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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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On the Effective Date, Robert J. Rosenblatt,
our chief executive officer, was terminated without cause from his position as an officer and employee of our company and will
receive the payments set forth in his existing employment agreement. Mr. Rosenblatt did not resign from his position as a member
of our board of directors.
On the Effective Date, in accordance with
the purchase agreement, our board of directors appointed Timothy A. Peterman to serve as our chief executive officer. Mr. Peterman,
age 52, joined our company as chief financial officer in March 2015, and was promoted to chief operating officer / chief financial
officer in June 2017. He served in these roles until April 2018 and served as a non-officer employee of our company through June
1, 2018. Most recently, Mr. Peterman served as chief operating officer and chief financial officer at Amerimark Interactive. Prior
to joining our company in March 2015, Mr. Peterman served as the chief operating officer and chief financial officer for The J.
Peterman Company, an ecommerce apparel brand, since 2011. From 2009 to 2011, he served as chief operating officer and chief financial
officer of Synacor, a media technology company. Previously, Mr. Peterman served almost six years at The E.W. Scripps Company in
various senior roles, including senior vice president of corporate development. From 1999 to 2002, he was chief operating officer
and chief financial officer of IAC’s broadcasting and cable divisions, which included USA Network & Sci-Fi Channel. Mr.
Peterman also spent almost six years in senior financial roles at Tribune Company. Mr. Peterman began his career at KPMG in Chicago
in 1989 and is a CPA. Pursuant to the purchase agreement, on the Effective Date, Mr. Peterman purchased 166,667 shares of our common
stock and a warrant to purchase 72,917 shares of our common stock for an aggregate purchase price of $125,000.
In connection with his employment, we entered
into an employment agreement with Mr. Peterman that provides that Mr. Peterman: (a) will receive an annual base salary of $650,000,
(b) will be eligible for annual cash discretionary bonuses targeted at 100% of his annual salary (pro rated for the current fiscal
year) with a maximum annual cash discretionary bonus equal to 200% of his annual salary, (c) will receive 680,000 performance share
units (“
PSUs
”), and (d) will receive a $150,000 relocation payment and temporary housing assistance while he
relocates to our company’s headquarters. During the first six months of his employment, in the event of termination without
cause or resignation for good reason, as defined in his employment agreement, Mr. Peterman will be entitled to a lump sum payment
equal to his base salary and annual target bonus. Subsequent to that time, he will participate in our executive employee severance
plan. This summary description of Mr. Peterman’s employment agreement is qualified in its entirety by reference to the employment
agreement, a copy of which is included as Exhibit 10.7 to this Current Report on Form 8-K and is incorporated by reference herein.
The PSU award granted to Mr. Peterman was
made outside of our existing equity incentive plans as an inducement grant in accordance with Nasdaq Listing Rule 5635(c)(4). The
PSUs will vest one-third upon the one year anniversary of the grant date, one-third when the per-share closing price of our common
stock reaches or exceeds an average trading price of $2.00 for 20 consecutive trading days and Mr. Peterman has been continuously
employed for at least one year from the grant date, and the remaining shares when the per-share closing price of our common stock
reaches or exceeds an average trading price of $4.00 for 20 consecutive trading days and Mr. Peterman has been continuously employed
for at least two years after the grant date. The PSUs are subject to the other terms and conditions of the applicable award agreement,
a copy of which is included as Exhibit 10.8 to this Current Report on Form 8-K and is incorporated by reference herein.
On the Effective Date, each of Thomas Beers
and Mark Holdsworth resigned from their positions as members of the Board.
On the Effective Date, in accordance
with the purchase agreement, our board of directors elected Michael Friedman and Eyal Lalo to the board for a term expiring
at our 2019 annual meeting of shareholders, and appointed Mr. Lalo as the vice chair of the board. Mr. Lalo, age 44,
reestablished IWCA, the flagship brand of the Invicta Watch Group, in 1994, and has served as its chief executive officer
since its inception. Under Mr. Lalo’s leadership, IWCA has been recognized for its vast amount of design and product
innovations targeted to all demographics and age groups, and a strong following from collectors worldwide. Mr. Friedman, age
48, has served as chief executive officer of Vendor since 2005 and served as a vendor to our company for over 20 years. Under the purchase agreement, we agree to recommend that our
shareholders vote to re-elect each of Eyal Lalo and Michael Friedman as a director of our company at the 2019 annual meeting
of shareholders for a term of office expiring at the 2020 annual meeting of shareholders, and to reflect such recommendation
in the proxy statement for the 2019 annual meeting and solicit proxies in favor thereof. For their service as non-employee
members of the board of directors, Messrs. Friedman and Lalo will receive compensation under our non-employee director
compensation policy. Each director receives $65,000 in a cash retainer annually for service on our board and the vice chair
receives an additional $40,000 in a cash retainer annually. In addition, our non-employee directors receive a restricted
stock unit award equal to $65,000 divided by the closing price on the date of grant that vest immediately immediate prior to
the next annual meeting of shareholders. These amounts will be prorated for the partial year, resulting in an award of 20,436
restricted stock units.
Mr. Lalo is the owner of IWCA, which is
the sole owner of Invicta Media Investments, LLC. Mr. Friedman is an owner of Vendor. Pursuant to the purchase agreement, on the
Effective Date, Invicta Media Investments, LLC purchased 4,000,000 shares of our common stock and a warrant to purchase 2,526,562
shares of our common stock for an aggregate purchase price of $3,000,000. Pursuant to the purchase agreement, on the Effective
Date, Michael and Leah Friedman purchased 1,800,000 shares of our common stock and a warrant to purchase 842,188 shares of our
common stock for an aggregate purchase price of $1,350,000.
In our fiscal year ended February 2, 2019
and our current fiscal year through April 30, 2019, we purchased products, net of customary promotional funding and markdowns,
from Vendor, an affiliate of Mr. Friedman, in the aggregate amount of $54.8 million and $13.3 million, respectively. We purchased
goods from Vendor on standard commercial terms and Vendor provides us with a customary, non-interest bearing, trade payable credit
line. In our current fiscal year, we paid Vendor $730,000 to subsidize the cost of a promotional cruise for Invicta branded and
other vendors’ products. As of the end of our fiscal year ended February 2, 2019 and as of April 30, 2019, we had a net trade
payable balance owed to Vendor of $3.2 million and $1.1 million, respectively.