Changes in Board of Directors and Management Changes

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

7. Changes in Board of Directors and Management Changes

On September 2, 2016, the Company's shareholders elected four new directors who had run as an alternative slate to the slate the Company had recommended to its shareholders. The elected directors were Mr. Jeffrey T. Holtmeier, Mr. Brian A. Ross, Mark Scott and Dr. Stephen Weiss.

Effective as of September 12, 2016, the newly elected Board of Directors along with Mr. Joseph Heimbrock, a director appointed as a class by the Series B shareholders, elected Mr. Holtmeier as Chairman of the Board. The Board of Directors formed audit, compensation and nominating and governance committees. On October 11, 2016, the board revised committee memberships as the result of the appointment of Mr. Holtmeier as CEO, as follows:

• Audit: Ross (Chair), Scott and Weiss

• Compensation: Ross, Scott (Chair)

• Governance and Nominating: Heimbrock, Scott, Weiss (Chair)

On September 13, 2016, after the election of the new Board of Directors, the Company's Chief Executive Officer, Mr. Lalit Dhadphale, tendered his resignation which the Board of Directors of the Company subsequently accepted. Mr. Dhadphale's separation from the Company was effective October 13, 2016. Mr. Dhadphale's contract provided for severance payments under certain conditions, including a change in the composition of the Board of Directors, and contained restrictive covenants regarding disclosure of confidential information, non-solicitation and employee non-competition.

On September 9, 2016, after the election of the new Board of Directors, the Company's Chief Financial Officer, Mr. Daniel Seliga, tendered his resignation which the Board of Directors of the Company subsequently accepted.  Mr. Seliga's separation from the Company was effective October 9, 2016. Mr. Seliga's contract provides for severance payments under certain conditions, including a change in the composition of the Board of Directors, and contained restrictive covenants regarding disclosure of confidential information, non-solicitation and employee non-competition.

See Note 13 for additional management changes subsequent to December 31, 2016.

Employment Agreement

On October 11, 2016, the Board of Directors of the Company appointed Jeffrey T. Holtmeier as the President and Chief Executive Officer of the Company. Subsequently, the Company and Mr. Holtmeier entered into a written agreement outlining compensation and other terms of Mr. Holtmeier's employment.  Mr. Holtmeier was to be paid an annual salary of $175,000, and had an annual bonus target of 100% of base salary, with the amount of bonus to be determined according to the Company achieving certain financial metrics. Mr. Holtmeier was also granted options under the Company's Long Term Incentive Plan to purchase 125,000 shares of the Company's common stock, at a price of $0.29 per share, which was the closing price for the Company's common stock on the date of grant. Mr. Holtmeier's agreement contained other provisions that no longer apply due to his resignation. See Note 13 - Subsequent Events for additional information.

Related to the solicitation of shareholders' proxies and subsequent resignations per certain employment agreements mentioned above, the Company incurred proxy and solicitation costs of $578,484 and severance costs of $276,167 during the year ended December 31, 2016, which are included as a component of selling, general and administrative expenses in the consolidated statements of operations. At December 31, 2016, $211,722 and $392,417 of these costs are recorded in Accounts Payable, and Accrued Expenses and Other Current Liabilities, respectfully.