FRANKLIN WIRELESS CORP
For the period ended Jun 30, 2024. Filed Sep 30, 2024.
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FY2024 · Filed Sep 30, 2024
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Item 11. Executive Compensation
The following table sets forth all compensation paid or accrued by us for the years ended June 30, 2024 and 2023 to our President, Chief Operating Officer, and Acting Chief Financial Officer (The “Named Executive Officers”).
The Board of Directors has adopted a Policy on Recoupment of Executive Incentive Compensation, effective as of October 13, 2023, pursuant to the requirements of Nasdaq Listing Rule 5608 and Securities Exchange Act Rule 10D-1. The Policy sets forth the circumstances under which the Company will recover certain incentive compensation paid to the Executive Officers of the Company in connection with certain financial restatements. Each Executive Officer shall be required to sign and return a form pursuant to which such Executive Officer will agree to be bound by the terms of this Policy (see “Exhibit 97”).
Summary Compensation Table
| Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Option Awards ($) | Total ($) |
|---|---|---|---|---|---|
| OC Kim, | 2023 | $300,000 | $375,000 | $– | $675,000 |
| President | 2024 | $300,000 | $500,000 | $– | $800,000 (1) |
| Yun J. (David) Lee (2), | 2023 | $300,000 | $– | $– | $300,000 |
| Senior Vice President of Sales | 2024 | $300,000 | $120,000 | $– | $420,000 |
| David Brown (3), | 2023 | $25,649 | $– | $– | $25,649 |
| Acting Chief Financial Officer | 2024 | $– | $– | $– | $– |
| Bill Bauer, | 2023 | $106,298 | $1,500 | $– | $107,798 |
| Acting Chief Financial Officer | 2024 | $145,000 | $75,000 | $– | $220,000 |
| (1) | On September 23, 2024, the Board acknowledged that Mr. Kim had earned an incentive bonus of $1,250,000 for negotiating and securing a joint venture agreement with MeiG Smart Technology Co., Ltd. However, the Company and Mr. Kim entered into a Forbearance Agreement, dated September 23, 2024, under which Mr. Kim agreed to defer payment of the bonus, in exchange for the Company’s agreement to allow Mr. Kim to defer payment of the $1,000,000 settlement amount owed by Mr. Kim to the Company under a Settlement Agreement, dated June 12, 2024. The forbearance is to allow Mr. Kim time to pursue remedies with the State of Nevada (See “Business—Shareholder Litigation—Short Swing Profits Litigation”). |
| (2) | On July 14, 2023, the Board of Directors appointed David Lee as Senior Vice President of Sales. Mr. Lee had previously served as Chief Operating Officer. The change in title does not affect Mr. Lee’s compensation. |
| (3) | David Brown resigned his position on September 30, 2022. |
Outstanding Equity Awards at Fiscal Year-End
The following table presents the outstanding equity awards held by each of the Named Executive Officer as of June 30, 2024. The options vest over periods of three years and are subject to early termination on the occurrence of certain events related to termination of employment. In addition, the full vesting of options is accelerated if there is a change in control of the Company.
Outstanding Equity Awards at Fiscal Year-End
Options Awards
| Name | Number of Securities Underlying Unexercised Options (#) | Number of Securities Underlying Unexercised Options (#) nonexercisable | Option Exercise Price ($) | Option Expiration Date |
|---|---|---|---|---|
| OC Kim | 200,000 (1) | 33,029 | $3.38 | 12/27/2026 |
| Yun J. (David) Lee | 100,000 (1) | – | $5.40 | 07/13/2025 |
| 15,000 (1) | 2,477 | $3.38 | 12/27/2026 | |
| Bill Bauer | 20,000 (1) | – | $5.40 | 07/13/2025 |
| 15,000 (1) | 2,477 | $3.38 | 12/27/2026 |
| (1) | The option vests and is exercisable over three years as follows and has a five-year term: |
| i. | 33.3% of the shares underlying the option vest on the first anniversary of the date of the grant. |
| ii. | 33.3% of the shares underlying the option vest on the second anniversary of the date of the grant. |
| ii. | 33.3% of the shares underlying the option vest on the third anniversary of the date of the grant. |
Director Compensation
Our directors are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors. Employee directors do not receive any cash compensation for service as directors and do not receive any equity compensation designated for such services. Members of the Board of Directors who are not employees may receive stock option grants as consideration for their board service from time to time, although there is no established policy for such stock option grants.
Fiscal 2024 Director Compensation
| Name | Fee Earned or Paid in Cash ($)(1) | Option Awards ($)(2) | All Other Compensation ($) | Total ($) |
|---|---|---|---|---|
| Gary Nelson | 20,000 | – | – | 20,000 |
| Johnathan Chee | 20,000 | – | – | 20,000 |
| Heidy Chow | 20,000 | – | – | 20,000 |
| Kristina Kim | 20,000 | – | – | 20,000 |
| (1) | Directors are compensated at a base rate of $20,000 annually for the year ended June 30, 2024. Bonuses may be awarded when the business has performed exceptionally well as determined by the Board of Directors. For the year ended June 30, 2024, there has been no approved bonus for the Directors. |
| There was no outstanding equity awards held by any of the non-officer directors as of June 30, 2024. |
EMPLOYMENT CONTRACTS
On October 1, 2020, we entered into Change of Control Agreements with OC Kim, our President, and Yun J. (David) Lee, our Senior Vice President of Sales and previously served as Chief Operating Officer. Each Change of Control Agreement provides for a lump sum payment to the officer in case of a change of control of the Company. The term includes the acquisition of Common Stock of the Company resulting in one person or company owning more than 50% of the outstanding shares, a significant change in the composition of the Board of Directors of the Company during any 12-month period, a reorganization, merger, consolidation or similar transaction resulting in the transfer of ownership of more than fifty percent (50%) of the Company’s outstanding Common Stock, or a liquidation or dissolution of the Company or sale of substantially all of the Company’s assets.
The Change of Control Agreement with Mr. Kim calls for a payment of $5 million upon a change of control, and the agreement with Mr. Lee calls for a payment of $2 million upon a change of control. These agreements were for an initial term of three years but have now been extended through October 2027.
On November 10, 2022, the Company and OC Kim, its President, entered into an amendment of the employment letter agreement dated September 7, 2021. The amendment provides for a severance payment of $3 million if Mr. Kim voluntarily terminates his employment by the Company or if he voluntarily terminates his employment due to a “change in circumstances,” generally defined as a material breach by the Company of its salary and benefit obligations or a significant reduction in Mr. Kim’s title or responsibilities. In the case of a termination of employment by the Company for cause (generally defined as conviction of a felony, or a misdemeanor where imprisonment is imposed, commission of any act of theft, fraud, dishonesty, or material falsification of any employment or Company records, or improper disclosure of the Company’s confidential or proprietary information), the Company is to make a severance payment of $1,500,000. In either case, any unvested options become immediately vested.
In the amendment, Mr. Kim also agrees that, for a period of two years after termination, he will not disparage the Company or its officers, solicit any of its employees to terminate their employment, or disclose any of the Company’s proprietary information. In addition, the amendment provides for the payment of an incentive bonus to Mr. Kim of $125,000 for each calendar quarter during the remaining four-year term of the employment letter, with the first such bonus due on December 31, 2022. For the year ended June 30, 2024 and 2023, $500,000 and $375,000 bonus had been accrued, respectively, with $875,000 and $375,000 accrual bonus balances as of June 30, 2024 and 2023, respectively.
The employment agreement with OC Kim was renewed and extended by the Board in September 2024 and will continue through October 2027.
COMPENSATION DISCUSSION AND ANALYSIS
GENERAL PHILOSOPHY- We compensate our executive officers through a mix of base salary, incentive compensation and stock options. Our compensation policies are designed to be competitive with comparable employers and to align management’s incentives with both near-term and long-term interests of our stockholders. We use informal methods of benchmarking our executive compensation, based on the experience of our directors or, in some cases, studies of industry standards. Our compensation is negotiated on a case by case basis, with attention being given to the amount of compensation necessary to make a competitive offer and the relative compensation among our executive officers.
BASE SALARIES – We want to provide our senior management with a level of cash compensation in the form of base salary that facilitates an appropriate lifestyle given their professional status and accomplishments.
INCENTIVE COMPENSATION – Our practice is to award cash bonuses based upon performance objectives set by the Board of Directors. We maintain a bonus plan which provides our executive officers with the opportunity to earn cash bonuses based on the achievement of performance targets. The performance targets are set by the Board of Directors, and our executive officers are eligible to receive bonuses on a quarterly basis. The actual amount of incentive compensation paid to our executive officers is in the sole discretion of the Board of Directors.
SEVERANCE BENEFITS – We are generally an “at-will” employer and have no employment agreements with severance benefits; however, we have entered into Change of Control Agreements with OC Kim & David Lee, and a severance agreement with OC Kim that provides him with a lump sum payment in the event he leaves the Company.
RETIREMENT PLANS – In January 2022, we implemented the CalSavers retirement program, an automatic enrollment individual retirement account (IRA). The program is a voluntary participation program, and all employees have the option to participate in this program if they choose to do so.
MANDATORY RECOUPMENT POLICY – The Company maintains a Mandatory Recoupment Policy to enable the Company to recover erroneously awarded compensation in the event that the Company is required to prepare an accounting restatement.
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