granted a total of 15,000 shares of common stock with a per share value of $7.50 per share (based on the market price at the time of the agreement), or $112,500, to three directors for performance of their duties. These shares are being issued from a pool of 15,000 shares of common stock for each director of previously authorized restricted stock grant awards for performance that are awarded if specific performance criteria are achieved or the Board authorizes their award and vesting by specific resolutions. These shares were immediately expensed.

On July 19, 2018, Mr. Jay S. Potter resigned as a director of Envision Solar International, and the Company accepted Mr. Potter’s resignation effective on the same date. In recognition of Mr. Potter’s long and valuable service to the Company, the Board of Directors authorized the immediate vesting and issuance to Mr. Potter of the balance of the nonperformance restricted stock award scheduled to be issued to him through December 31, 2018. As such, the Company released and issued a total of 2,500 vested shares of common stock with a per share fair value of $7.50, or $18,750 (based on the market price at the time of the agreement), which was expensed on July 19, 2018.

On August 22, 2018, Mr. Robert C. Schweitzer accepted an appointment as a new director of the Company effective August 22, 2018. Mr. Schweitzer is an independent director who has also accepted an appointment to serve as the chairman of the Company’s audit committee. In consideration for Mr. Schweitzer’s acceptance to serve as a director of the Company, the Company agreed to grant 30,000 restricted shares of its common stock to him, subject to the terms and conditions set forth in the Restricted Stock Grant Agreement, including but not limited to the following vesting schedule: 1,250 shares per quarter, prorata, over a 36 month period commencing on September 30, 2018, issuable quarterly on the last day of each calendar quarter; provided, that the first release will be of 1,250 shares on December 31, 2018 and the last release will be of 1,250 shares on September 30, 2021; and 15,000 shares based on the achievement by the Company of certain performance goals in accordance with the Agreement. During the year ended December 31, 2018, the Company released and issued a total of 1,250 vested shares of common stock to Mr. Schweitzer with a per share fair value of $10.00, or $12,500 (based on the market price at the time of the agreement), for his service as defined in his respective Restricted Stock Grant Agreement. The $12,500 was expensed during the year ended December 31, 2018.

During 2019, the Company issued a total of 25,000 shares of common stock to two directors that vested from restricted stock grants dated January 1, 2017, whereby each director was granted 15,000 shares that vest on a pro rata basis over a three year period (which represents 7,500 of these shares) and 15,000 shares that vest based on performance criteria (which represents 17,500 of these shares). The pro rata shares have a per share fair value of $7.50, or $56,250 (based on the market price at the time of the agreement) and the performance shares have a per share fair value of $5.50, or $96,250 (based on the market price on September 17, 2019, which is the date of grant based on when the performance criteria was defined).

Additionally, during 2019, the Company issued 8,750 shares of common stock to one director that vested from restricted stock grants dated August 21, 2018, whereby the director was granted 15,000 shares that vest on a pro rata basis over a three year period (which represents 3,750 of these shares) and 15,000 shares that vest based on performance criteria (which represents 5,000 of these shares). The pro rata shares have a per share fair value of $10.00, or $37,500 (based on the market price at the time of the agreement) and the performance shares have a per share fair value of $5.50, or $27,500 (based on the market price on September 17, 2019, which is the date of grant based on when the performance criteria was defined).

On September 17, 2019, the Board of Directors (the “Board”), upon the recommendation of its Compensation Committee, and based on input from a third party, nationally recognized compensation consultant, approved the following compensation for non-employee directors of the Company: (1) a quarterly cash retainer of $2,500 to be paid retroactively as of April 1, 2019; (2) an annual grant of 12,500 shares of restricted stock to be issued under the Company’s 2011 Stock Incentive Plan (the “Plan”) annually on October 1 and which shall vest quarterly in four (4) equal installments; (3) a payment of $1,000 for attendance in person (or $500 for attendance telephonically) for regularly scheduled board meetings; and (4) to the independent lead director, who is currently Robert C. Schweitzer, an additional annual grant of 5,000 shares of restricted stock to be issued under the Plan annually on October 1 and which shall vest quarterly in four (4) equal installments. As a result of the above changes to the non-employee directors’ compensation, all unvested shares of restricted stock held by non-employee directors as of October 1, 2019 were cancelled. As a result of these changes, each director was paid $6,000 for retroactive and current board and meeting fees in the quarter ended September 30, 2019.

On September 17, 2019, the Board, upon the recommendation of its Compensation Committee, granted two directors annual grants of 12,500 shares each, and the lead director was issued an annual grant of 17,500 shares, which vest quarterly in four (4) equal installments. The grant date was determined to be September 17, 2019 as that was when a mutual understanding of the key terms and conditions of the grants was reached. On the grant date, these shares had a per share fair value of $5.50 based on the quoted trading price, or $233,750. On December 31, 2019, 10,625 of these shares vested generating an expense of $63,431 during the three months ended December 31, 2019. The remaining 31,875 shares were held unvested in escrow for these directors at December 31, 2019.

In addition, the Board approved two grants of restricted stock of the Company to Mr. Wheatley under the 2011 Stock Incentive Plan (the “Plan”). The total number of shares granted was determined based on an award of $150,000 divided by the per share quoted trading price on October 1, 2019. On the grant date, the shares had a per share fair value of $5.97 and 25,124 shares were granted. On October 1, 2019, 8,374 of these shares vested and on December 31, 2019, 4,188 of these shares vested generating an expense of $75,000 during the three months ended December 31, 2019. The remaining 12,562 shares were held unvested in escrow for Mr. Wheatley at December 31, 2019 (See Note 14).

Convertible Notes Payable to Related Parties

On October 18, 2016, the Company entered into a five-year employment agreement, effective as of January 1, 2016, with Mr. Desmond Wheatley, the Chief Executive Officer, President, and Chairman of the Company (the “Agreement”). Pursuant to the Agreement, Mr. Wheatley receives an annual deferred salary of $50,000 which Mr. Wheatley defers until such time as Mr. Wheatley and the Board of Directors agreed that payment of the deferred salary and/or cessation of the deferral was appropriate. On March 29, 2017 the board of directors granted Mr. Wheatley a $35,000 bonus for which Mr. Wheatley agreed to defer such bonus under the same terms of his salary deferral. In August 2018, the Agreement was amended to provide that his salary shall defer until the earliest to occur of the following: (i) a permissible event specified in Section 409A of the Code, (ii) December 31, 2020, (iii) a change of control as defined in the Agreement, or (iv) a sale of all or substantially all of the assets of the Company.

All deferred amounts are evidenced by an unsecured convertible promissory note payable by the Company to Mr. Wheatley bearing simple interest at the rate of 10% per annum, accruing until paid, convertible into shares of the Company’s common stock at $7.50 per share at any time in whole or in part at Mr. Wheatley’s discretion. As the conversion price was equivalent to the fair value of the common stock at various salary deferral dates prior to June 30, 2018, there was no beneficial conversion feature to this note through such date. Subsequent to June 30, 2018 through December 31, 2018 and based on the average daily closing price of our common stock, the Company recorded $8,672 of debt discount for the beneficial conversion feature value which is being amortized to interest expense over the term of the note. For the three months ended March 31, 2019 and based on the average daily closing price of our common stock, the Company recorded $3,967 of debt discount for the beneficial conversion feature value which is also being amortized to interest expense over the term of the note. There was no beneficial conversion value and therefore, no debt discount was recorded for the three months ended June 30, September 30 or December 31, 2019. The balance of the note as of December 31, 2019 is $214,427, net of debt discount amounting to $5,990, with accrued and unpaid interest amounting to $48,884 which is included in accrued expenses (See Note 7).

On September 17, 2019, the Board of Directors adopted a resolution to pay off the convertible promissory note issued to Mr. Wheatley for his deferred compensation in the near future (subject to a recommendation on timing from Mr. Wheatley), and no additional salary was deferred after September 15, 2019. As a result, this note is presented as a short-term liability on the accompanying balance sheet at December 31, 2019 and a long-term liability at December 31, 2018.