UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy Statement
Pursuant to Section 14(a) of
the Securities
Exchange Act of 1934 (Amendment
No. )
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Preliminary Proxy
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Definitive Proxy
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Definitive
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Soliciting Material
under §240.14a-12
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Insignia
Systems, Inc.
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(Name of Registrant
as Specified in Its Charter)
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Filing Proxy Statement, if other than the Registrant)
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of securities to which transaction applies:
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8799 Brooklyn
Blvd., Minneapolis, MN 55445
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 20, 2018
To the Shareholders
of Insignia Systems, Inc.:
Notice is hereby
given that the Annual Meeting of Shareholders of Insignia Systems,
Inc. (the “Company”), a Minnesota corporation, will be
held on Friday, July 20, 2018, at 9:00 a.m., Central Time, at
the Minneapolis Marriott West, located at 9960 Wayzata Boulevard,
Minneapolis, Minnesota for the following purposes:
1.
To elect six
nominees named in our proxy statement to serve as
directors;
2.
To approve, by
non-binding vote, the Company’s executive
compensation;
3.
To ratify the
appointment of Baker Tilly Virchow Krause, LLP as the independent
registered public accounting firm for the year ending
December 31, 2018;
4.
To approve the
Insignia Systems, Inc. 2018 Equity Incentive
Plan;
5.
To approve the
Insignia Systems, Inc. Employee Stock Purchase Plan as amended and
restated May 21, 2018;
6.
To approve voting
rights under the Minnesota Control Share Acquisition Act;
and
7.
To transact such
other business as may properly come before the meeting or any
adjournment or postponement thereof.
The foregoing items
of business are more fully described in the proxy statement
accompanying this Notice.
The Board of
Directors has set the close of business on May 21,
2018 as the record date
for the determination of shareholders entitled to notice of and to
vote at the meeting.
All
shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are
urged to vote by Internet, by telephone, or if the proxy materials
were mailed to you, by completing, signing and mailing the enclosed
proxy card.
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By Order of the Board of
Directors
 Kristine Glancy
President and Chief Executive
Officer
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Important
Notice Regarding Availability of Proxy Materials for
the
Shareholder
Meeting to Be Held on July 20, 2018:
The
Proxy Statement and the Annual Report are available free of charge
at: https://materials.proxyvote.com/45765Y
PROXY
STATEMENT
FOR
2018 ANNUAL MEETING OF
SHAREHOLDERS
TABLE
OF CONTENTS
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i
Annual
Meeting of Shareholders
July 20,
2018
_______________________________________
PROXY
STATEMENT
___________________________________________________
GENERAL
INFORMATION
This proxy
statement is furnished to the shareholders of Insignia Systems,
Inc. (the “Company”) in connection with the
solicitation of proxies by the Board of Directors (the
“Board”) to be voted at the Annual Meeting of
Shareholders (the “Annual Meeting”) to be held on
July 20, 2018, and at any adjournment of the
meeting.
Important
Notice Regarding the Internet Availability of Proxy
Materials
for
the Annual Meeting to be Held on July 20, 2018
In accordance with
rules and regulations adopted by the U.S. Securities and Exchange
Commission (the “SEC”), we are furnishing our proxy
materials on the Internet. “Proxy materials” means this
Proxy Statement, our Annual Report for the fiscal year ended
December 31, 2017 and any amendments or updates to these
documents. A Notice Regarding the Availability of Proxy Materials
(“Notice of Internet Availability”) will be mailed to
shareholders on or about June 1, 2018. The Notice of Internet
Availability contains instructions on how to access our Proxy
Statement and Annual Report and how to vote via the Internet, by
telephone or by mail.
What is the purpose of the Annual Meeting and what are the
board’s recommendations?
At our annual
meeting, shareholders will vote on the following items of
business:
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Item
of Business
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Board
Recommendation
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1.
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Election of six
directors
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FOR each nominee
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2.
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Advisory,
non-binding vote, to approve the Company’s executive
compensation
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FOR
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3.
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Ratification of
Independent Registered Public Accounting Firm
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FOR
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4.
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Approval the
Insignia Systems, Inc. 2018 Equity Incentive Plan
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FOR
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5.
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Approval of the
Insignia Systems, Inc. Employee Stock Purchase Plan as amended and
restated May 21, 2018
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FOR
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6.
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Approval of voting
rights to certain shares under the Minnesota Control Share
Acquisition Act
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NEUTRAL
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If any other matters properly come
before the Annual Meeting or any adjournment or postponement
thereof, then the shares represented by the proxies solicited by
the Board may be voted by the persons named therein at their
discretion.
Who is entitled to vote at the meeting?
As of the record
date, May 21, 2018, there were 11,962,996 shares of common
stock, par value $.01 per share, outstanding and entitled to vote
at the Annual Meeting. Pursuant to the Company’s Articles of
Incorporation, each outstanding share of common stock is entitled
to one vote. However, as described more fully in Proposal 6, to the
Company’s knowledge, 3,850,282 of the shares outstanding as
of the record date were owned by Air T, Inc. (“Air T”),
Groveland Capital LLC, and Nicholas J. Swenson (collectively, the
“Shareholder Group”), 1,457,683 of which are subject to
the voting restrictions set forth in Subdivision 4a of the
Minnesota Control Share Acquisition Act, Section 302A.671 of the
Minnesota Statutes (the “CSAA”). Such shares
are
referred
to in Proposal 6 as the “Shares Subject to the CSAA.”
Only shareholders of record at the close of business on the record
date, are entitled to vote at the Annual Meeting and at any
adjournment or postponement thereof. See “How many shares
must be present to establish a quorum and hold the meeting?”
below for a discussion of quorum.
What is the difference between a “shareholder of
record” and a shareholder who holds the stock in
“street name”?
Shareholder of Record. If your shares
are registered directly in your name with our transfer agent, EQ
Shareowner Services, you are considered, with respect to those
shares, a “shareholder of record” (also known as a
“registered shareholder”). The proxy materials will be
sent directly to you by us or our representative.
Beneficial Owner. If your shares are
held in a brokerage account or by another nominee, your shares are
said to be held in “street name” and you are considered
the beneficial owner of the shares. Technically, the bank or broker
is the shareholder of record with respect to those shares. In this
case, the proxy materials will be forwarded to you by your broker,
bank or other financial institution or its designated
representative. Through this process, your bank or broker will
collect the voting instructions from all their respective customers
who hold our shares, including you, and then submits those votes to
us.
How do I vote my shares?
If you are
a shareholder who
holds the stock in street name, you must vote your shares
using the method provided by your broker, bank, trust or other
designee, which is similar to the voting procedure for shareholders
of record outlined below. You will receive a voting instruction
form (not a proxy card) to use to direct your broker, bank, trust
or other designee how to vote your shares.
If you are a
shareholder of
record, you can submit a proxy to be voted at the meeting in
the following ways:
Vote by Internet: To vote
over the internet, go to www.proxyvote.com. You must
enter your Control Number that appears on your Notice of Internet
Availability or proxy card that was mailed to you and follow the
instructions. The steps have been designed to authenticate your
identity, allow you to give voting instructions, and confirm that
those instructions have been recorded properly.
Vote by Telephone: To vote
over the telephone, call the toll-free number on the Notice of
Internet Availability that was mailed to you. You must enter your
Control Number that appears on your Notice of Internet Availability
or proxy card and then follow the instructions. The steps have been
designed to authenticate your identity, allow you to give voting
instructions, and confirm that those instructions have been
recorded properly.
Vote by Mail: You can vote by
mail by requesting a paper copy of the materials, which will
include a proxy card. Mark, sign, date and return the proxy card in
the postage-paid envelope provided.
Vote in Person: If you choose
to vote your shares in person at the meeting, you must request a
“legal proxy.” To do so, please follow the instructions
at www.proxyvote.com
or request a paper copy of the materials, which will contain the
appropriate instructions. You may also request a paper or email
copy of the documents by calling 1-800-579-1639 or email your
request to: sendmaterial@proxyvote.com.
Any proxy may be
revoked at any time before it is voted by written notice, mailed or
delivered to the Company, or by revocation in person at the Annual
Meeting. If not so revoked, the shares represented by such proxy
will be voted in the manner directed by the shareholder. If no
direction is made, signed proxies received from shareholders will
be voted in accordance with the Board’s
recommendations.
Notwithstanding the
foregoing, to enable compliance with the requirements of the CSAA,
the Company is requiring that all holders of Interested Shares vote
in person by ballot at the meeting. “Interested Shares”
are those shares beneficially owned by (i) the Shareholder Group,
(ii) any officer of the Company, and (iii) any employee of the
Company who is also a director of the Company. The ballot that will
be used for voting at the meeting by holders of Interested Shares
will include a representation stating that such holder has not
submitted a proxy, either directly or through a broker, for such
shares or otherwise voted or attempted to vote such shares at the
Annual Meeting.
How many shares must be present to hold the meeting?
Under Minnesota law
and our Bylaws, a majority of the voting power of the shares
entitled to vote at the Annual Meeting represent a quorum for the
transaction of business. Votes cast by proxy or in person at the
Annual Meeting will be tabulated at the Annual Meeting to determine
whether or not a quorum is present. To calculate whether a quorum
is present, the total number of shares present and entitled to vote
at the meeting will be divided by the total number of shares
outstanding and authorized to vote under the Company’s
Articles of Incorporation. The Company will include the Shares
Subject to the CSAA in the denominator, but not in the numerator.
Additionally, abstentions (other than abstentions by the holder of
Shares Subject to the CSAA, which are not considered present for
quorum purposes) and Broker Non-votes (as defined below) will be
treated as not having voted for purposes of determining the
approval of the applicable matter but will be deemed present and
counted in the numerator when determining whether a quorum is
present at the meeting.
Unless a larger
proportion or number is required under the Company’s Articles
of Incorporation or Minnesota law, each item of business properly
presented at a meeting of shareholders at which a quorum is present
must be approved by the affirmative vote of the holders of the
greater of (i) a majority of the voting power of the shares
present, in person or by proxy, and entitled to vote on that item
of business, or (ii) a majority of the voting power of the minimum
number of the shares entitled to vote that would constitute a
quorum for the transaction of business at the meeting (each a
“Majority Vote”).
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Item
of Business
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Vote
Requirement
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1.
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Election of six
directors
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Plurality
Vote
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2.
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Advisory,
non-binding vote, to approve the Company’s executive
compensation
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More
FOR than AGAINST
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3.
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Ratification of
Independent Registered Public Accounting Firm
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Majority
Vote
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4.
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Approval the
Insignia Systems, Inc. 2018 Equity Incentive Plan
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Majority
Vote
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5.
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Approval of the
Insignia Systems, Inc. Employee Stock Purchase Plan as amended and
restated May 21, 2018
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Majority
Vote
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6.
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Approval of voting
rights to certain shares under the Minnesota Control Share
Acquisition Act
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See
Below
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For Proposal 1,
directors are elected by the affirmative vote of the holders of a
plurality of the shares present and entitled to vote. Shareholders
are not entitled to cumulate their votes for the election of
directors. The Shares Subject to the CSAA are not entitled to vote
on this proposal.
Proposal 2 is an
advisory, non-binding vote, and will be deemed approved if the
number of votes cast “for” exceeds the number of votes
cast “against.” Abstentions and broker non-votes will
have no effect on this proposal. The Shares Subject to the CSAA are
not entitled to vote on this proposal.
Proposals 3 through
5, must be approved by a Majority Vote. The Shares Subject to the
CSAA are not entitled to vote on these proposals.
For Proposal 6, to
accord voting power to the Shares Subject to the CSAA, both of the
following votes are required:
1.
The affirmative
vote of the holders of a majority of the voting power of all shares
entitled to vote, including, for purposes of this vote, the Shares
Subject to the CSAA and all other Company shares beneficially owned
by the Shareholder Group (the “First Approval”);
and
2.
The affirmative
vote of the holders of a majority of the voting power entitled to
vote, excluding the voting power of Interested Shares (the
“Second Approval”). “Interested Shares” are
those shares beneficially owned by (i) the Shareholder Group, (ii)
any officer of the Company, and (iii) any employee of the Company
who is also a director of the Company.
Broker Non-votes
and abstentions will have the same effect as a vote against
Proposals 3, 4, 5 and 6 (for both the First Approval and the Second
Approval).
What is the effect of not instructing my bank or broker how to vote
my shares?
If you are a
shareholder of record, and you do not cast your vote, no votes will
be cast on your behalf on any proposals at the Annual
Meeting.
If you hold your
shares in street name, your bank or broker cannot vote your shares
with respect to the election of directors (Proposal 1), the
advisory vote to approve executive compensation (Proposal 2);
approval of the 2018 Equity Incentive Plan (Proposal 4), approval
of the Amended and Restated Employee Stock Purchase Plan (Proposal
5), or the approval of voting rights to certain shares under the
CSAA (Proposal 6) unless you provide voting instructions to them.
Therefore, if you hold your shares in street name and you do not
instruct your bank or broker how to vote, no votes will be cast on
your behalf on those proposals (a “Broker Non-vote”).
Your bank or broker may exercise discretion and vote uninstructed
shares on the ratification of our independent registered public
accounting firm (Proposal 3). We strongly encourage you to return
your voting instruction form and exercise your full voting rights.
See “How do I vote my shares?” above for a discussion
of how Interested Shares should be voted.
Who pays for the cost of proxy preparation and
solicitation?
All expenses in
connection with solicitation of proxies will be borne by the
Company. The Company will pay brokers, nominees, fiduciaries, or
other custodians their reasonable expenses for sending proxy
material to, and obtaining instructions from, persons for whom they
hold stock of the Company. The Company expects to solicit proxies
by mail, but directors, officers, and other employees of the
Company may also solicit in person, by telephone or by
mail.
How will votes be counted?
An Inspector of
Election will, among other things, determine whether a quorum is
present, tabulate votes at the Annual Meeting and resolve any
disputes. If the Inspector of Election cannot definitively
determine whether a quorum is present, the business of the Annual
Meeting will go forward, even though the final determination as to
whether the quorum is present may not be completed for a number of
days. If the quorum requirement is not met, the business conducted
at the meeting will have no effect.
CORPORATE
GOVERNANCE
AND BOARD MATTERS
The business and
affairs of the Company are conducted under the direction of the
Board in accordance with the Company’s Articles of
Incorporation and Bylaws, the Minnesota Business Corporations Act,
federal securities laws and regulations, applicable rules of the
Nasdaq Stock Market (“Nasdaq Rules”), Board committee
charters and the Company’s Code of Ethics. Members of the
Board are informed of the Company’s business through
discussions with management, by reviewing Board meeting materials
provided to them and by participating in meetings of the Board and
its committees, among other activities. Our corporate governance
practices are summarized below.
Election
to the Board of Directors
All of the
Company’s directors are elected annually. Our Bylaws, as
amended, provide that the Board shall consist of between two and no
more than nine members, as designated by resolution of the Board
from time to time. Pursuant to the recommendation of the Nominating
and Corporate Governance Committee, the Board has set the size of
the Board to be elected at the 2018 Annual Meeting at
six.
Majority
Independent Board
The Nasdaq Rules
require that a majority of our board of directors be
“independent directors” as that term is defined in the
rules. The Board has determined that each of our non-employee
directors, namely Mr. Berning, Ms. Clarridge, Mr. Unterseher, Ms.
Vegas, and Mr. Zenz, are “independent
directors.”
Meetings
of the Board of Directors and Director Attendance
The Board held
sixteen meetings during 2017. Each director attended more than 75%
of all meetings of the Board and committees of the Board on which
he served. Although the Board does not have a policy regarding
attendance at the Company’s annual meetings of shareholders,
then serving directors, Mr. Howe, Mr. Zaballos and Mr. Zenz
attended the 2017 Annual Meeting of Shareholders, as well as
nominees, Mr. Berning, Ms. Glancy and Ms. Vegas. Directors are
expected to attend substantially all the meetings of the Board and
the committees on which they serve, as well as the annual meeting
of shareholders, except for good cause. Directors who have
excessive absences without good cause will not be nominated for
re-election or, in extreme cases, will be asked to resign or be
removed.
Committees of the Board of Directors
The current
membership of the Board’s standing committees is set forth in
the following table.
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Director
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Audit
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Governance,
Compensation and Nominating
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Independent
Director
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Jacob J.
Berning
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Member
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Member
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Yes
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Suzanne L.
Clarridge
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Member
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Yes
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Kristine A.
Glancy
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Loren A.
Unterseher
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Member
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Yes
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Rachael B.
Vegas
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Chair
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Yes
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Steven R.
Zenz
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Chair
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Yes
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Audit Committee
Independence. Each of the members of
the Audit Committee are an “independent director” as
that term is defined by the Nasdaq Rules and
“independent” as that term is defined by Rule
10A-3(b)(1) under the Securities Exchange Act of 1934.
Duties and Responsibilities. The Audit
Committee provides independent objective oversight of the
Company’s financial reporting system. As part of its
responsibilities, the committee reviews and evaluates significant
matters relating to the annual audit and the internal controls of
the Company and communicates its analysis with management, reviews
the scope and results of annual independent audits by, and the
recommendations of, the Company’s independent auditors,
reviews the independent auditor’s qualifications and
independence and approves additional services to be provided by the
auditors. The committee is solely responsible for appointing,
setting the compensation of and evaluating the independent
auditors. In addition, the
committee: (i) meets separately with management and the independent
auditors on a periodic basis; (ii) receives the independent
auditors’ report on all critical accounting policies and
practices and other written communications; (iii)
reviews
management’s
statements concerning its assessment of the effectiveness of
internal controls and the independent auditors’ report on
such statements, as applicable; and (iv) reviews and discusses with
management and the independent auditors the Company’s interim
and annual financial statements and disclosures (including
Management’s Discussion and Analysis) in its Quarterly
Reports on Form 10-Q and Annual Report on Form 10-K and the results
of the quarterly financial reviews and the annual audit. The
committee has direct access to the Company’s independent
auditors. The committee also reviews and approves all related-party
transactions.
The foregoing is a
general summary of the Audit Committee’s duties and
activities. The Audit Committee operates pursuant to a written
charter, which is available on the Investor Relations section of the
Company’s website at www.insigniasystems.com. This charter
further describes the role of the committee in overseeing the
Company’s financial reporting process. References to the
Company’s website are for informational purposes and are not
intended to, and do not, incorporate information found on the
website into this proxy statement.
Committee Meetings. The Audit Committee
held four meetings during 2017. In addition to fulfillment of the
Audit Committee’s regular duties and responsibilities, these
meetings were designed to facilitate and encourage private
communication between the committee and the Company’s
independent auditors. Please refer to the Report of the Audit
Committee appearing later in this proxy statement.
Audit Committee Financial Expert. Mr.
Zenz has been designated by the Board as an “audit committee
financial expert,” as that term is defined by the rules of
the SEC. Through his extensive experience as a former partner of
the audit and advisory firm KPMG LLP, he possesses: (i) an
understanding of generally accepted accounting principles and
financial statements; (ii) the ability to assess the general
application of such principles in connection with the accounting
for estimates, accruals and reserves; (iii) experience preparing,
auditing, analyzing or evaluating financial statements with a
breadth and level of complexity commensurate with those presented
by the Company’s financial statements; (iv) an understanding
of internal control over financial reporting; and (v) an
understanding of audit committee functions.
Governance Changes. Effective
May 17, 2018, the Board approved the formation of a new
Governance, Compensation and Nominating Committee
(“GCN
Committee”) to
have all of the powers and responsibilities of its former
Compensation and Nominating and Corporate Governance
Committees.
Independence. Each of the members of the GCN Committee
are “independent directors” as that term is defined by
the Nasdaq Rules, including the independence criteria specific to
compensation committee members, and “non-employee
directors” as that term is defined in Rule 16b-3 under the
Securities Exchange Act of 1934.
Duties and Responsibilities. The CGN
Committee operates pursuant to a written charter, which is
available on the Investor
Relations section of the Company’s website at
www.insigniasystems.com.
The committee’s main duties, as described in its charter,
are: (i) to nominate a slate of directors to be considered for
election at the Company’s annual meeting of shareholders,
(ii) to review, approve and recommend for Board ratification
annual base salary and incentive compensation levels, employment
agreements, and benefits of the President and Chief Executive
Officer and other key executives; (iii) to review the performance
of the President and Chief Executive Officer; (iv) to review and
assess performance target goals established for bonus plans and
determine if goals were achieved at the end of the plan year; (v)
to act as the administrative committee for the Company’s
stock plans, and any other incentive plans established by the
Company; (vi) to consider and approve grants of incentive stock
options, non-qualified stock options, restricted stock or any
combination to any employee; and (vii) to oversee the filing of
required compensation-related reports or disclosures in the
Company’s SEC reports, proxy statement and other
filings.
In pursuing its
duties, the GCN Committee has the authority to retain and has, from
time to time as the former Compensation Committee, retained an
outside compensation consultant to advise it on compensation
matters. The committee also consults with the President and Chief
Executive Officer, and from time to time, other senior management
on compensation issues regarding other executive
officers.
In accordance with
its committee charter, the GCN Committee typically evaluates
candidates for election as directors using the following criteria:
education, reputation, experience, industry knowledge,
independence, leadership qualities, personal integrity, diversity,
and such other criteria as the committee deems relevant. The
committee will consider candidates recommended by the
Board, management, shareholders, and others. The committee is also
authorized to retain and pay advisors to assist it in identifying
and evaluating candidates.
Policies Concerning Nomination Process.
Shareholders who wish to recommend candidates to the Board or its
GCN Committee should submit the names and qualifications of the
candidates at least 120 days before the date of the Company’s
proxy statement for the previous year’s annual meeting.
Submittals should be in writing and addressed to the committee at
the Company’s headquarters. Candidates recommended by
shareholders will be evaluated using the same criteria applicable
to other candidates.
Committee Meetings. The GCN Committee
did not exist during 2017. The former Compensation Committee held
eight meetings and the former Nominating and Corporate Governance
Committee did not meet during 2017.
Leadership
Structure of the Board of Directors
The Board does not
have a policy regarding the separation of the roles of Chief
Executive Officer and Chairman of the Board. The Board believes it
is in the best interests of the Company to make such a
determination periodically, based on available information. The
positions of Chief Executive Officer and Chairman of the Board are
not currently held by the same person. Ms. Glancy serves as our
President and Chief Executive Officer and Mr. Berning serves as
Chairman of the Board. Under this structure, our President and
Chief Executive Officer and other senior management under her
supervision are primarily responsible for setting the strategic
direction of the Company and managing the day-to-day leadership and
performance of the Company, while the Chairman provides guidance to
the President and Chief Executive Officer and senior management,
sets the agenda for meetings of the Board and presides over
meetings of the full Board. The Board believes the current
leadership structure strengthens the role of the Board in
fulfilling its oversight responsibility and fiduciary duties to the
Company’s shareholders while recognizing the day-to-day
management direction of the Company by Ms. Glancy and other senior
management.
Board
Role in Risk Oversight
The Company faces a
number of risks, including financial, technological, operational,
strategic and competitive risks. Management is responsible for the
day-to-day management of risks we face, while the Board has
responsibility for the oversight of risk management. In its risk
oversight role, the Board ensures that the processes for
identification, management and mitigation of risk by our management
are adequate and functioning as designed.
The Board is
actively involved in overseeing risk management, and it exercises
its oversight both through the full Board and through the two
standing committees of the Board – the Audit and GCN
Committees. The two standing committees exercise oversight of the
risks within their areas of responsibility, as disclosed in the
descriptions of each of the committees above and in the charters of
each of the committees.
The Board and the
two standing committees receive information used in fulfilling
their oversight responsibilities through the Company’s
executive officers and its advisors, including our legal counsel,
our independent registered public accounting firm, and the
compensation consultants we have engaged from time to time. At
meetings of the Board, management makes presentations to the Board
regarding our business strategy, operations, financial performance,
fiscal year budgets, technology and other matters. Many of these
presentations include information relating to the challenges and
risks to our business and the Board and management actively engage
in discussion on these topics. Each of the committees also receives
reports from management regarding matters relevant to the work of
that committee. These management reports are supplemented by
information relating to risk from our advisors. Additionally, the
Board receives reports by each committee chair regarding the
committee’s considerations and actions. In this way, the
Board also receives additional information regarding the risk
oversight functions performed by each of these
committees.
Shareholder
Communications with the Board
Shareholders may
send written communications to the Board or to any individual
director at any time. Communications should be addressed to the
Board or the individual director at the address of the
Company’s headquarters. The Board will respond to shareholder
communications when it deems a response to be
appropriate.
Code
of Ethics
We have in place a
“code of ethics” within the meaning of Rule 406 of
Regulation S-K, which is applicable to our senior financial
management, including specifically our principal executive officer
and principal financial officer. A copy of the Code of Ethics is
available on our website (www.insigniasystems.com) under the
“Investor Relations - Corporate Governance” caption. We
intend to satisfy our disclosure obligations regarding any
amendment to, or a waiver from, a provision of this code of ethics
by posting such information on the same website.
Compensation
of Non-Employee Directors
The following table
summarizes the compensation paid to our non-employee directors for
2017.
|
Name
|
Fees
Earned or Paid in Cash(1)
|
Stock
Awards(2)
|
Total
|
|
Jacob J.
Berning
|
$15,500
|
$15,000
|
$30,500
|
|
Sardar
Biglari(3)
|
$1,500
|
$–
|
$1,500
|
|
Philip A.
Cooley(3)
|
$500
|
$–
|
$500
|
|
Michael C.
Howe(4)
|
$3,000
|
$–
|
$3,000
|
|
Rachael B.
Vegas
|
$16,000
|
$15,000
|
$31,000
|
|
F. Peter
Zaballos(5)
|
$25,750
|
$30,000
|
$55,750
|
|
Steven R.
Zenz
|
$21,500
|
$15,000
|
$36,500
|
_______________________________
(1)
Reflects annual
board retainer and fees for attending Board, committee and
conference call meetings earned during 2017.
(2)
On
June 23, 2017, each
non-employee director received a grant of unrestricted shares of
the Company’s common stock pursuant to the 2013 Plan worth
$15,000 for directors and $30,000 for Chairman based on the closing
price of the Company’s common stock on the date of
grant.
(3)
Mr. Biglari and Mr.
Cooley resigned from the Board effective March 1,
2017.
(4)
Mr. Howe
did not
stand for re-election at the 2017 Annual Meeting of
Shareholders.
(5)
Mr. Zaballos
resigned from the Board effective May 17, 2018.
For 2017,
non-employee directors were eligible to receive an annual cash
retainer of $10,000 per year and the Chairman of the Board was
eligible to receive an additional annual cash retainer of $5,000.
Each such retainer is allocated to a director for the portion of
the year served in each role.
All non-employee
directors were eligible to receive $1,000 for each Board meeting
($250 for each conference call meeting) that they attended. In
addition, the chair of each committee was eligible to receive
$1,000 for each in-person meeting of the committee over which they
presided ($500 for each conference call meeting). Members of
committees were eligible to receive $500 for each committee meeting
they attended in person on days separate from regular Board
meetings ($250 for each conference call meeting).
In 2017, each
non-employee director received a grant of shares of common stock
based on a target grant date fair value of $15,000, with the
Chairman receiving a fair value of $30,000. These equity grants
were made on June 23, 2017 pursuant to the 2013 Plan. Each
non-employee director was granted 14,423 vested shares, and the
non-employee Chairman was granted 28,846 vested shares, based on a
closing price of $1.04 for a share of the Company’s common
stock on the date of grant as reported by The Nasdaq Stock
Market.
PROPOSAL ONE –
ELECTION
OF DIRECTORS
Nominations
The Board believes
it is important that the Board be composed of members whose
collective judgment, experience, qualifications, attributes and
skills ensure that the Board will be able to fulfill its
responsibilities to see that the Company is governed in a manner
consistent with the interests of the shareholders of the Company
and in compliance with applicable laws, regulations, rules and
orders, and to satisfy its oversight responsibilities
effectively.
Cooperation
Agreement
As previously
disclosed, on May 17, 2018, the Company entered into a
Cooperation Agreement (the “Cooperation Agreement”)
with the Shareholder Group. On the same date, pursuant to the terms
of the Cooperation Agreement, the Company: (i) increased the
size of the Board to six and (ii) appointed Ms. Clarridge and
Mr. Unterseher to serve as additional directors. The Cooperation
Agreement also requires that the Company include Ms. Clarridge and
Mr. Unterseher in its slate of nominees for election at the
Company’s 2018 and 2019 Annual Meetings of Shareholders and
solicit proxies with a recommendation that shareholders vote in
favor of their election at each such meeting. Also pursuant to the
Cooperation Agreement, F. Peter Zaballos retired from the Board and
all committees effective as of May 17, 2018. Steven Zenz also
announced his retirement from the Board to be effective as of the
Company’s 2019 annual meeting of shareholders. The Company
and the Shareholder Group have agreed to collaboratively identify
and appoint a replacement for Mr. Zenz in 2019, should the Board
decide to do so.
Composition
In determining the
nominees to be recommended for election to serve as directors of
the Company, the Board first determined that the Board should
consist of six members, which is consistent with the requirements
of the Cooperation Agreement. Ms. Clarridge and Mr. Unterseher were
also interviewed by members of the then-chartered Nominating and
Corporate Governance Committee in advance of the Company’s
entry into the Cooperation Agreement. The Board, in conjunction
with its Nominating and Corporate Governance Committee, considered
the Company’s obligations under the Cooperation Agreement,
the qualifications and experience and any other necessary skills,
experience or knowledge. The Board, upon recommendation by the
Nominating and Corporate Governance Committee, then approved a
slate of directors to be nominated for election at the Annual
Meeting.
When identifying
and evaluating candidates for director, the Board and its
applicable committee (if any) historically consider the general and
specific qualifications, experience and characteristics which may
have been approved by the Board or determined by the committee from
time to time including qualifications reflecting the
individual’s integrity, reputation, education, experience,
industry knowledge, leadership qualities and independence.
Specifically, the Board seeks independent directors who have
experience relevant to the Company’s business and strategic
objectives, specifically experience in retailing, the consumer
packaged goods industry, and with technology innovation. The Board
maintains a detailed set of criteria aligned with these objectives,
and has historically evaluated potential candidates against these
criteria. The Board and its applicable committee (if any) also
consider diversity in a broad sense when evaluating a director
nominee, taking into account various factors, including but not
limited to, differences of viewpoint, professional experience,
education, skill, race, gender and national origin, but does not
have a formal policy regarding diversity of Board
members.
When considering
whether directors and nominees have the requisite judgment,
experience, qualifications, attributes and skills, taken as a
whole, to enable the Board to fulfill its responsibilities to
ensure that the Company is governed in a manner consistent with the
interests of the Company’s shareholders, the Board and its
applicable committee (if any) focus primarily on the information
discussed in each of the directors’ individual biographies
set forth below, in addition to the Company's contractual
obligations.
Director
Nominees
The Board has
nominated all six current directors as named below for election at
the Annual Meeting. If elected, each will serve for a term of one
year, or until their successors are elected and qualified, subject
to their prior death, resignation, retirement or removal from
office.
The Board has
determined that each such nominee is qualified to serve as a
director of the Company based on their ability to meet the
aforementioned criteria. The specific qualifications of each
nominee, including biographical data for at least the last five
years and the particular experience, qualifications, attributes or
skills that led to a conclusion that he or she should serve as a
director of the Company, are set forth below. Should one or more of
these nominees become unavailable to accept nomination or election
as a director (which is not anticipated), the individuals named as
proxies on the enclosed proxy card will vote the shares that they
represent for the election of such other persons as the Board may
recommend, or the Board may reduce the number of directors to be
elected. Unless otherwise instructed by the shareholder, the proxy
holders will vote the proxies received by them for each of the
nominees named below.
|
Director
& Nominee
|
|
Age
|
|
Position
|
|
Director
Since
|
|
Jacob J.
Berning
|
|
45
|
|
Director, Chairman
of the Board
|
|
June 2017(1)
|
|
Suzanne L.
Clarridge
|
|
61
|
|
Director
|
|
May 2018
|
|
Kristine A.
Glancy
|
|
40
|
|
Director,
President, Chief Executive Officer & Secretary
|
|
June 2017
|
|
Loren A.
Unterseher
|
|
53
|
|
Director
|
|
May 2018
|
|
Rachael B.
Vegas
|
|
42
|
|
Director
|
|
June 2017
|
|
Steven R.
Zenz
|
|
64
|
|
Director
|
|
October 2013
|
_______________________________
(1)
Mr. Berning also served as a director of the
Company from December 2014 to June
2016.
Jacob J. Berning has served as Chairman
of the Board since May 2018 and has served as Marketing Vice
President at The Schwan Company since September 2014. Mr.
Berning has extensive leadership experience across a diverse set of
businesses and teams in the consumer-packaged goods industry. His
18 years of marketing experience working with a variety of
different brands also includes time as Marketing Director of
WhiteWave Foods Company from July 2011 to September 2014
and Marketing Manager at General Mills, Inc. from
September 2003 to July 2011. These experiences provide
knowledge and understanding of the industry representing the
majority of our customer base. He has a BA degree from the
University of Minnesota and an MBA from New York
University.
Suzanne L. Clarridge is the founder of
My Brands Inc., a company providing direct-to consumer solutions to
consumer-packaged goods (CPG) companies, and has served as
President, Chief Executive Officer and the director of My Brands
since 2001. At My Brands, Ms. Clarridge develops the strategic
vision for the company, oversees finances, operations and
employees, and manages the full sales cycle. Ms. Clarridge began
her career at the State University of New York at Brockport,
teaching marketing and management. Following that, she pursued a
career in marketing and general business management with companies
including Diamond Packaging, Hefty (Mobil) and Fisher Price
(Mattel). The majority of her CPG career was spent with Hefty where
she began as Assistant Brand Manager. She was promoted to senior
brand management positions as she worked on Hefty Cinch Sak, Hefty
Cups and Hefty Plates. We believe Ms. Clarridge's leadership,
marketing and consumer-packaged goods experience will be valuable
to the Board. Ms. Clarridge has a B.A. from Oakland University in
Rochester, Michigan, and an M.B.A. in Marketing from the Rochester
Institute of Technology. She serves on the President’s
advisory board of the Rochester Institute of
Technology.
Kristine A. Glancy has served as our
President and Chief Executive Officer since May 2016. Prior to
joining the Company, Ms. Glancy served in various roles at The
Kraft Heinz Company from 1999 to 2016, most recently as Customer
Vice President from May 2013 to April 2016. She held the
positions of Director of Sales from June 2012 to May 2013
and National Customer Manager from November 2010 to
June 2012. Her more than 17 years as a sales and marketing
executive provide the necessary skills to the Board and Company in
the areas of Sales, Product Strategy, Customer Relations, Business
and Brand Development. Ms. Glancy holds a Bachelor of Arts degree
in Marketing and International Business from Saint Mary’s
University and an MBA from Fordham University, New York
City.
Loren A. Unterseher is a Managing
Director of Oxbow Industries, LLC, a holding company investing in
middle-market private companies, which position he has held since
2004. Over his career, Mr. Unterseher has completed over $2.5
billion in corporate finance transactions. Prior to Oxbow
Industries, Mr. Unterseher was a Principal/Shareholder &
Director of Mergers and Acquisitions for Craig-Hallum Capital
Group. Prior to Craig-Hallum, he was Director of Private Equity for
Lazard Middle Market (f/k/a Goldsmith Agio Helms). Mr. Unterseher
started his investment banking career as a Vice-President in
Mergers and Acquisitions at RBC (f/k/a Dain Rauscher). He began his
professional career as an attorney and was a Partner at Stinson
Leonard Street (f/k/a Leonard, Street & Deinard), a major
Minneapolis based law firm. Mr. Unterseher is currently Chairman of
the Board of Inno-flex, LLC, a private company (a director since
2016), and serves on the boards of SkyWater Technology Foundry,
Inc. (since 2017), SixSpeed, LLC (since 2016) and Town &
Country Fence, LLC (since 2017), each of which is a private
company. Mr. Unterseher has served on several private company and
not for profit boards of directors. We believe
Mr.
Unterseher's
investment, mergers and acquisitions, and finance experience will
benefit the Board. He holds a B.B.A. degree in Finance from the
University of Iowa and a J.D. from the University of North
Dakota.
Rachael B. Vegas has served as the Chief
Merchant at Brandless, Inc. since March 2016. She previously
served in various roles at Target Corporation, Food Lion and
Hannaford Supermarkets from 1997 to 2016. Most recently, from
February 2014 to February 2016 as Vice President, General
Merchandising Manager; Center Store, Grocery; from
February 2013 to February 2014 as Vice President
Merchandising Manager; Dry Grocery, Snacks, Candy; from
February 2011 to February 2013 as Vice President
Merchandising Manager; Snacks, Beverages, Pet Care, Candy and
Liquor. Ms. Vegas’ experience in retail and consumer packaged
goods industries are valuable to the Company. Ms. Vegas holds
Bachelor of Arts degree in International Relations from Tufts
University and an MBA from Kenan-Flagler Business School,
University of North Carolina.
Steven R. Zenz is a former partner of
the audit and advisory firm KPMG, where he served in various
capacities in his 34 years with the firm, including partner in
charge of the audit group and partner in charge of the firm’s
SEC and technical accounting practices in KPMG’s Minneapolis,
Minnesota office as well as lead audit partner for many
publicly-held company clients. Since his retirement from KPMG in
2010, Mr. Zenz has acted as a consultant on merger and acquisition
transactions providing advice on valuations, SEC filings, technical
accounting and integration, which we believe will benefit the
Company. He also serves on the boards of directors of the William
Blair Mutual Funds and Frankly Inc. (Toronto Stock Exchange). He
holds a Bachelor of Science degree in Accounting and a Masters of
Business Taxation degree from the University of
Minnesota.
Required
Vote
Directors are
elected by the affirmative vote of the holders of a plurality of
the shares present and entitled to vote.
THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE
“FOR”
EACH OF THE SIX NOMINEES.
EXECUTIVE COMPENSATION
Current
Executive Officers
The following
individuals are our current executive officers:
|
Name
|
|
Age
|
|
Position
|
|
Kristine A.
Glancy
|
|
40
|
|
Director,
President, Chief Executive Officer and Secretary
|
|
Jeffrey A.
Jagerson
|
|
51
|
|
Vice President of
Finance, Chief Financial Officer and Treasurer
|
Kristine A. Glancy’s background
information is disclosed in Proposal 1 above under the heading
“Director Nominees.”
Jeffrey A. Jagerson, has been our Vice President of
Finance, Chief Financial Officer and Treasurer since
July 2017. Prior to joining the Company, Mr. Jagerson served
as Chief Financial Officer at Christensen Farms from
March 2014 to March 2017. He previously served as Vice
President of Finance and Accounting at Digital River from
July 2009 to March 2014 and served as the Corporate
Controller from February 2008 to July 2009. Mr. Jagerson
also served in various executive and financial roles at ADC
Telecommunications from May 1995 to February 2008 and
Honeywell from June 1988 to May 1995. His more than 29
years as an Accounting and Finance professional and executive
provides the necessary skills to the Board and Company in the areas
public company financial reporting, tax, audit, and treasury
management. Mr. Jagerson holds a Bachelor of Science degree in
Accounting from Minnesota State University, Mankato and an MBA from
the Carlson School of Business at the University of
Minnesota.
Executive officers
are elected annually by the Board and serve for a one-year period.
There are no family relationships among any of the executive
officers and directors of the Company.
The following table
sets forth information about all compensation (cash and non-cash)
awarded to, earned by or paid to our Chief Executive Officer, the
only other executive officer serving at the end of fiscal 2017, and
a former executive for whom disclosure would have been required but
for the fact that he did not serve as an executive officer at the
end of fiscal 2017 (collectively, our “Named Executive
Officers”) for the fiscal years ended December 31, 2017
and 2016.
|
Name
and Position
|
Year
|
Salary
|
Bonus(1)
|
Stock
Awards(2)
|
Non-Equity
Incentive Plan Compensation(3)
|
Total
|
|
Kristine A.
Glancy(4)
|
2017
|
$283,038
|
$80,000
|
$16,650(5)
|
$190,922
|
$570,610
|
|
President, Chief Executive Officer and Secretary
|
2016
|
$169,231
|
$100,000
|
$233,000(6)
|
$–
|
$502,231
|
|
|
|
|
|
|
|
|
|
Jeffrey A.
Jagerson(7)
|
2017
|
$99,423
|
$–
|
$65,400(8)
|
$71,101
|
$235,924
|
|
Vice President of Finance, Chief Financial Officer and
Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A.
Cherrey(9)
|
2017
|
$64,669
|
$–
|
$–
|
$–
|
$64,669
|
|
Former Director of Finance and Controller
|
2016
|
$117,521
|
$15,000
|
$7,455(10)
|
$–
|
$139,976
|
__________________________________
(1)
As part
of Ms. Glancy’s
initial employment agreement, she received a cash signing bonus in
the amount of $180,000, of which $100,000 was paid in May 2016 and
the remaining $80,000 was paid in May 2017. Mr. Cherrey received a
$15,000 cash bonus in 2016 at the discretion of the Board based on
the recommendation of its Compensation Committee, as recognition
for his additional duties as interim principal financial and
accounting officer.
(2)
Amounts
shown in the Stock Awards column represent the aggregate grant date
fair value of restricted stock awards granted during the applicable
year. Grant date fair values are computed in accordance with FASB
ASC Topic 718 using assumptions discussed in Note 7 to the
financial statements included in the Company’s annual report
on Form 10-K for the fiscal year ended December 31, 2017, as
amended.
(3)
Represents payments
pursuant to the Executive Incentive Plan for the years indicated,
which were paid in the following year.
(4)
Ms.
Glancy joined the Company in May 2016.
(5)
Amount
shown represents the aggregate grant date fair value of restricted
stock granted on September 19, 2017.
(6)
Amount
shown represents the aggregate grant date fair value of restricted
stock granted on May 13, 2016.
(7)
Mr.
Jagerson joined the Company in July 2017.
(8)
Amount
shown represents the aggregate grant date fair value of restricted
stock granted on September 1, 2017.
(9)
Mr.
Cherrey resigned from all positions with the Company in
June 2017.
(10)
Amount
shown represents the aggregate grant date fair value of restricted
stock units granted on August 10, 2016. These stock awards
expired on the date Mr. Cherrey departed the Company.
Executive
Compensation
The principal
components of compensation for the Named Executive Officers are:
(i) base salary; (ii) non-equity incentive compensation in the form
of an annual cash bonus under the Executive Incentive Plan; and
(iii) long-term, equity-based incentive compensation in the form of
restricted stock units. These components of compensation are
summarized below, followed by a description of each Named Executive
Officer’s individual agreements with the Company and the
compensation received thereunder.
Executive Incentive Plan
The Executive
Incentive Plan was originally established in 2007 and applies to
future fiscal years until terminated or superseded. The executive
officers are eligible to earn annual cash bonus payments if the
Company meets pre-established financial performance objectives. Ms.
Glancy and Mr. Jagerson were eligible to participate in the
Executive Incentive Plan in 2017. Mr. Jagerson participated on a
pro-rated basis based on portion of the fiscal year elapsed after
his initial employment date.
For 2017, the
Equity Incentive Plan provided that, for each of the participants,
(a) 70% of the bonus potential was allocated to the Company’s
performance against target operating income (loss), and (b) the
remaining 30% of the bonus potential was allocated to individual
performance against personal goals established by the
Board.
Company Performance-Based Payment
For 2017, the
Compensation Committee established a target operating loss of
$1,557,000 and approved the following schedule of potential
payments under the Executive Incentive Plan:
|
Bonus
Level
|
|
Operating
Income (Loss)
|
|
Percent
of Target Variable Compensation
|
|
Threshold
|
|
Less than 80% of
Target
|
|
None
|
|
|
|
80–89% of
Target
|
|
25–74.9%
|
|
|
|
90–99% of
Target
|
|
75–99.9%
|
|
Plan
|
|
100–109% of
Target
|
|
100–114.9%
|
|
|
|
110–129% of
Target
|
|
115–139.9%
|
|
|
|
130–149% of
Target
|
|
140–159.9%
|
|
Maximum
|
|
150% or greater of
Target
|
|
160%
|
Based on an actual
operating loss of $908,000 for 2017, as reported in Part II, Item
8, of the Original Report, the Board, as recommended by its
Compensation Committee, approved payments representing 150% of
target variable compensation, representing payments of $150,150 to
Ms. Glancy and $56,547 to Mr. Jagerson.
Revenue-Based Multiplier
If Insignia’s
operating income (loss) for a fiscal year is at or greater than
110% of the above-reference target performance level, then
participants are also eligible to have their payment based on
operating income (loss) increased based on a multiplier determined
by total net sales. For 2017, the Compensation Committee
established a total net sales target of $27,390,000 and approved
the following schedule of potential payments:
|
Operating
Income (Loss)
|
|
Total
Net Sales
|
|
Resulting
Multiplier
|
|
110-129% of
Target
|
|
100% or greater of
Target
|
|
110%
|
|
130-149% of
Target
|
|
100% or greater of
Target
|
|
115%
|
|
150% or greater of
Target
|
|
100% or greater of
Target
|
|
120%
|
Participants were
only eligible to receive this supplemental bonus amount if both (i)
operating income (loss) exceeded 110% target performance
and (ii) total net sales revenue met or
exceeded the applicable target performance level. Because total net
sales was below target, no multiplier was applied for
2017.
Individual Performance
For 2017, the
remaining 30% of the potential payments under the Executive
Incentive Plan was determined based on individual performance
against personal goals established by the Board. Based on a variety
of factors, including company-wide business development performance
under their leadership during 2017, the Board, as recommended by
its Compensation Committee, approved a final payment of $40,772 to
Ms. Glancy and a pro-rated final payment of $14,554 to Mr. Jagerson
under this part of the program.
Actions Relating to Fiscal 2018 Incentive Compensation
In April 2018,
the Board, as recommended by its Compensation Committee, adopted
the 2018 Executive Cash Incentive Plan (the “2018 Cash
Plan”), which replaced the Executive Incentive Plan. The only
employees currently eligible to participate in the Plan are the
Company’s two executive officers: Ms. Glancy and Mr.
Jagerson. The 2018 Cash Plan provides that for each of the
participants, (a) 70% of the bonus potential has been allocated to
the Company’s performance against target operating income
(loss), inclusive of all compensation expenses
(“Profit”), and (b) the remaining 30% of the bonus
potential has been allocated to individual performance against
personal goals established by the Board. The total target bonuses
under the 2018 Cash Plan are equal to 50% of each
participant’s respective base salary and payouts, if any,
would range from 8.75% to 82.2% of each participant’s base
salary. Similar to 2017, the 2018 Cash Plan provides for a
potential revenue-based multiplier of between 110% and 120% based
on Company performance against target operating income (loss) and
total net sales.
The GCN Committee
plans to determine the level of each participant’s
satisfaction of their personal goals and the resulting payout of up
to a maximum of 30% of their respective bonus potential, which
determination will be independent of achievement Company
performance against the Profit target. All bonus calculations
under the 2018 Cash Plan will be subject to review and final
approval by the committee prior to payment.
Long-term, Equity-Based Incentive Compensation (Restricted Stock
Awards and Restricted Stock Units)
The Compensation
Committee has determined that restricted stock awards and
restricted stock units are each appropriate under certain
circumstances, based upon factors including market practices and
our overall compensation philosophy. During 2017, all restricted
stock and restricted stock units were granted under the 2013 Plan.
Historically, each award of restricted stock or restricted stock
units is scheduled to vest in one-half increments on the
anniversary of the date of grant over two to five
years.
On
September 1, 2017, Mr. Jagerson received an award of 60,000
shares of restricted stock. On September 19, 2017, Ms. Glancy
received an award of 15,000 restricted stock units, each
representing a contingent right to receive one share of common
stock.
Severance and Change in Control Arrangements with Named Executive
Officers
In connection with
Ms. Glancy’s election to serve as the Company’s Chief
Executive Officer, effective May 9, 2016, the Company and Ms.
Glancy have entered into an Employment Agreement and a Change in
Control Agreement, each effective as of May 9, 2016. Her
Employment Agreement provides that Ms. Glancy will receive an
established annual base salary, subject to increase from time to
time, target incentive compensation awards beginning with 2016, a
cash signing bonus, and participation in customary benefit plans
and programs, in addition to a one-time equity award.
Pursuant to her
Employment Agreement, in the event of Ms. Glancy’s
involuntary termination without cause or voluntary termination with
good reason, she will be eligible to receive accrued and unpaid
compensation as well as the following severance pay and benefits:
(1) the annual incentive compensation she would have been entitled
to receive for the year in which her termination occurs as if she
had continued until the end of that fiscal year, determined based
on the Company’s actual performance for that year relative to
the performance goals applicable to Ms. Glancy, prorated for the
number of days in the fiscal year through her termination date and
generally payable in a cash lump sum at the time such incentive
awards are payable to other participants; (2) an applicable
percentage of Ms. Glancy’s annual base salary as in effect at
the time of Termination, payable in a single lump sum payment no
later than 60 days following the termination date; and (3) welfare
benefit continuation for four months following termination. In the
event of Ms. Glancy’s death, disability, involuntary
termination for cause or voluntary termination without good reason,
Ms. Glancy will be entitled to accrued and unpaid compensation as
provided in the Employment Agreement. The “applicable
percentage” is 50% during the first year of Ms.
Glancy’s employment and 100% thereafter. “Cause”
is defined in Ms. Glancy’s Employment Agreement as
(a) the deliberate and continued failure to substantially
perform the duties and responsibilities; (b) the criminal felony
conviction of, or a plea of guilty or nolo contendere; (c) the
material violation of Company policy; (d) the act of fraud or
dishonesty resulting or intended to result
in personal enrichment at the expense of the Company; (e) the gross
misconduct in performance of duties that results in material
economic
harm to
the Company; or (f) the material breach of the Employment Agreement
by Ms. Glancy. “Good reason” includes demotion,
reduction in salary or benefits, and certain other
events.
Under Ms.
Glancy’s Change in Control Agreement, as amended on
April 28, 2018, upon a qualifying termination, she would be
eligible to receive the following, subject to offset by the amount
of any severance previously paid to her under any employment
agreement with the Company: (1) a lump sum severance payment
equal to 200% of her base salary, (2) cash payment equal to
the sum of (x) unpaid incentive compensation that has been
allocated or awarded to Ms. Glancy for a completed fiscal year
preceding the date of the Qualifying Termination which is
contingent only upon the continued employment to a subsequent date
plus (y) a pro rata portion to the date of the Qualifying
Termination of her target bonus for the year calculated through the
date of the Qualifying Termination, (3) welfare benefit
continuation for a period of 12 months, (4) certain
post-retirement health care or life insurance benefits if Ms.
Glancy would have become eligible for such benefits during the 24
months after the date of termination, (5) a lump sum payment equal
to all earned but unused paid time off days, and
(6) outplacement fees not to exceed $5,000. The Change in
Control Agreement defines “qualifying termination” as a
termination by the Company without cause or a termination by
Ms. Glancy with good reason, in each case either concurrent
with or within 24 months following a change in control or a
termination by the Company without cause within six months
prior to a change in control if termination is in connection with
or in anticipation of the change in control. “Change in
control” is defined as a sale of all or substantially all of
the assets of the Company, a merger in which the shareholders of
the Company own less than 50% of the surviving entity, the
acquisition of 40% or more of the Company’s outstanding stock
by a single person or a group, or the election of a majority of the
Company’s directors who consist of persons who were not
nominated by the Company’s prior Board. “Cause”
is defined as (i) the deliberate and continued failure to devote
substantially all business time and best efforts to the performance
of the Ms. Glancy’s duties; (ii) the deliberate engaging in
gross misconduct which is demonstrably and materially injurious to
the Company, monetarily or otherwise; or (iii) conviction of, or
plea of guilty or nolo contendere to, a felony or any criminal
charge involving moral turpitude. “Good reason” is
defined in the agreement, as amended, to include demotion,
reduction in salary or benefits, and certain other
events.
In connection with
Mr. Jagerson’s election to serve as the Company’s Chief
Financial Officer, effective July 17, 2017, the Company and
Mr. Jagerson have entered into an Employment Agreement and a Change
in Control Agreement, each effective as of July 17, 2017. His
Employment Agreement provides that Mr. Jagerson will receive an
established annual base salary, subject to increase from time to
time, target incentive compensation awards beginning with 2017, and
participation in customary benefit plans and programs, in addition
to a one-time equity award.
Pursuant to his
Employment Agreement, in the event of Mr. Jagerson’s
involuntary termination without cause or voluntary termination with
good reason, he will be eligible to receive accrued and unpaid
compensation as well as the following severance pay and benefits:
(1) the annual incentive compensation he would have been entitled
to receive for the year in which his termination occurs as if he
had continued until the end of that fiscal year, determined based
on the Company’s actual performance for that year relative to
the performance goals applicable to Mr. Jagerson, prorated for the
number of days in the fiscal year through his termination date and
generally payable in a cash lump sum at the time such incentive
awards are payable to other participants; (2) 50% of Mr.
Jagerson’s annual base salary as in effect at the time of
Termination, payable in a single lump sum payment no later than 60
days following the termination date; and (3) welfare benefit
continuation for three months following termination. In the event
of Mr. Jagerson’s death, disability, involuntary termination
for cause or voluntary termination without good reason, Mr.
Jagerson will be entitled to accrued and unpaid compensation as
provided in the Employment Agreement. “Cause” is
defined in Mr. Jagerson’s Employment Agreement as
(a) the deliberate and continued failure to substantially
perform the duties and responsibilities; (b) the criminal felony
conviction of, or a plea of guilty or nolo contendere; (c) the
material violation of Company policy; (d) the act of fraud or
dishonesty resulting or intended to result in personal enrichment
at the expense of the Company; (e) the gross misconduct in
performance of duties that results in material economic harm to the
Company; or (f) the material breach of the Employment Agreement by
Mr. Jagerson. “Good reason” includes demotion,
reduction in salary or benefits, and certain other
events.
Under Mr.
Jagerson’s Change in Control Agreement, upon a qualifying
termination, he would be eligible to receive the following, subject
to offset by the amount of any severance previously paid to him
under any employment agreement with the Company: (1) a lump
sum severance payment equal to seventy-five percent of his base
salary, (2) cash payment equal to the sum of (x) unpaid
incentive compensation that has been allocated or awarded to Mr.
Jagerson for a completed fiscal year preceding the date of the
Qualifying Termination which is contingent only upon the continued
employment to a subsequent date plus (y) a pro rata portion to the
date of the Qualifying Termination of his target bonus for the year
calculated through the date of the Qualifying Termination,
(3) welfare benefit continuation for a period of
6 months, (4) certain post-retirement health care or life
insurance benefits if Mr. Jagerson would have become eligible for
such benefits during the 24 months after the date of
termination, (5) a lump sum payment equal to all earned but unused
paid time off days, and (6) outplacement fees not to exceed
$5,000. The Change in Control Agreement defines “qualifying
termination” as a termination by the Company
without
cause or a
termination by Mr. Jagerson with good reason, in each case either
concurrent with or within 24 months following a change in
control or a termination by the Company without cause within
six months prior to a change in control if termination is in
connection with or in anticipation of the change in control.
“Change in control” is defined as a sale of all or
substantially all of the assets of the Company, a merger in which
the shareholders of the Company own less than 50% of the surviving
entity, the acquisition of 40% or more of the Company’s
outstanding stock by a single person or a group, or the election of
a majority of the Company’s directors who consist of persons
who were not nominated by the Company’s prior Board.
“Cause” is defined as (i) the deliberate and continued
failure to devote substantially all business time and best efforts
to the performance of the Mr. Jagerson’s duties; (ii) the
deliberate engaging in gross misconduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise; or
(iii) conviction of, or plea of guilty or nolo contendere to, a
felony or any criminal charge involving moral turpitude.
“Good reason” is defined in the agreement to include
demotion, reduction in salary or benefits, and certain other
events.
Outstanding
Equity Awards at Fiscal Year End
The following table
sets forth summary information regarding the outstanding equity
awards held by our Named Executive Officers at December 31,
2017, excluding Mr. Cherrey, who resigned on June 30, 2017 and
had no outstanding equity awards at December 31,
2017.
|
|
|
|
Stock Awards
|
|
|
Name
|
|
Grant
Date
|
Number of
Units of Stock That Have Not Vested
|
Market Value
of Units of Stock That Have Not Vested
|
|
Kristine A.
Glancy
|
|
5/13/2016
|
80,000(1)
|
$186,400
|
|
|
|
9/19/2017
|
15,000(2)
|
$16,650
|
|
Jeffrey A.
Jagerson
|
|
9/1/2017
|
60,000(
2)
|
$65,400
|
_____________________________________________
(1)
Remainder scheduled
to vest in four equal annual installments on each of the next four
anniversaries of the grant date.
(2)
Scheduled to vest
in two equal annual installments over a two-year period measured
from the grant date.
Tax
and Accounting Considerations
Section 162(m) of
the Internal Revenue Code as in effect prior to the enactment of
tax reform legislation in December 2017 generally disallowed a
tax deduction to public companies for compensation of more than
$1 million paid in any taxable year to each “covered
employee,” consisting of the chief executive officer and the
three other highest paid executive officers employed at the end of
the year (other than the chief financial officer).
Performance-based compensation was exempt from this deduction
limitation if the Company met specified requirements set forth in
the Code and applicable Treasury Regulations.
Recent tax reform
legislation retained the $1 million deduction limit, but
repealed the performance-based compensation exemption from the
deduction limit and expanded the definition of “covered
employees,” effective for taxable years beginning after
December 31, 2017. “Covered employees” now also
includes any person who served as chief executive officer or chief
financial officer at any time during a taxable year, as well as any
person who was ever identified as a covered employee in 2017 or any
subsequent year. Consequently, compensation paid in 2018 and later
years to our named executive officers in excess of $1 million
will not be deductible unless it qualifies for transitional relief
applicable to certain binding, written performance-based
compensation arrangements that were in place as of November 2,
2017.
The deductibility
of some types of compensation payments can depend upon the timing
of the vesting or an executive’s exercise of previously
granted equity awards. Interpretations of and changes to applicable
tax laws and regulations as well as other factors beyond our
control also can affect deductibility of compensation. The GCN
Committee, like it's predecessor, the Compensation Committee,
considers the anticipated tax treatment to the Company when
determining executive compensation and seeks to preserve the
deductibility of compensation payments and benefits to the extent
reasonably practicable, consistent with our compensation policies
and what we believe is in the best interests of our shareholders.
The GCN Committee continues to believe that shareholder interests
are best served if its discretion and flexibility in structuring
and awarding compensation is not restricted, even though some
compensation awards may have resulted in the past, and are expected
to result in the future, in non-deductible compensation expenses to
the Company. The Committee’s ability to continue to provide
a competitive compensation package to attract, motivate and retain
the Company’s most senior executives is considered critical
to the Company’s success and to advancing the interests of
its shareholders.
Section 409A
of the Internal Revenue Code also affects the payments of certain
types of deferred compensation to key employees and includes
requirements relating to when payments under such arrangements can
be made, acceleration of benefits, and timing of elections under
such arrangements. Failure to satisfy these requirements will
generally lead to an acceleration of the timing for including
deferred compensation in an employee’s income, as well as
certain penalties and interest. Our nonqualified deferred
compensation arrangements meet the effective requirements of
Section 409A as required by law or regulation.
PROPOSAL TWO –
NON-BINDING
ADVISORY VOTE ON EXECUTIVE COMPENSATION
At the annual
meeting held in 2017, shareholders voted to continue to cast
advisory, non-binding votes on executive compensation on an annual
basis. Accordingly, we are requesting this non-binding advisory
vote on the executive compensation paid to our Named Executive
Officers. Under the Dodd-Frank Wall Street Reform and Consumer
Protection Act and SEC rules, the vote of the shareholders on this
resolution is a “non-binding” advisory vote. The
purpose of the vote is for the shareholders to give their opinion
to the Board on the Company’s executive
compensation.
Our executive
compensation received substantial shareholder support and was
approved, on an advisory basis, by approximately 93.7% of the votes
cast “for” or “against” the corresponding
proposal at the annual meeting of shareholders held in 2017. The
GCN Committee believes that this vote reflected our
shareholders’ strong support of the compensation decisions
made by its predecessor, the Compensation Committee, for our named
executive officers for 2017.
Compensation
Philosophy and Compensation of our Named Executive
Officers
Our discussion of
the authority and processes of the former Compensation Committee
and its successor, the GCN Committee beginning on page 6 of this
proxy statement explains the responsibilities of the applicable
committee of the Board. This summary and the Narrative Disclosure
of Executive Compensation beginning on page 12 provide information
concerning the compensation philosophy, plans and policies under
which we paid the Named Executive Officers. As set forth in the
Summary Compensation Table on page 12 and the Narrative Disclosure
of Executive Compensation, our compensation policies and procedures
are centered on a pay-for-performance philosophy and are strongly
aligned with the long-term interests of our
shareholders.
Given the
pay-for-performance structure of our executive compensation
program, the Board and its GCN Committee believe that the
compensation of our Named Executive Officers is reasonable and
appropriate and justified by the performance of the Company in a
challenging environment.
Form
of Resolution
The shareholders
are being asked at the Annual Meeting to vote “FOR” or
“AGAINST” the following resolution:
RESOLVED, that the holders of the
Company’s common stock approve the compensation of the
Company’s executives named in the Summary Compensation Table,
as disclosed in the Company’s 2018 proxy statement pursuant
to the compensation disclosure rules of the SEC.
Required
Vote; Effect of Proposal
This proposal is an
advisory, non-binding vote, and will be deemed approved if the
number of votes cast “for” exceeds the number of votes
cast “against.” The approval or disapproval of this
proposal by shareholder will not require the Board or its GCN
Committee to take any action regarding our executive compensation
practices. The final decision on the compensation and benefits of
our executive officers and on whether, and if so, how, to address
any shareholder disapproval remains with the Board and the
applicable committee.
Notwithstanding the
foregoing, the Board values the opinions of our shareholder as
expressed through their votes and other communications. Although
this proposal is non-binding, the Board and its GCN Committee will
carefully consider the outcome of the advisory vote on executive
compensation and shareholder opinions received from other
communications when making future compensation
decisions.
THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
“FOR”
THE ADVISORY APPROVAL OF THE COMPANY’S EXECUTIVE
COMPENSATION.
PROPOSAL THREE –
RATIFICATION
OF APPOINTMENT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee
of the Board has appointed Baker Tilly Virchow Krause, LLP
(“Baker Tilly”) as our independent registered public
accounting firm for the year ending December 31, 2018.
Although we are not required to do so, the Board is submitting the
appointment of Baker Tilly for ratification in order to ascertain
the views of our shareholders on this appointment. If the
appointment is not ratified by the shareholders, the Audit
Committee will reconsider its selection. Baker Tilly has been the
Company’s auditor since July 2011. A representative of
Baker Tilly is expected to be present at the Annual Meeting, and
will be given the opportunity to make a statement and will be
available to respond to appropriate questions.
Required
Vote; Effect of Proposal
The affirmative
vote of the holders of a majority of the outstanding shares of our
common stock of the entitled to vote on this item and present in
person or by proxy at the Annual Meeting is required for approval
of this proposal. Proxies solicited by the Board will be voted for
approval of this proposal, unless otherwise specified. If
shareholder approval is not obtained, then the Audit Committee
would reconsider its selection.
THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
“FOR”
RATIFICATION OF THE APPOINTMENT OF BAKER TILLY VIRCHOW KRAUSE, LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
2018.
Fees
Paid to Independent Registered Public Accounting Firm
The following table
shows the fees for services rendered by our independent registered
public accounting firm, Baker Tilly Virchow Krause, LLP
(“Baker Tilly”), for the years ended December 31,
2017 and 2016.
|
|
2017
|
2016
|
|
Audit
Fees(1)
|
$120,600
|
$122,300
|
|
Audit-Related
Fees(2)
|
7,700
|
10,400
|
|
All Other
Fees(3)
|
–
|
6,000
|
|
Total
|
$128,300
|
$138,700
|
__________________________________________
(1)
Audit fees
represent fees for professional services provided in connection
with the audit of the Company’s financial statements, review
of quarterly financial statements, and filings of registration
statements related to shares reserved for issuance under the
Company’s stock plans.
(3)
All other fees
represent fees for non-audit related services associated with the
one-time special dividend of $0.70 per share declared on
November 28, 2016.
Audit
Committee Pre-Approval Policy
The Company’s
Audit Committee Charter states that before the principal accountant
is engaged by the Company to render audit or non-audit services in
any year, the engagement will be approved by the Company’s
Audit Committee. All of the fees paid in 2017 and 2016 were
pre-approved by the Company’s Audit Committee.
AUDIT COMMITTEE REPORT
The Audit Committee
provides independent and objective oversight of our financial
reporting. Management has primary responsibility for our financial
statements and reporting process, including our systems of internal
controls. Our independent registered public accounting firm is
responsible for expressing an opinion on the conformity of our
financial statements with accounting principles generally accepted
in the United States.
●
Met with the
Company’s independent registered public accounting firm, with
and without management present, to discuss the overall scope and
plans for their audit, the results of their audit and their
evaluation of the Company’s internal
controls;
●
Reviewed and
discussed with management and the independent registered accounting
firm the audited financial statements included in our Annual
Report;
●
Discussed with the
Company’s independent registered public accounting firm the
matters required to be discussed by the applicable Public Company
Oversight Board standards; and
●
Received from the
independent registered public accounting firm the written
disclosures and the letter regarding its independence as required
by applicable requirements of the Public Company Accounting
Oversight Board, and discussed with representatives of such firm
its independence from management and the
Company.
Based on the
discussions with management and the Company’s independent
registered public accounting firm, the Audit Committee’s
review of the representations of management and the report of such
firm, the Audit Committee recommended to the Board that the audited
financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2017,
for filing with the SEC.
Audit Committee Members:
|
Jacob J.
Berning
|
Loren A.
Unterseher(1)
|
Steven R. Zenz,
Chairman
|
____________________________________
(1)
Mr. Unterseher
joined the Audit Committee after the Company’s
Annual Report on 10-K for the fiscal year ended December 31, 2017
was filed with the SEC.
The preceding Audit
Committee Report shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 (the
“1933 Act”) or the Securities Exchange Act of 1934 (the
“1934 Act”), except to the extent the Company
specifically incorporates this information by reference, and shall
not otherwise be deemed filed under the 1933 Act or the 1934
Act.
EQUITY COMPENSATION PLAN INFORMATION
The following table
presents certain information regarding our equity compensation
plans, the 2003 Stock Plan (the “2003 Plan”), the 2013
Plan and our Employee Stock Purchase Plan, as of December 31,
2017.
|
Plan
Category
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
Number
of Securities Remaining Available for Future Issuance under Equity
Compensation Plans
|
|
Equity compensation
plans approved by security holders
|
548,825(1)
|
$2.41(2)
|
382,721(3)
|
|
Equity compensation
plans not approved by security holders
|
–
|
–
|
–
|
|
Total
|
548,825
|
$2.41
|
382,721
|
________________________________
(1)
Includes 130,464 shares underlying common stock
options and 182,479 shares underlying unvested restricted stock
units outstanding under the 2013 Plan and 235,882 shares underlying
common stock options outstanding under the 2003 Stock Plan. We
ceased issuing awards under the 2003 Stock Plan upon approval of
the 2013 Plan in 2013.
(2)
Represents
weighted-average exercise price of options outstanding under the
2013 Plan and 2003 Plan. See note (1) above with respect to
restricted stock units under the 2013 Plan. The weighted-average
exercise price does not take those awards.
(3)
Includes
85,721 shares available for issuance under our Employee Stock
Purchase Plan and 297,000 shares available for issuance pursuant to
future awards under the 2013 Plan. The Company maintains the
Employee Stock Purchase Plan, pursuant to which eligible employees,
including named executive officers, can contribute up to ten
percent of their base pay per year to purchase shares of Common
Stock. The shares are issued by the Company at a price per share
equal to 85% of market value on the first day of the offering
period or the last day of the plan year, whichever is
lower.
PROPOSAL FOUR –
APPROVAL
OF
INSIGNIA
SYSTEMS, INC. 2018 EQUITY INCENTIVE PLAN
On May 21,
2018, the Board, at the recommendation of its GCN Committee,
approved the Insignia Systems, Inc. 2018 Equity Incentive Plan (the
“2018 Plan”), subject to approval by our shareholders
at our 2018 annual meeting. The 2018 Plan will become
effective on the date it is approved by our shareholders, and will
replace the Company’s existing 2013 Omnibus Stock and
Incentive Plan (the “2013 Plan”), which is the only
plan under which equity awards are currently being
granted.
After the 2018 Plan
becomes effective upon approval by our shareholders, no new awards
will be made under the 2013 Plan. The number of shares of our
common stock that may be the subject of awards and issued under the
2018 Plan is initially 900,000, plus any shares remaining available
for future grants under the 2013 Plan on the effective date of the
2018 Plan. Awards outstanding under the 2013 Plan as of the date
the 2018 Plan becomes effective will continue to be subject to the
terms of the 2013 Plan, but if those awards subsequently expire,
are forfeited or canceled or are settled in cash, the shares
subject to those awards will become available for awards under the
2018 Plan.
As of May 21,
2018, a total of 400,867 shares were subject to
outstanding awards under the 2013 Plan, of which
116,802 shares were
subject to outstanding stock options with a weighted average
exercise price of $2.18 per share and a weighted average
remaining contractual term of 6.12 years, 120,000 shares were
subject to unvested restricted stock awards and 164,065 shares were subject to unvested
restricted stock units. As of the same date, 326,421 shares were available for
future awards under the 2013 Plan.
Shareholder
Approval and Board of Directors Recommendation
Shareholder
approval of the 2018 Plan is being sought in order to
(i) satisfy the shareholder approval requirements of the
Nasdaq Stock Market and (ii) obtain shareholder approval of
the number of shares that may be subject to incentive stock options
under Internal Revenue Code (“Code”)
Section 422.
The Board
recommends that our shareholders vote “for”
the 2018 Plan because it includes a number of features that we
believe are consistent with the interests of our shareholders and
sound corporate governance practices, and will provide us with a
share reserve that will enable us to continue to provide a
competitive mix of compensation to our key employees. Unless a
contrary choice is specified, proxies solicited by the Board will
be voted “for”
approval of the 2018 Plan. If the 2018 Plan is not approved by our
shareholders, the 2013 Plan in its current form will remain in
effect, and we will remain subject to its existing share
reserve.
Factors
Considered in Setting Size of Requested Share Reserve
In setting the
proposed number of shares reserved and issuable under the 2018
Plan, the GCN Committee and the Board considered a number of
factors, including the following:
●
The Company’s
three-year average burn rate. Our three-year average
“burn rate” was approximately 2.47% for fiscal years
2015 through 2017. We define burn rate as the total number of
shares subject to awards granted to participants in a single year
expressed as a percent of our basic weighted average common shares
outstanding for that year.
●
Estimated duration of
shares available for issuance under the 2018
Plan. Based on the
900,000 shares to be reserved under the 2018 Plan, an estimated
carryover of 326,421 unused shares from the 2013
Plan, and our three-year average burn rate as described above, we
expect that the requested share reserve will be sufficient to
accommodate awards up to our annual meeting of shareholder to be
held in 2021.
Key
Compensation Practices
The 2018 Plan
includes a number of features that we believe are consistent with
the interests of our shareholders and sound corporate governance
practices, including the following:
●
No repricing of underwater options or stock
appreciation rights without shareholder approval. The 2018
Plan prohibits, without shareholder approval, actions to reprice,
replace, or repurchase options or stock appreciation rights
(“SARs”) when the exercise price per share of an option
or SAR exceeds the fair market value of the underlying
shares.
●
No discounted option or SAR grants. The
2018 Plan requires that the exercise price of options or SARs be at
least equal to the fair market value of our common stock on the
date of grant (except in the limited case of “substitute
awards” as described below).
●
No liberal definition of “change in
control.” No change in control would be triggered by
shareholder approval of a business combination transaction, the
announcement or commencement of a tender offer or any board
assessment that a change in control may be
imminent.
●
No automatic accelerated vesting of equity awards upon a change in
control.
●
Limits on dividends and dividend
equivalents. The 2018 Plan prohibits the payment of dividend
equivalents on stock options and SARs, and requires that any
dividends and dividend equivalents payable or credited on unvested
full value awards must be subject to the same restrictions and risk
of forfeiture as the underlying shares or share
equivalents.
●
Limit on non-employee director awards. Equity awards
to each non-employee director are subject to an annual grant date
fair value limit.
●
Clawback Accommodation. Awards granted
under the 2018 Plan will be subject to any recoupment policy we
adopt at any time. We anticipate adopting a comprehensive
recoupment policy applicable to equity incentive awards in light of
the expected issuance of final stock exchange rules implementing
the requirements of the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
●
Minimum vesting/performance period. The
2018 Plan includes a minimum vesting or performance period of one
year for all awards, subject only to limited
exceptions.
Description
of the 2018 Equity Incentive Plan
The major features
of the 2018 Plan are summarized below. The summary is qualified in
its entirety by reference to the full text of the 2018 Plan, which
is attached to this proxy statement as Appendix A.
Eligible
Participants. Employees, consultants and advisors of the
Company or any subsidiary, as well as non-employee directors of the
Company, will be eligible to receive awards under the 2018 Plan. As
of May 21, 2018, there were approximately 60 employees, five
non-employee directors of the Company and an indeterminate number
of consultants and advisors who would be eligible to receive awards
under the 2018 Plan.
Administration. The
2018 Plan will be administered by the GCN Committee. To the extent
consistent with applicable law, the committee may delegate its
duties, power and authority under the 2018 Plan to any one or more
of its members, or, with respect to awards to participants who are
not themselves our directors or executive officers, to one or more
of our other directors or executive officers or to a committee of
the board comprised of one or more directors. The committee may
also delegate non-discretionary administrative duties to other
persons, agents or advisors.
The GCN Committee
has the authority to determine the persons to whom awards will be
granted, the timing, type and number of shares covered by each
award, and the terms and conditions of the awards. The committee
may also establish and modify rules to administer the 2018 Plan,
adopt sub-plans applicable to certain awards, interpret the 2018
Plan and any related award agreement, cancel or suspend an award,
accelerate the vesting of an award in connection with death or
disability, and otherwise modify or amend the terms of outstanding
awards to the extent permitted under the 2018 Plan, and require or
permit the deferral of the settlement of an award. Unless an
amendment to the terms of an award is necessary to comply with
applicable laws or stock exchange rules, a participant who would be
adversely affected by such an amendment must consent to
it.
Except in
connection with equity restructurings and other situations in which
share adjustments are specifically authorized, the 2018 Plan
prohibits the GCN Committee from repricing any outstanding
“underwater” option or SAR awards without the prior
approval of our shareholders. For these purposes, a
“repricing” includes amending the terms of an
underwater option or SAR award to lower
the exercise price, canceling an underwater option or SAR award in
conjunction with granting a replacement option or SAR award with a
lower exercise price, canceling an underwater option or SAR award
in exchange for cash, other property or grant of a new full value
award, or otherwise making an underwater option or
SAR
award subject to any action that would be treated under accounting
rules as a “repricing.”
Minimum Vesting
Periods. Awards that vest based solely on the satisfaction
of service-based vesting conditions are subject to a minimum
vesting period of one year from the date of grant, and awards whose
grant or vesting is subject to performance-based vesting conditions
must be subject to a performance period of at least one year. These
required vesting and performance periods will not apply:
(i) upon a change in control, (ii) upon termination of
service due to death or disability, (iii) to a substitute
award that does not reduce the vesting period of the award being
replaced, (iv) to awards granted in payment of other
compensation that is already earned and payable, or (v) to
awards involving an aggregate number of shares not in excess of 5%
of the 2018 Plan’s share reserve.
Available Shares and
Limitations on Awards. A maximum of 900,000 shares of our
common stock may be the subject of awards and issued under the 2018
Plan, plus the number of shares remaining for future grants under
the 2013 Plan on the date our shareholders approve the 2018 Plan.
Shares of common stock that are issued under the 2018 Plan or that
are potentially issuable pursuant to outstanding awards will reduce
the 2018 Plan’s share reserve by one share for each share
issued or issuable pursuant to an award. The shares of common stock
issuable under the 2018 Plan are authorized but unissued shares.
The aggregate grant date fair value of awards granted under the
2018 Plan during a calendar year to any one of our non-employee
directors may not exceed $200,000. The share limitations under the
2018 Plan are subject to adjustment for changes in our corporate
structure or shares, as described below.
Any shares of
common stock subject to an award under the 2018 Plan, or to an
award under the 2013 Plan that is outstanding on the date our
shareholders approve the 2018 Plan, that expires, is forfeited or
terminated, or is settled or paid in cash will, to the extent of
such expiration, forfeiture, termination or cash settlement,
automatically replenish the 2018 Plan share reserve and become
available for future awards. In such event, the 2018 Plan’s
share reserve will be increased in the same amount by which the
applicable share reserve was decreased upon the grant of the
applicable award. Any shares tendered or withheld to pay the
exercise price or satisfy a tax withholding obligation in
connection with any award, any shares repurchased by the Company
using option exercise proceeds and any shares subject to a SAR
award that are not issued in connection with the stock settlement
of the SAR award on its exercise may not be used again for new
grants.
Awards that may be
settled solely in cash will not reduce the share reserve and will
not reduce the shares authorized for grant to a participant in each
calendar year. Awards granted or shares of our common stock issued
under the 2018 Plan upon the assumption of, or in substitution or
exchange for, outstanding equity awards previously granted by an
entity acquired by us or any of our subsidiaries (referred to as
“substitute awards”) will not reduce the share reserve
under the 2018 Plan. Additionally, if a company acquired by us or
any of our subsidiaries has shares available under a pre-existing
plan approved by its shareholders and not adopted in contemplation
of such acquisition, the shares available for grant pursuant to the
terms of that pre-existing plan may be used for awards under the
2018 Plan and will not reduce the share reserve under the
2018 Plan, but only if the awards are made to individuals who
were not employed by or providing services to us or any of our
subsidiaries immediately prior to such acquisition.
Share Adjustment
Provisions. If certain transactions with our shareholders
occur that cause the per share value of our common stock to change,
such as stock splits, spin-offs, stock dividends or certain
recapitalizations (referred to as “equity
restructurings”), the GCN Committee will equitably adjust
(i) the class of shares issuable and the maximum number and
kind of shares subject to the 2018 Plan, (ii) outstanding
awards as to the class, number of shares and price per share, and
(iii) award limitations prescribed by the 2018 Plan. Other
types of transactions may also affect our common stock, such as
reorganizations, mergers or consolidations. If there is such a
transaction and the committee determines that adjustments of the
type previously described in connection with equity restructurings
would be appropriate to prevent any dilution or enlargement of
benefits under the 2018 Plan, the committee will make such
adjustments as it may deem equitable.
Types of Awards. The
2018 Plan permits us to award stock options, SARs, restricted stock
awards, stock unit awards, and other stock-based awards to eligible
recipients. These types of awards are described in more detail
below.
Options. Employees of our Company or
any subsidiary may be granted options to purchase common stock that
qualify as “incentive stock options” within the meaning
of Section 422 of the Code, and any eligible recipient may be
granted options to purchase common stock that do not qualify as
incentive stock options, referred to as “nonqualified stock
options.” The per share exercise price to be paid by a
participant at the time an option is exercised may not be less than
100% of the fair market value
of one share of our common stock on the date of grant, unless the
option is granted as a substitute award as described earlier.
“Fair market value” under the 2018 Plan as of any date
means the closing sale price of a share of our common stock on the
Nasdaq Stock Market on that date. As of May 30, 2018, the closing
sale price of a share of our common stock on the Nasdaq Stock
Market was $1.83.
The total purchase
price of the shares to be purchased upon exercise of an option will
be paid by the participant in cash unless the GCN Committee allows
exercise payments to be made, in whole or in part, (i) by
means of a broker-assisted sale and remittance program,
(ii) by delivery to us (or attestation as to ownership) of
shares of common stock already owned by the participant, or
(iii) by a “net exercise” of the option in which a
portion of the shares otherwise issuable upon exercise of the
option are withheld by us. Any shares delivered or withheld in
payment of an exercise price will be valued at their fair market
value on the exercise date.
An option will vest
and become exercisable at such time, in such installments and
subject to such conditions as may be determined by the GCN
Committee, and no option may have a term greater than 10 years from
its date of grant. No dividends or dividend equivalents may be paid
or credited with respect to shares subject to an option
award.
The aggregate fair
market value of shares of our common stock with respect to which
incentive stock options granted to any participant may first become
exercisable during any calendar year may not exceed $100,000. Any
incentive stock options that become exercisable in excess of this
amount will be treated as nonqualified stock options. The maximum
number of shares that may be issued upon the exercise of incentive
stock option awards under the 2018 Plan is equal to 100,000
shares.
Stock Appreciation Rights. A SAR award
provides the right to receive a payment from us equal to the
difference between (i) the fair market value as of the date of
exercise of the number of shares of our common stock as to which
the SAR is being exercised, and (ii) the aggregate exercise
price of that number of shares. The GCN Committee determines
whether payment will be made in shares of our common stock, cash or
a combination of both. The exercise price per share of a SAR award
will be determined by the committee, but may not be less than 100
percent of the fair market value of one share of our common stock
on the date of grant, unless the SAR is granted as a substitute
award as described earlier. No dividends or dividend equivalents
may be paid or credited with respect to shares subject to a SAR
award. A SAR award may not have a term greater than 10 years from
its date of grant, and will be subject to such other terms and
conditions, consistent with the terms of the 2018 Plan, as may be
determined by the committee.
Restricted Stock Awards. A restricted
stock award is an award of our common stock that vests at such
times and in such installments as may be determined by the GCN
Committee. Until it vests, the shares subject to the award are
subject to restrictions on transferability and the possibility of
forfeiture. The committee may impose such restrictions or
conditions to the vesting of restricted stock awards as it deems
appropriate, including that the participant remain continuously in
our service for a certain period or that we, or any of our
subsidiaries or business units, satisfy specified performance
goals. Any dividends or distributions payable with respect to
shares that are subject to the unvested portion of a restricted
stock award will be subject to the same restrictions and risk of
forfeiture as the shares to which such dividends or distributions
relate. Participants are entitled to vote restricted shares prior
to the time they vest.
Stock Unit Awards. A stock unit award
is a right to receive the fair market value of a specified number
of shares of our common stock, payable in cash, shares, or a
combination of both, that vests at such times, in such installments
and subject to such conditions as may be determined by the GCN
Committee. Until it vests, a stock unit award is subject to
restrictions and the possibility of forfeiture. Stock unit awards
will be subject to such terms and conditions, consistent with the
other provisions of the 2018 Plan, as may be determined by the
committee. The committee may provide for the payment of dividend
equivalents on stock unit awards and other stock-based awards, but
any such dividend equivalents will be subject to the same
restrictions and risk of forfeiture as the underlying units or
other share equivalents to which such dividend equivalents
relate.
Other Stock-Based Awards. The GCN
Committee may grant awards of common stock and other awards that
are valued by reference to and/or payable in shares of our common
stock under the 2018 Plan. The committee has discretion in
determining the terms and conditions of such awards.
Transferability of
Awards. In general, no right or interest in any award under
the 2018 Plan may be assigned, transferred, exchanged or encumbered
by a participant, voluntarily or involuntarily, except by will or
the laws of descent and distribution. However, the GCN Committee
may provide that an award (other than an incentive stock option)
may be transferable by gift to a participant’s family member
or pursuant to a domestic relations order. Any permitted transferee
of such an award will remain subject to all the terms and
conditions of the award applicable to the participant.
Change in Control.
If a change in control of the Company that involves a corporate
transaction occurs, then the consequences will be as described
below. If outstanding awards are continued, assumed or replaced by
the surviving or successor entity in connection with a corporate
transaction, and if within 12 months after the corporate
transaction a participant’s employment or other service is
involuntarily terminated without cause, (i) each of the
participant’s outstanding options and SARs will become
exercisable in full and remain exercisable for one year, and
(ii) each of the participant’s unvested full value
awards will fully vest. For these purposes, a performance-based
full value award will be considered fully vested if the performance
goals are deemed to have been satisfied at the target level of
performance and the vested portion of the award at that level of
performance is proportionate to the portion of the performance
period elapsed prior to the participant’s termination of
employment or other service.
If any outstanding
award is not continued, assumed or replaced in connection with a
change in control involving a corporate transaction, then
(i) all outstanding options and SARs will become fully
exercisable for a period of time prior to the effective time of the
corporate transaction and will then terminate at the effective time
of the corporate transaction, and (ii) all full value awards
will fully vest immediately prior to the effective time of the
corporate transaction. In this scenario, performance-based full
value awards will be considered fully vested in the same manner as
described above, except that the proportionate vesting amount will
be determined with respect to the portion of the performance period
that elapsed prior to the corporate transaction. Alternatively, if
outstanding awards are not continued, assumed or replaced, the GCN
Committee may elect to cancel such awards in exchange for a payment
with respect to each award in an amount equal to the excess, if
any, between the fair market value of the shares subject to the
award immediately prior to the effective date of such corporate
transaction (which may be the fair market value of the
consideration to be received in the corporate transaction for the
same number of shares) over the aggregate exercise price (if any)
for the shares subject to such award (or, if there is no excess,
such award may be terminated without payment).
If a change in
control of the Company occurs that does not involve a corporate
transaction, and if within 12 months after the change in control a
participant’s employment or other service is involuntarily
terminated without cause, (i) each of the participant’s
outstanding options and SARs will become exercisable in full and
remain exercisable for one year, and (ii) each of the
participant’s unvested full value awards will fully vest. For
these purposes, a performance-based full value award will be
considered fully vested if the performance goals are deemed to have
been satisfied at the target level of performance and the vested
portion of the award at that level of performance is proportionate
to the portion of the performance period elapsed prior to the
participant’s termination of employment or other
service.
For purposes of the
2018 Plan, the following terms have the meanings
indicated:
●
A “change in
control” generally refers to a corporate transaction as
defined below, the acquisition by a person or group of beneficial
ownership of 50% or more of the voting power of our stock, or our
incumbent directors ceasing to constitute a majority of the
Board.
●
A “corporate
transaction” generally means (i) a sale or other
disposition of all or substantially all of the assets of the
Company, or (ii) a merger, consolidation, share exchange or similar
transaction involving the Company.
Effect of Termination of
Employment. Unless otherwise set forth in an applicable
award agreement, if a participant ceases to be employed by or
provide other services to us and our subsidiaries, awards under the
2018 Plan will be treated as set forth in the 2018 Plan. Upon
termination for cause, all unexercised option and SAR awards and
all unvested portions of any other outstanding awards will be
immediately forfeited without consideration. Upon termination for
any other reason, all unvested and unexercisable portions of any
outstanding awards will be immediately forfeited without
consideration. Upon termination for any reason other than cause,
death or disability, the currently vested and exercisable portions
of option and SAR awards may be exercised for a period of three
months after the date of termination; however, if the participant
dies during such three-month period, the vested and exercisable
portions of the option and SAR awards may be exercised for a period
of one year after the date of such termination. Upon termination
due to death or disability, the currently vested and exercisable
portions of option and SAR awards may be exercised for a period of
one year after the date of termination. Under the 2018 Plan,
“cause” is generally defined as (i) material failure to
perform satisfactorily the duties reasonably required by the
Company; (ii) material violation of any law, rule, regulation,
court order or regulatory directive (other than traffic violations,
misdemeanors or other minor offenses); (iii) material breach of the
Company’s business conduct or ethics code or of any fiduciary
duty or nondisclosure, non-solicitation, non-competition or similar
obligation owed to the Company or any affiliate; (iv) engaging in
any act or practice that involves personal dishonesty on the part
of the employee or demonstrates a willful and continuing disregard
for the best interests of the Company and its affiliates; or (v)
engaging in dishonorable or disruptive behavior, practices or acts
which would be reasonably expected to harm or bring disrepute to
the Company or any of its affiliates, their business or any of
their customers, employees or vendors.
Effective Date and Term of
the 2018 Plan. The 2018 Plan will become effective on the
date it is approved by the Company’s shareholders. No awards
will be made under the 2018 Plan prior to its effective date.
Unless terminated earlier, the 2018 Plan will terminate on the
tenth anniversary of the effective date. Awards outstanding under
the 2018 Plan at the time it is terminated will continue in
accordance with their terms and the terms of the 2018 Plan unless
otherwise provided in the applicable agreements. The Board may
suspend or terminate the 2018 Plan at any time.
Amendment of the
Plan. The Board may amend the 2018 Plan from time to time,
but no amendments to the 2018 Plan will be effective without
shareholder approval if such approval is required under applicable
laws, regulations or stock exchange rules. Termination, suspension
or amendment of the 2018 Plan may not adversely affect any
outstanding award without the consent of the affected participant,
except for amendments necessary to comply with applicable laws or
stock exchange rules.
U.S.
Federal Income Tax Consequences
The following is a
summary of the principal United States federal income tax
consequences to the Company and to participants subject to U.S.
taxation with respect to awards granted under the 2018 Plan, based
on current statutes, regulations and interpretations.
Non-qualified Stock
Options. If a participant is granted a non-qualified stock
option under the 2018 Plan, the participant will not recognize
taxable income upon the grant of the option. Generally, the
participant will recognize ordinary income at the time of exercise
in an amount equal to the difference between the fair market value
of the shares acquired at the time of exercise and the exercise
price paid. The participant’s basis in the common stock for
purposes of determining gain or loss on a subsequent sale or
disposition of such shares generally will be the fair market value
of our common stock on the date the option was exercised. Any
subsequent gain or loss will be taxable as a capital gain or loss.
The Company will generally be entitled to a federal income tax
deduction at the time and for the same amount as the participant
recognizes as ordinary income.
Incentive Stock
Options. If a participant is granted an incentive stock
option under the 2018 Plan, the participant will not recognize
taxable income upon grant of the option. Additionally, if
applicable holding period requirements (a minimum of two years from
the date of grant and one year from the date of exercise) are met,
the participant will not recognize taxable income at the time of
exercise. However, the excess of the fair market value of the
shares acquired at the time of exercise over the aggregate exercise
price is an item of tax preference income potentially subject to
the alternative minimum tax. If shares acquired upon exercise of an
incentive stock option are held for the holding period described
above, the gain or loss (in an amount equal to the difference
between the fair market value on the date of sale and the exercise
price) upon disposition of the shares will be treated as a
long-term capital gain or loss, and the Company will not be
entitled to any deduction. Except in the event of death, if the
holding period requirements are not met, the incentive stock option
will be treated as one that does not meet the requirements of the
Code for incentive stock options and the tax consequences described
for nonqualified stock options will generally apply.
Other Awards. The
current federal income tax consequences of other awards authorized
under the 2018 Plan generally follow certain basic patterns. An
award of restricted stock results in income recognition by a
participant in an amount equal to the fair market value of the
shares received at the time the restrictions lapse and the shares
vest, unless the participant elects under Code Section 83(b)
to accelerate income recognition and the taxability of the award to
the date of grant. Stock unit awards generally result in income
recognition by a participant at the time payment of such an award
is made in an amount equal to the amount paid in cash or the
then-current fair market value of the shares received, as
applicable. SAR awards result in income recognition by a
participant at the time such an award is exercised in an amount
equal to the amount paid in cash or the then-current fair market
value of the shares received by the participant, as applicable. In
each of the foregoing cases, the Company will generally have a
corresponding deduction at the time the participant recognizes
ordinary income, subject to Code Section 162(m) with respect
to covered employees.
Section 162(m) of the
Code. Code Section 162(m) denies a deduction to any
publicly-held corporation for compensation paid to certain
“covered employees” in a taxable year to the extent
that compensation to the covered employee exceeds
$1,000,000.
Section 409A of the
Code. The foregoing discussion of tax consequences of awards
under the 2018 Plan assumes that the award discussed is either not
considered a “deferred compensation arrangement”
subject to Section 409A of the Code, or has been structured to
comply with its requirements. If an award is considered a deferred
compensation arrangement subject to Section 409A but fails to
comply, in operation or form, with the requirements of
Section 409A, the affected participant would generally be
required to include in income when the award vests the amount
deemed “deferred,” would be required to pay an
additional 20 percent income tax on such amount, and would be
required to pay interest on the tax that would have been paid but
for the deferral.
Awards
Under the 2018 Plan
Because the 2018
Plan will not become effective until it is approved by our
shareholders, the GCN Committee has not yet approved any awards
under, or subject to, the 2018 Plan. In addition, because all
awards under the 2018 Plan are discretionary with the committee,
neither the number nor types of future 2018 Plan awards to be
received by or allocated to particular participants or groups of
participants is presently determinable.
Required
Vote; Effect of Proposal
The affirmative
vote of the holders of a majority of the outstanding shares of our
common stock of the entitled to vote on this item and present in
person or by proxy at the Annual Meeting is required for approval
of this proposal. Proxies solicited by the Board will be voted for
approval of this proposal, unless otherwise specified. If
shareholder approval is not obtained, then the 2013 Plan will
remain in effect under its current terms and the 2018 Plan will not
become effective.
THE
BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THIS
PROPOSAL FOUR.
PROPOSAL
FIVE –
APPROVAL
OF AMENDMENT AND RESTATEMENT OF
INSIGNIA
SYSTEMS, INC. EMPLOYEE STOCK PURCHASE PLAN
On May 21,
2018, the Board adopted, subject to shareholder approval, an
amendment (the “Amendment”) to the Insignia Systems,
Inc. Employee Stock Purchase Plan (the ”ESPP”) to
increase the number of shares of our common stock available for
purchase under the ESPP by 300,000 shares. The Amendment is
effective as of the date of shareholder approval.
The ESPP was
originally adopted by the Board, was subsequently approved by our
shareholders in 1993 and will continue until terminated by the
board. As of the most recent amendment approved by shareholders in
2012, there were 1,400,000 shares of our common stock initially
available for purchase under the ESPP. As of May 21, 2018,
85,721 shares of our common stock remained available for purchase
under the ESPP. The Board believes that an increase in the shares
available for purchase under the ESPP from 1,400,000 to 1,700,000
shares is necessary and advisable. The ESPP offers eligible
employees the opportunity to acquire a stock ownership interest in
the Company through periodic payroll deductions that are applied
toward the purchase of shares of our common stock at a discount
from the then-current market price. The ESPP is intended to qualify
under Section 423 of the Internal Revenue Code of 1986, as amended
(the “Code”). Shareholder approval of the Amendment is
being sought in order to authorize the replenishment of the
ESPP’s share reserve and to maintain the qualified status of
the ESPP under Section 423 of the Code.
The full text of
the ESPP, as proposed to be amended by the Amendment, is contained
in Appendix B
to this proxy statement. The significant features of the ESPP are
summarized below.
Administration
The ESPP is
administered by the GCN Committee. The committee has full authority
to adopt rules and procedures to administer the ESPP, to interpret
the provisions of the ESPP, to determine the terms and conditions
of offerings under the ESPP, and to designate which of our
subsidiaries may participate in the ESPP. All costs and expenses
incurred for ESPP administration are paid by the
Company.
Securities
Subject to the ESPP
The maximum number
of shares of our common stock that will be authorized for purchase
under the ESPP after the Amendment is effective is 1,700,000. The
shares are to be made available from authorized but unissued shares
of our common stock. Any shares issued under the ESPP will reduce,
on a one-for-one basis, the number of shares available for
subsequent issuance under the ESPP. In the event of any change to
our outstanding common stock, such as a recapitalization, stock
split or similar event, appropriate adjustments will be made to the
number and class of shares available under the ESPP and to the
number, class and purchase price of shares subject to each
outstanding purchase right. Based on 11,962,996 shares of common
stock outstanding on May 21, 2018, the 385,721 shares that will be
available for issuance under the amended and restated ESPP
represent approximately 3.2% of the total number of shares of
common stock issued and outstanding.
Eligibility
and Participation
Any individual
employed by the Company or any participating subsidiary corporation
(including any corporation which subsequently becomes such at any
time during the term of the ESPP) who is customarily expected to
work more than 20 hours per week and at least five months in any
calendar year is eligible to participate in the ESPP. As of
May 21, 2018, approximately 60 employees, including our named
executive officers, were eligible to participate in the ESPP,
approximately 50% of whom were actively participating as of the
same date. Eligible employees may enroll in the ESPP and begin
participating at the start of any purchase period.
Purchase
Periods and Purchase Dates
Shares are
purchased for participating employees automatically on the last day
of a plan year, unless the participant elects in writing prior to
such date not to complete the purchase. A participant may at any
time during a plan year give notice that he or she does not wish to
continue to participate, and all amounts withheld are then refunded
with interest.
Purchase
Price
The purchase price
of our common stock acquired on each purchase date will be no less
than 85% of the lower of (i) the closing market price per share of
our common stock on the first day of the applicable plan year or
(ii) the closing market price per share of our common stock on the
purchase date at the end of the applicable plan year.
The closing market
price of our common stock on any relevant date under the ESPP will
be deemed to be equal to the closing selling price per share on
such date on the Nasdaq Capital Market. The closing sale price of
our common stock on the Nasdaq Capital Market on May 30, 2018 was
$1.83 per share.
Payroll
Deductions and Stock Purchases
Each participant
may elect to have an amount of eligible compensation of at least
$10 withheld as a payroll deduction per pay period. The accumulated
deductions will automatically be applied on each purchase date to
the purchase of shares of our common stock at the purchase price in
effect for that purchase date. For purposes of the ESPP, eligible
compensation generally includes base salary, bonuses, commissions
and overtime pay, and excludes allowances and income with respect
to equity-based awards. Payroll deductions are limited to 10% of
the participating employee’s base pay for the plan
year.
Special
Limitations
The ESPP imposes
certain limitations upon a participant’s right to acquire our
common stock, including the following:
●
Purchase rights may
not be granted to any individual who owns stock (including stock
purchasable under any outstanding purchase rights) possessing 5% or
more of the total combined voting power or value of all classes of
our stock or the stock of any of our
subsidiaries.
●
A participant may
not be granted rights to purchase more than $25,000 worth of our
common stock (valued at the time each purchase right is granted)
for each calendar year in which such purchase rights are
outstanding.
●
No participant may
purchase more than 10,000 shares of our common stock during any
plan year.
Termination
or Modification of Purchase Rights
A participant may
withdraw from the ESPP at any time, and his or her accumulated
payroll deductions will be promptly refunded. A participant may
only increase or decrease the amount of his or her payroll
deductions as of the first payroll period in any purchase period. A
participant’s purchase right will immediately terminate upon
his or her cessation of employment for any reason. Any payroll
deductions that the participant may have made for the purchase
period in which such cessation of employment occurs will be
refunded and will not be applied to the purchase of common
stock.
Shareholder
Rights
No participant will
have any shareholder rights with respect to the shares covered by
his or her purchase rights until the shares are actually purchased
on the participant’s behalf through the ESPP.
Transferability
No purchase rights
will be assignable or transferable by the participant, except by
will or the laws of inheritance following a participant’s
death.
Corporate
Transactions
If the Company is
acquired by merger or through the sale of all or substantially all
its assets, the Board may provide that (i) each right to acquire
shares on any purchase date scheduled to occur after the date of
the consummation of the acquisition transaction shall be continued
or assumed or an equivalent right shall be substituted by the
surviving or successor corporation or its parent or subsidiary,
(ii) the ESPP shall be terminated, or (iii) the purchase period
then in progress shall be shortened by setting a new purchase
date.
Share
Proration
Should the total
number of shares of common stock to be purchased pursuant to
outstanding purchase rights on any particular purchase date exceed
the number of shares remaining available for issuance under the
ESPP at that time, then the GCN Committee will make a pro-rata
allocation of the available shares on a uniform and
nondiscriminatory basis, and the payroll deductions of each
participant not used to purchase shares will be
refunded.
Amendment
and Termination
The ESPP may be
terminated at any time by the Board, and will terminate upon the
date on which all shares remaining available for issuance under the
ESPP are sold pursuant to exercised purchase rights.
The Board may at
any time amend or suspend the ESPP. However, the Board may not,
without shareholder approval, amend the ESPP to (i) increase the
number of shares issuable under the ESPP or (ii) effect any other
change in the ESPP that would require shareholder approval under
applicable law or to maintain compliance with Section 423 of the
Code.
U.S.
Federal Income Tax Consequences
The following is a
summary of the principal United States federal income tax
consequences to the Company and to participants subject to U.S.
taxation with respect to participation in the ESPP. This summary
assumes the ESPP qualifies as an “employee stock purchase
plan” within the meaning of Section 423 of the Code, is not
intended to be exhaustive and does not discuss the income tax laws
of any city, state or foreign jurisdiction in which a participant
may reside.
Under a qualified
Code Section 423 arrangement, no taxable income will be recognized
by a participant, and no deductions will be allowed to the Company,
upon either the grant or the exercise of the purchase rights.
Taxable income will not be recognized until either there is a sale
or other disposition of the shares acquired under the ESPP or in
the event the participant should die while still owning the
purchased shares.
If a participant
sells or otherwise disposes of the purchased shares within two
years after the first day of the purchase period in which such
shares were acquired, or within one year after the actual purchase
date of those shares, then the participant will recognize ordinary
income in the year of sale or disposition equal to the amount by
which the closing market price of the shares on the purchase date
exceeded the purchase price paid for those shares, and the Company
will be entitled to an income tax deduction, for the taxable year
in which such disposition occurs, equal in amount to such excess.
The participant also will recognize a capital gain to the extent
the amount realized upon the sale of the shares exceeds the sum of
the aggregate purchase price for those shares and the ordinary
income recognized in connection with their
acquisition.
If a participant
sells or otherwise disposes of the purchased shares more than two
years after the first day of the purchase period in which the
shares were acquired and more than one year after the actual
purchase date of those shares, the participant will recognize
ordinary income in the year of sale or disposition equal to the
lower of (i) the amount by which the selling price of the shares on
the sale or disposition date exceeded the purchase price paid for
those shares or (ii) 15% of the closing market price of the shares
on the first day of the purchase period in which the shares were
acquired. Any additional gain upon the disposition will be taxed as
a long-term capital gain. The Company will not be entitled to an
income tax deduction with respect to such disposition.
If a participant
still owns the purchased shares at the time of death, his or her
estate will recognize ordinary income in the year of death equal to
the lower of (i) the amount by which the closing market price of
the shares on the date of death exceeds the purchase price or (ii)
15% of the closing market price of the shares on the first day of
the purchase period in which those shares were
acquired.
Plan
Benefits
The benefits to be
received by our executive officers and employees as a result of the
ESPP are not determinable because the amounts of future purchases
by participants are based on elective participant
contributions.
Required
Vote; Effect of Proposal
The affirmative
vote of the holders of a majority of the outstanding shares of our
common stock of the entitled to vote on this item and present in
person or by proxy at the Annual Meeting is required for approval
of this proposal. Proxies solicited by the Board will be voted for
approval of this proposal, unless otherwise specified. If
shareholder approval is not obtained, then the ESPP will remain in
effect under its current terms until the date the Board terminates
the ESPP.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE
“FOR” THIS PROPOSAL FIVE
PROPOSAL
SIX –
APPROVAL
OF VOTING RIGHTS UNDER
MINNESOTA
CONTROL SHARE ACQUISITION ACT
Description
of the Minnesota Control Share Acquisition Act
The CSAA (a copy of
which is attached hereto as Appendix C) limits the voting
rights of a shareholder acquiring a substantial percentage of the
voting shares of a corporation, unless holders of a majority of the
voting power of the disinterested shares approve full voting rights
for the substantial shareholder.
For the CSAA to
apply, the shares of an “issuing public corporation,”
such as the Company, must be acquired by an “acquiring
person” in a “control share
acquisition.”
An “acquiring
person” is a person engaging in a “control share
acquisition.” The definition of an “acquiring
person” also includes a group of two or more persons or
entities that act pursuant to an agreement or other relationship as
a group.
A “control
share acquisition” exists when an acquisition causes the
acquirer to have voting power over: (a) at least 20% but
less than 33-1/3% of the outstanding shares; (b) at least 33-1/3%
but less than or equal to 50% of the outstanding shares; and (c)
over 50% of the outstanding shares. Shares acquired in a control
share acquisition in excess of any of the three thresholds (the
“Shares Subject to the CSAA”) will not have voting
rights, unless shareholders vote to accord the Shares Subject to
the CSAA such voting rights by resolution adopted by (1) the
affirmative vote of the holders of a majority of the voting power
of all shares entitled to vote, including all shares held by the
acquiring person, and (2) the affirmative vote of the holders
of a majority of the voting power of all shares entitled to vote,
excluding all “interested shares” (i.e., all shares
held by the acquiring person, any officer of the issuing public
corporation, or any director who is also an employee of the
corporation).
For a vote to take
place, the acquiring person must deliver to the corporation an
information statement. The information statement must contain a
number of items of information concerning the acquiring person and
the acquiring person’s plans for the issuing public
corporation. The following list of disclosures is required under
the CSAA to afford the Board and the Company’s shareholders a
meaningful opportunity to evaluate a control share
acquisition:
●
Information about
the acquiring person’s identity and background, including the
identity and background of each member of the group constituting
the acquiring person, and the identity and background of each
affiliate and associate of each member of the
group;
●
Reference to the
statute section pursuant to which the disclosures are
made;
●
The number and
class or series of shares of the issuing public corporation
beneficially owned, directly or indirectly, before the control
share acquisition by each member of the acquiring
person;
●
The number and
class or series of shares acquired pursuant to the control share
acquisition by each of the persons and specification of the
statutory ranges of voting power in the election of directors that,
except for the statutory provision, resulted from consummation of
the control share acquisition; and
●
The terms of the
control share acquisition, including but not limited to the source
of funds or other consideration and the material terms of the
financial arrangements for the control share acquisition, and any
plans or proposals (including plans and proposals that are under
consideration) to: (i) liquidate, dissolve, or sell all
or a substantial part of the assets of the corporation, to merge it
or exchange its assets with any other person; (ii) change the
location of its principal place of business or its principal
executive office or of a material portion of its business
activities; (iii) change materially its management or policies of
employment; (iv) change materially its charitable or community
contributions or its policies, programs, or practices relating
thereto; (v) change materially its relationship with suppliers or
customers or the communities in which it operates; or (vi) make any
other material change in its business, corporate structure,
management or personnel, and other objective facts as would be
substantially likely to affect the decision of a shareholder with
respect to voting on the control share
acquisition.
Material changes in
such disclosed information must be disclosed promptly to the
issuing public corporation by amending the information statement
and delivering the amendment to the corporation’s principal
executive office. Increases or decreases in share ownership
aggregating to 1% or more by all persons required to have their
share ownership disclosed in the information statement are deemed
material.
Effect
of the Approval
A vote to approve
this proposal will accord full voting rights to all of the Shares
Subject to the CSAA owned by the Shareholder Group and voting
rights with respect to any additional shares that the Shareholder
Group may acquire up to 33-1/3% of the Company’s outstanding
shares.
However, if a
future acquisition by the Shareholder Group of the Company’s
common stock causes the Shareholder Group’s beneficial
ownership to equal or exceed 33-1/3%, an additional affirmative
vote under the CSAA will be necessary to accord voting rights to
the shares acquired by the Shareholder Group in excess of the
33-1/3% threshold.
To the Company's
knowledge, the Shareholder Group beneficially owned 3,850,282
shares of the Company's outstanding common stock as of the record
date, 2,392,599 of which may be voted on Proposals 1 through 5 at
the Annual Meeting and 1,457,683 of which are subject to the voting
restrictions imposed by the CSAA. If the Shares Subject to the CSAA
are not accorded voting rights, such shares will regain those
rights if transferred to persons other than the acquiring person or
any of its affiliates or associates, so long as the transfer itself
does not constitute a control share acquisition. If the shares are
not transferred in such a manner and shareholder approval is not
received under the CSAA, then pursuant to Subdivision 6 of the CSAA
the Company may redeem all of the Shares Subject to the CSAA at a
price equal to the fair market value of the shares at the time the
Company calls them for redemption.
Control
Share Acquisition by Shareholder Group
On January 19,
2018, the Shareholder Group submitted an information statement to
the Company disclosing that the Shareholder Group had acquired
common stock of the Company that caused the total ownership by the
Shareholder Group to increase to approximately 29.91% of shares
outstanding. A copy of the information statement,
including all amendments to date, is attached hereto as
Appendix D.
The acquisition of shares by the Shareholder Group equal to and in
excess of 20% constitutes a control share acquisition under the
CSAA and such shares are deemed Shares Subject to the CSAA. As a
result, the CSAA requires that the Company bring this Proposal
before the Annual Meeting, and the Shareholder Group is prohibited
by the CSAA from voting the Shares Subject to the CSAA unless the
shareholders of the Company vote in favor of reinstating such
rights. To the Company’s knowledge, as of the record date,
the Shareholder Group collectively beneficially owned approximately
32.2% of the issued and outstanding shares of the Company’s
common stock.
On March 23,
2018, the Company received a letter from Air T containing proposals
for certain governance changes, including changes to the
composition of the Board. The letter was filed with the SEC on
behalf of the Shareholder Group as an exhibit to a Schedule 13D/A
filed on the same date. On April 6, 2018, the Company received
from the Shareholder Group written notice of the nomination of five
director candidates, including Ms. Clarridge and Mr. Unterseher,
for election at the 2018 Annual Meeting. After substantial and
continuous engagement among representatives of the Company and
representatives of the Shareholder Group, the Company and the
Shareholder Group entered into the Cooperation Agreement on
May 17, 2018. See “Certain Relationships and Related
Party Transactions” on page 36. The Cooperation Agreement
provides that the Board will not recommend to shareholders that
they vote against this Proposal 6 but shall remain fully
neutral on the proposal, and the Company will not take any action
to make any solicitation in opposition to this
proposal.
Recommendation
by the Board of Directors
Consistent with the
Board’s obligations under the Cooperation Agreement, the
Board is not recommending that shareholders vote against, and is
remaining neutral with respect to, this
Proposal 6.
Required
Vote; Effect of Proposal
For this Proposal 6
to accord voting power to the Shares Subject to the CSAA, both the
First Approval and Second Approval are required. See
“How many votes are required to approve the proposals?”
on page 3.
Proxies solicited
by the Board will not be voted on this Proposal 6 unless a
“for” or “against” vote is specified. If
shareholder approval is not obtained, then the Shares Subject to
the CSAA will not be accorded voting rights and the Company would
have the option to call for redemption all of the Shares Subject to
the CSAA within 30 days after the Annual Meeting, as described
further above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table
presents information provided to the Company as to the beneficial
ownership of common stock as of May 21, 2018, by: (i) persons known
to the Company to hold 5% or more of such stock; (ii) each of the
directors of the Company; (iii) each of the Named Executive
Officers; and (iv) by all directors and current executive officers
as a group. The address of each director and executive officer is
8799 Brooklyn Boulevard, Minneapolis, Minnesota 55445. Beneficial
ownership includes shares available for purchase under options and
subject to settlement under restricted stock units within 60 days
after May 21, 2018. Unless otherwise indicated, each person had
sole voting power and sole investment power for all such shares
beneficially held.
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of
Beneficial Ownership(1)
|
Percent
of
Shares
|
|
Shareholders / Shareholder Groups
|
|
|
|
Air T, Inc., et
al.
|
3,850,282(2)
|
32.2%
|
|
3524 Airport
Road
|
|
|
|
Maiden, NC
28650
|
|
|
|
|
|
|
|
Cable Car Capital
LLC
|
1,014,943(3)
|
8.5%
|
|
1449 Washington Street
#6
|
|
|
|
San Francisco, CA
94109
|
|
|
|
|
|
|
|
Renaissance Technologies
LLC
|
642,000(4)
|
5.4%
|
|
800 Third
Avenue
|
|
|
|
New York, NY
10022
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
Jacob J.
Berning
|
19,742
|
*
|
|
Suzanne L.
Clarridge
|
–
|
–
|
|
Kristine A.
Glancy
|
109,556
|
*
|
|
Loren A.
Unterseher
|
10,000
|
*
|
|
Rachael B.
Vegas
|
14,423
|
*
|
|
Steven R. Zenz
|
50,778(5)
|
*
|
|
Jeffrey A.
Jagerson
|
60,000
|
*
|
|
Mark A. Cherrey(6)
|
9,677
|
*
|
|
|
|
|
|
All current
directors and executive officers as a group (7
persons)
|
264,499(
5)
|
2.2%
|
________________________________
*Less than one
percent.
(1)
Does
not include 1,266 and 949 common stock equivalents held by Mr.
Berning and Mr. Zenz, respectively, under the Insignia Systems Inc.
Deferred Compensation Plan for Directors. These
common stock equivalents carry no voting rights and the recipient
does not have the right to acquire any underlying shares within 60
days of May 21, 2018.
(2)
Based
on Amendment No. 12 to Schedule 13D filed with the SEC on May 22,
2018 by Air T, Inc., Groveland Capital LLC, and Nicholas J.
Swenson, reporting ownership as of May 21, 2018. Mr. Swenson is the
Chief Executive Officer and a director of Air T. Air T, Inc. has
sole dispositive and voting power over 3,416,114 shares and
disclaims beneficial ownership of the securities held by Groveland.
Groveland owns 422,000 shares and each of Groveland and Mr. Swenson
share dispositive and voting power over all 422,000 shares. Mr.
Swenson personally owns 12,168 shares of common stock. Groveland
disclaims beneficial ownership of the securities held by Air T. Mr.
Swenson disclaims beneficial ownership of the securities held by
Air T and Groveland except to the extent of his pecuniary interest
therein.
(4)
Based
on Amendment No. 1 to Schedule 13G filed with the SEC on February
14, 2018 by Renaissance Technologies LLC and Renaissance
Technologies Holdings Corporation, reporting ownership as of
December 29, 2017. Shares are beneficially owned by
Renaissance Technologies Holdings Corporation, which is a majority
ownership of Renaissance Technologies LLC.
(5)
Includes 13,661 shares subject to options.
(6)
Mr.
Cherrey resigned from all positions with the Company in
June 2017.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of
the Securities and Exchange Act of 1934 requires that our directors
and executive officers file initial reports of ownership and
reports of changes in ownership with the SEC. Directors and
executive officers are required to furnish us with copies of all
Section 16(a) forms they file. Based solely on a review of the
copies of such forms furnished to us and written representations
from our directors and executive officers, all Section 16(a) filing
requirements were met for 2017 other than one late report on Form 4
for each of Mr. Howe, Mr. Zaballos and Mr. Zenz, reporting
adjustments to outstanding common stock options to accommodate the
dividend paid on January 6, 2017.
CERTAIN RELATIONSHIPS AND RELATED-PARTY
TRANSACTIONS
The SEC has
specific disclosure requirements covering certain types of
transactions that we engage in with our directors, executive
officers or other specified parties. The Company receives an
informational questionnaire from each director, nominee for
director, executive officer, and greater than five percent
shareholder which contains information about related-party
transactions between them and the Company. The Company’s
Audit Committee Charter assigns to the Audit Committee the
responsibility to review and approve all related-party
transactions. The Audit Committee reviews each related-party
transaction to determine that it is fair and reasonable to the
Company, and that the price and other terms included in any
transaction are comparable to the terms that would be included in
an arms-length transaction between the Company and an unrelated
third party.
The Company is
party to the Cooperation Agreement dated May 17, 2018, with
the Shareholder Group. To the Company’s knowledge, as of the
record date, the Shareholder Group collectively beneficially owned
approximately 32.2% of the issued and outstanding shares of the
Company’s common stock. Prior to the execution of the
Cooperation Agreement, on March 23, 2018, the Company received
a letter from Air T containing proposals for certain governance
changes, including changes to the composition of the Board. In
response, members of the Board, on behalf of the Company, commenced
increased engagement with representatives of Air T, including Mr.
Swenson and its legal counsel. On April 6, 2018, the Company
received from the Shareholder Group written notice of the
nomination of five director candidates, including Ms. Clarridge and
Mr. Unterseher, for election at the 2018 Annual Meeting. After
substantial and continuous engagement among representatives of the
Company and representatives of the Shareholder Group, the Company
entered into the Cooperation Agreement on May 17, 2018, to,
among other things, minimize reputational damage to the Company as
a result of a distracting and expensive potential contested proxy
solicitation and to ensure that the majority of the Board is
representative of all shareholders.
As disclosed
previously and described elsewhere in this Proxy Statement,
pursuant to the terms of the Cooperation Agreement, the Company has
(i) increased the size of the Board to six and
(ii) appointed Ms. Clarridge and Mr. Unterseher to serve as
additional directors. The Cooperation Agreement resulted in Air
T’s withdrawal of its prior nomination of five director
candidates. It also requires the Company to include Ms. Clarridge
and Mr. Unterseher in its slate of nominees for election at the
Company’s 2018 and 2019 Annual Meetings of Shareholders and
to solicit proxies with a recommendation that shareholders vote in
favor of their election at each such meeting. Also pursuant to the
Cooperation Agreement, Mr. Zaballos retired from the Board and all
committees effective as of May 17, 2018. Mr. Zenz also
announced his retirement from the Board to be effective as of the
Company’s 2019 annual meeting of shareholders. The Company
and the Shareholder Group have agreed to collaboratively identify
and appoint a replacement for Mr. Zenz in 2019, should the Board
decide to do so.
With respect to the
2018 Annual Meeting, the Shareholder Group has agreed to, among
other things, vote in favor of the Company’s director
nominees and in accordance with the Board’s recommendation on
all other proposals, unless Institutional Shareholder Services
recommends otherwise on any such proposal. As required by the CSAA,
the Company has also submitted a proposal for disinterested
shareholders to determine, under the CSAA, whether to approve
voting rights for the Shares Subject to the CSAA.
The Shareholder
Group has agreed to certain customary standstill provisions,
effective as of the date of the Agreement through 60 days prior to
the expiration of the applicable notice period specified in the
Company’s Bylaws related to the nominations of directors at
its 2020 annual meeting of shareholders.
During fiscal year
2017, the Company did not engage in any other transaction, or
series of similar transactions, to which it was a party, in which
the amount involved exceeded the lesser of $120,000 or one percent
of the average of our total assets at year-end for the last two
completed fiscal years in which any of our directors, executive
officers, nominees for election as a director, beneficial owners of
more than 5% of our common stock or members of their immediate
family had a direct or indirect material interest. We do not have
any currently proposed transaction or series of similar
transactions.
OTHER MATTERS
Management of the
Company knows of no matters other than the foregoing to be properly
brought before the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournment or
postponement thereof, then the shares represented by the proxies
solicited by the Board may be voted by the persons named therein at
their discretion.
SUBMISSION OF SHAREHOLDERS PROPOSALS AND
NOMINATIONS
Proposals by
shareholders (other than director nominations) that are submitted
for inclusion in the Company’s proxy statement for its 2019
Annual Meeting of Shareholders must follow the procedures provided
in Rule 14a-8 under the Securities Exchange Act of 1934 and the
Company’s Bylaws. To be timely, such proposals must be given,
either by personal delivery or by United States mail, postage
prepaid, to the Company’s Secretary on or before February 1,
2019. If the date of the 2019 Annual Meeting of Shareholders is
more than 30 days before or after the anniversary of the 2018
Annual Meeting of Shareholders, then such notice will instead be
timely only if delivered within a reasonable time before the
Company begins to print and send its proxy materials.
If a shareholder
intends to propose an item of business to be considered at an
annual meeting of shareholders, but not have it included in the
Company’s proxy statement, or if the shareholder intends to
nominate a person for election as a director at an annual meeting
of shareholders, then the shareholder must provide timely written
notice of such proposal or nomination to the Company’s
Secretary. To be timely under our Bylaws, such notice must be
given, either by personal delivery or by United States mail,
postage prepaid, to the Company’s Secretary not less than
sixty days nor more than ninety days prior to a meeting date
corresponding to the previous year’s annual meeting of
shareholders. For the Company’s 2018 Annual Meeting of
Shareholders, such notice must be given between April 21, 2019
and May 21, 2019, and must comply with all applicable statutes
and regulations, as well as provide all information required
pursuant to the Company’s Bylaws.
HOUSEHOLDING
We have adopted a
procedure approved by the SEC called “householding,” by
which certain shareholders who do not participate in electronic
delivery of proxy materials but who have the same address and
appear to be members of the same family receive only one copy of
our annual report and proxy statement. Each shareholder
participating in householding continues to receive a separate proxy
card. Householding reduces both the environmental impact of our
annual meetings and our mailing and printing expenses.
If you would like
to change your householding election, request that a single copy of
the proxy materials be sent to your address, or request a separate
copy of the proxy materials, please contact Broadridge Financial
Solutions, Inc., by calling (866) 540-7095 or by writing to
Broadridge Householding Department, 51 Mercedes Way, Edgewood, New
York 11717. We will promptly deliver the notice of internet
availability or proxy materials to you upon receipt of your
request. If you hold your shares in street name, please contact
your bank, broker, or other record holder to request information
about householding.
ADDITIONAL INFORMATION
The Company’s
Annual Report on Form 10-K for the fiscal year ended
December 31, 2017, as amended April 30, 2018, accompanies
the delivery of this proxy statement and a copy of such annual
report, as filed with the SEC, is also available on the SEC’s
website, www.sec.gov, and our corporate website,
www.insigniasystems.com. In addition, a copy of the Annual Report
on Form 10-K, as amended, may be sent to any shareholder without
charge (except for exhibits, if requested, for which a reasonable
fee will be charged), upon written request to Insignia Systems,
Inc., 8799 Brooklyn Blvd., Minneapolis, MN 55445.
|
|
By Order of the Board of Directors
Kristine
Glancy
President and
Chiet Executive Officer
|
Whether
or not you plan to attend the meeting, vote your shares over the
Internet or by telephone by following the instructions on the proxy
notice, or, if the proxy materials were mailed to you, by
completing, signing, dating and mailing the enclosed proxy card
promptly in the envelope provided with the proxy card.
36
Appendix
A
INSIGNIA
SYSTEMS, INC.
2018
EQUITY INCENTIVE PLAN
1. Purpose.
The purpose of the Insignia Systems, Inc. 2018 Equity Incentive
Plan (the “Plan”) is to attract and retain the best
available personnel for positions of responsibility with the
Company, to provide additional incentives to them and align their
interests with those of the Company’s shareholders, and to
thereby promote the Company’s long-term business
success.
2. Definitions.
In this Plan, the following definitions will apply.
(a) “Affiliate”
means any entity that is a Subsidiary of the Company.
(b) “Agreement”
means the written or electronic agreement, notice or other document
containing the terms and conditions applicable to each Award
granted under the Plan, including all amendments thereto. An
Agreement is subject to the terms and conditions of the
Plan.
(c) “Award”
means a grant made under the Plan in the form of Options, Stock
Appreciation Rights, Restricted Stock, Stock Units or an Other
Stock-Based Award.
(d) “Board”
means the Board of Directors of the Company.
(e) “Cause”
means, unless otherwise defined in a then-effective written
agreement (including an Agreement) between a Participant and the
Company or any Affiliate, a Participant’s (i) material
failure to perform satisfactorily the duties reasonably required of
the Participant by the Company (other than by reason of
Disability); (ii) material violation of any law, rule, regulation,
court order or regulatory directive (other than traffic violations,
misdemeanors or other minor offenses); (iii) material breach
of the Company’s business conduct or ethics code or of any
fiduciary duty or nondisclosure, non-solicitation, non-competition
or similar obligation owed to the Company or any Affiliate; (iv)
engaging in any act or practice that involves personal dishonesty
on the part of the Participant or demonstrates a willful and
continuing disregard for the best interests of the Company and its
Affiliates; or (v) engaging in dishonorable or disruptive behavior,
practices or acts which would be reasonably expected to harm or
bring disrepute to the Company or any of its Affiliates, their
business or any of their customers, employees or
vendors.
(f) “Change in
Control” means, unless otherwise defined in a then-effective
written agreement (including an Agreement) between a Participant
and the Company or any Affiliate, one of the
following:
(1) An Exchange Act
Person becomes the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of securities of the Company
representing 50% or more of the combined voting power of the
Company’s then outstanding Voting Securities, except that the
following will not constitute a Change in Control:
(A) any acquisition of
securities of the Company by an Exchange Act Person from the
Company for the purpose of providing financing to the
Company;
(B) any formation of a
Group consisting solely of beneficial owners of the Company’s
Voting Securities as of the effective date of this Plan;
or
(C) any repurchase or
other acquisition by the Company of its Voting Securities that
causes any Exchange Act Person to become the beneficial owner of
50% or more of the Company’s Voting Securities.
If, however, an
Exchange Act Person or Group referenced in clause (A), (B) or (C)
above acquires beneficial ownership of additional Company Voting
Securities after initially becoming the beneficial owner of 50% or
more of the combined voting power of the Company’s Voting
Securities by one of the means described in those clauses, then a
Change in Control will be deemed to have occurred. Furthermore, a
Change in Control will occur if a Person becomes the beneficial
owner of more than 50% of the Company’s Voting Securities as
the result of a Corporate Transaction only if the Corporate
Transaction is itself a Change in Control pursuant to subsection
2(f)(3).
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(2) Individuals who are
Continuing Directors cease for any reason to constitute a majority
of the members of the Board.
(3) A Corporate
Transaction is consummated, unless, immediately following such
Corporate Transaction, all or substantially all of the individuals
and entities who were the beneficial owners of the Company’s
Voting Securities immediately prior to such Corporate Transaction
beneficially own, directly or indirectly, 50% or more of the
combined voting power of the then outstanding Voting Securities of
the surviving or acquiring entity resulting from such Corporate
Transaction (including beneficial ownership through any Parent of
such entity) in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the
Company’s Voting Securities.
Notwithstanding the
foregoing, to the extent that any Award constitutes a deferral of
compensation subject to Code Section 409A, and if that Award
provides for a change in the time or form of payment upon a Change
in Control, then no Change in Control shall be deemed to have
occurred upon an event described in this Section 2(f) unless the
event would also constitute a change in ownership or effective
control of, or a change in the ownership of a substantial portion
of the assets of, the Company under Code Section 409A.
(g) “Code”
means the Internal Revenue Code of 1986, as amended and in effect
from time to time. For purposes of the Plan, references to sections
of the Code shall be deemed to include any applicable regulations
thereunder and any successor or similar statutory
provisions.
(h) “Committee”
means two or more Non-Employee Directors designated by the Board to
administer the Plan under Section 3, each member of which shall be
(i) an independent director within the meaning of applicable stock
exchange rules and regulations and (ii) a non-employee director
within the meaning of Exchange Act Rule 16b-3.
(i) “Company”
means Insignia Systems, Inc., a Minnesota corporation, and any
successor thereto.
(j) “Continuing
Director” means an individual (i) who is, as of the effective
date of the Plan, a director of the Company, or (ii) who becomes a
director of the Company after the effective date hereof and whose
initial election, or nomination for election by the Company’s
shareholders, was approved by at least a majority of the then
Continuing Directors, but excluding, for purposes of this clause
(ii), an individual whose initial assumption of office occurs as
the result of an actual proxy contest involving the solicitation of
proxies or consents by a person or Group other than the Board, or
by reason of an agreement intended to avoid or settle an actual or
threatened proxy contest.
(k) “Corporate
Transaction” means (i) a sale or other disposition of all or
substantially all of the assets of the Company, or (ii) a merger,
consolidation, share exchange or similar transaction involving the
Company, regardless of whether the Company is the surviving
corporation.
(l) “Disability”
means (A) any permanent and total disability under any long-term
disability plan or policy of the Company or its Affiliates that
covers the Participant, or (B) if there is no such long-term
disability plan or policy, “total and permanent
disability” within the meaning of Code
Section 22(e)(3).
(m) “Employee”
means an employee of the Company or an Affiliate.
(n) “Exchange
Act” means the Securities Exchange Act of 1934, as amended
and in effect from time to time.
(o) “Exchange Act
Person” means any natural person, entity or Group other than
(i) the Company or any Affiliate; (ii) any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
Affiliate; (iii) an underwriter temporarily holding securities in
connection with a registered public offering of such securities; or
(iv) an entity whose Voting Securities are beneficially owned by
the beneficial owners of the Company’s Voting Securities in
substantially the same proportions as their beneficial ownership of
the Company’s Voting Securities.
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(p) “Fair Market
Value” means the fair market value of a Share determined as
follows:
(1) If the Shares are
readily tradable on an established securities market (as determined
under Code Section 409A), then Fair Market Value will be the
closing sales price for a Share on the principal securities market
on which it trades on the date for which it is being determined, or
if no sale of Shares occurred on that date, on the next preceding
date on which a sale of Shares occurred, as reported in
The Wall Street Journal or
such other source as the Committee deems reliable; or
(2) If the Shares are
not then readily tradable on an established securities market (as
determined under Code Section 409A), then Fair Market Value will be
determined by the Committee as the result of a reasonable
application of a reasonable valuation method that satisfies the
requirements of Code Section 409A.
(q) “Full Value
Award” means an Award other than an Option Award or Stock
Appreciation Right Award.
(r) “Grant
Date” means the date on which the Committee approves the
grant of an Award under the Plan, or such later date as may be
specified by the Committee on the date the Committee approves the
Award.
(s) “Group”
means two or more persons who act, or agree to act together, as a
partnership, limited partnership, syndicate or other group for the
purpose of acquiring, holding, voting or disposing of securities of
the Company.
(t) “Non-Employee
Director” means a member of the Board who is not an
Employee.
(u) “Option”
means a right granted under the Plan to purchase a specified number
of Shares at a specified price. An “Incentive Stock
Option” or “ISO” means any Option designated as
such and granted in accordance with the requirements of Code
Section 422. A “Non-Qualified Stock Option” or
“NQSO” means an Option other than an Incentive Stock
Option.
(v) “Other
Stock-Based Award” means an Award described in Section 11 of
this Plan.
(w) “Parent”
means a “parent corporation,” as defined in Code
Section 424(e).
(x) “Participant”
means a Service Provider to whom a then-outstanding Award has been
granted under the Plan.
(y) “Plan”
means this Insignia Systems, Inc. 2018 Equity Incentive Plan, as
amended and in effect from time to time.
(z) “Prior
Plan” means the Insignia Systems, Inc. 2013 Omnibus Stock and
Incentive Plan.
(aa) “Restricted
Stock” means Shares issued to a Participant that are subject
to such restrictions on transfer, vesting conditions and other
restrictions or limitations as may be set forth in this Plan and
the applicable Agreement.
(bb) “Service”
means the provision of services by a Participant to the Company or
any Affiliate in any Service Provider capacity. A Service
Provider’s Service shall be deemed to have terminated either
upon an actual cessation of providing services to the Company or
any Affiliate or upon the entity to which the Service Provider
provides services ceasing to be an Affiliate. Except as otherwise
provided in this Plan or any Agreement, Service shall not be deemed
terminated in the case of (i) any approved leave of absence; (ii)
transfers among the Company and any Affiliates in any Service
Provider capacity; or (iii) any change in status so long as the
individual remains in the service of the Company or any Affiliate
in any Service Provider capacity.
(cc) “Service
Provider” means an Employee, a Non-Employee Director, or any
natural person who is a consultant or advisor, or is employed by a
consultant or advisor retained by the Company or any Affiliate, and
who provides services (other than in connection with (i) a
capital-raising transaction or (ii) promoting or maintaining a
market in Company securities) to the Company or any
Affiliate.
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(dd) “Share”
means a share of Stock.
(ee) “Stock”
means the common stock, $.01 par value per Share, of the
Company.
(ff) “Stock
Appreciation Right” or “SAR” means the right to
receive, in cash and/or Shares as determined by the Committee, an
amount equal to the appreciation in value of a specified number of
Shares between the Grant Date of the SAR and its exercise
date.
(gg) “Stock
Unit” means a right to receive, in cash and/or Shares as
determined by the Committee, the Fair Market Value of a Share,
subject to such restrictions on transfer, vesting conditions and
other restrictions or limitations as may be set forth in this Plan
and the applicable Agreement.
(hh) “Subsidiary”
means a “subsidiary corporation,” as defined in Code
Section 424(f), of the Company.
(ii) “Substitute
Award” means an Award granted upon the assumption of, or in
substitution or exchange for, outstanding awards granted by a
company or other entity acquired by the Company or any Affiliate or
with which the Company or any Affiliate combines. The terms and
conditions of a Substitute Award may vary from the terms and
conditions set forth in the Plan to the extent that the Committee
at the time of the grant may deem appropriate to conform, in whole
or in part, to the provisions of the award in substitution for
which it has been granted.
(jj) “Voting
Securities” of an entity means the outstanding equity
securities (or comparable equity interests) entitled to vote
generally in the election of directors of such entity.
3. Administration
of the Plan.
(a) Administration. The authority
to control and manage the operations and administration of the Plan
shall be vested in the Committee in accordance with this Section
3.
(b) Scope of Authority. Subject to
the terms of the Plan, the Committee shall have the authority, in
its discretion, to take such actions as it deems necessary or
advisable to administer the Plan, including:
(1) determining the
Service Providers to whom Awards will be granted, the timing of
each such Award, the type of and the number of Shares covered by
each Award, the terms, conditions, performance criteria,
restrictions and other provisions of Awards, and the manner in
which Awards are paid or settled;
(2) cancelling or
suspending an Award, accelerating the vesting of an Award in
connection with a Participant’s death or Disability,
extending the exercise period of an Award, or otherwise amending
the terms and conditions of any outstanding Award, subject to the
requirements of Sections 15(d) and 15(e);
(3) adopting sub-plans
or special provisions applicable to Awards, establishing, amending
or rescinding rules to administer the Plan, interpreting the Plan
and any Award or Agreement, reconciling any inconsistency,
correcting any defect or supplying an omission in the Plan or any
Agreement, and making all other determinations necessary or
desirable for the administration of the Plan;
(4) granting Substitute
Awards under the Plan; and
(5) requiring or
permitting the deferral of the settlement of an Award, and
establishing the terms and conditions of any such
deferral.
(c) Acts of the Committee;
Delegation. A majority of the members of the Committee shall
constitute a quorum for any meeting of the Committee, and any act
of a majority of the members present at any meeting at which a
quorum is present or any act unanimously approved in writing by all
members of the Committee shall be the act of the Committee. Any
such action of the Committee shall be valid and effective even if
one or more members of the Committee at the time of such action are
later determined not to have satisfied all of the criteria for
membership in clauses (i) and (ii) of Section 2(h). To the extent
not inconsistent with applicable law or stock exchange rules, the
Committee may delegate all or any portion of its authority under
the Plan to any one or more of its members or, as to Awards to
Participants who are not subject to Section 16 of the Exchange Act,
to one or more directors or executive officers of the Company or to
a committee of the Board comprised of one or more directors of the
Company. The Committee may also delegate non-discretionary
administrative responsibilities in connection with the Plan to such
other persons as it deems advisable.
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(d) Finality of Decisions. The
Committee’s interpretation of the Plan and of any Award or
Agreement made under the Plan and all related decisions or
resolutions of the Board or Committee shall be final and binding on
all parties with an interest therein.
(e) Indemnification. Each person
who is or has been a member of the Committee or of the Board, and
any other person to whom the Committee delegates authority under
the Plan, shall be indemnified by the Company, to the maximum
extent permitted by law, against liabilities and expenses imposed
upon or reasonably incurred by such person in connection with or
resulting from any claims against such person by reason of the
performance of the individual’s duties under the Plan. This
right to indemnification is conditioned upon such person providing
the Company an opportunity, at the Company’s expense, to
handle and defend the claims before such person undertakes to
handle and defend them on such person’s own behalf. The
Company will not be required to indemnify any person for any amount
paid in settlement of a claim unless the Company has first
consented in writing to the settlement. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such person or persons may be entitled
under the Company’s Articles of Incorporation or Bylaws, as a
matter of law, or otherwise.
4. Shares
Available Under the Plan.
(a) Maximum Shares Available.
Subject to Section 4(b) and to adjustment as provided in Section
12(a), the number of Shares that may be the subject of Awards and
issued under the Plan shall be 900,000, plus any Shares of Stock
remaining available for future grants under the Prior Plan on the
effective date of this Plan. No further awards may be made under
the Prior Plan after the effective date of this Plan. Shares issued
under the Plan may come from authorized and unissued shares. In
determining the number of Shares to be counted against this share
reserve in connection with any Award, the following rules shall
apply:
(1) Where the number of
Shares subject to an Award is variable on the Grant Date, the
number of Shares to be counted against the share reserve shall be
the maximum number of Shares that could be received under that
particular Award, until such time as it can be determined that only
a lesser number of shares could be received.
(2) Shares subject to
Substitute Awards shall not be counted against the share reserve,
nor shall they reduce the Shares authorized for grant to a
Participant in any calendar year.
(3) Awards that may be
settled solely in cash shall not be counted against the share
reserve, nor shall they reduce the Shares authorized for grant to a
Participant in any calendar year.
(b) Effect of Forfeitures and Other
Actions. Any Shares subject to an Award, or to an award
granted under the Prior Plan that is outstanding on the effective
date of this Plan (a “Prior Plan Award”), that expires,
is cancelled or forfeited or is settled for cash shall, to the
extent of such cancellation, forfeiture, expiration or cash
settlement, again become available for Awards under this Plan, and
the share reserve under Section 4(a) shall be correspondingly
replenished as provided in Section 4(c) below. The following Shares
shall not, however, again become available for Awards or replenish
the share reserve under Section 4(a): (i) Shares tendered
(either actually or by attestation) by the Participant or withheld
by the Company in payment of the exercise price of a stock option
issued under this Plan or the Prior Plan, (ii) Shares tendered
(either actually or by attestation) by the Participant or withheld
by the Company to satisfy any tax withholding obligation with
respect to an award under this Plan or the Prior Plan, (iii) Shares
repurchased by the Company with proceeds received from the exercise
of a stock option issued under this Plan or the Prior Plan, and
(iv) Shares subject to a Stock Appreciation Right award issued
under this Plan or the Prior Plan that are not issued in connection
with the stock settlement of that award upon its
exercise.
(c) Effect of Plans Operated by Acquired
Companies. If a company acquired by the Company or any
Subsidiary or with which the Company or any Subsidiary combines has
shares available under a pre-existing plan approved by shareholders
and not adopted in contemplation of such acquisition or
combination, the shares available for grant pursuant to the terms
of such pre-existing plan (as adjusted, to the extent appropriate,
using the exchange ratio or other adjustment or valuation ratio or
formula used in such acquisition or combination to determine the
consideration payable to the holders of common stock of the
entities party to such acquisition or combination) may be used for
Awards under the Plan and shall supplement the Share reserve under
Section 4(a). Awards using such available shares shall not be made
after the date awards or grants could have been made under the
terms of the pre-existing plan absent the acquisition or
combination, and shall only be made to individuals who were not
Employees or Non-Employee Directors prior to such acquisition or
combination.
A-5
(d) No Fractional Shares. Unless
otherwise determined by the Committee, the number of Shares subject
to an Award shall always be a whole number. No fractional Shares
may be issued under the Plan, but the Committee may, in its
discretion, adopt any rounding convention it deems suitable or pay
cash in lieu of any fractional Share in settlement of an
Award.
(e) Limits on Awards to Non-Employee
Directors. The aggregate grant date fair value (as
determined in accordance with generally accepted accounting
principles applicable in the United States) of all Awards granted
during any calendar year to any Non-Employee Director (excluding
any Awards granted at the election of a Non-Employee Director in
lieu of all or any portion of retainers or fees otherwise payable
to Non-Employee Directors in cash) with respect to such
individual’s Service as a Non-Employee Director shall not
exceed $200,000.
5. Eligibility.
Participation in the Plan is limited to Service Providers.
Incentive Stock Options may only be granted to
Employees.
6. General
Terms of Awards.
(a) Award Agreement. Each Award
shall be evidenced by an Agreement setting forth the amount of the
Award together with such other terms and conditions applicable to
the Award (and not inconsistent with the Plan) as determined by the
Committee. An Award to a Participant may be made singly or in combination with
any form of Award. Two types of Awards may be made in tandem with
each other such that the exercise of one type of Award with respect
to a number of Shares reduces the number of Shares subject to the
related Award by at least an equal amount.
(b) Vesting and Term. Each
Agreement shall set forth the period until the applicable Award is
scheduled to vest and, if applicable, expire (which shall not be
more than ten years from the Grant Date), and, consistent with the
requirements of this Section 6(b), the applicable vesting
conditions and any applicable performance period. Awards that vest
based solely on the satisfaction by the Participant of
service-based vesting conditions shall be subject to a vesting
period of not less than one year from the applicable Grant Date
(during which no portion of the award may be scheduled to vest),
and Awards whose grant or vesting is subject to the satisfaction of
performance goals over a performance period shall be subject to a
performance period of not less than one year. The foregoing minimum
vesting and performance periods will not, however, apply in
connection with: (i) a Change in Control as provided in
Section 12(b)(2), 12(b)(4) or 12(c), (ii) a termination
of Service due to death or Disability, (iii) a Substitute
Award that does not reduce the vesting period of the award being
replaced, (iv) Awards made to Non-Employee Directors in payment of
or exchange for other compensation already earned and payable, and
(v) outstanding, exercised and settled Awards involving an
aggregate number of Shares not in excess of 5% of the Plan’s
share reserve specified in Section 4(a). For purposes of
Awards to Non-Employee Directors, a vesting period will be deemed
to be one year if it runs from the date of one annual meeting of
the Company’s shareholders to the date of the next annual
meeting of the Company’s shareholders. Unless the Committee
provides otherwise, the vesting of Awards granted hereunder will be
suspended during any unpaid leave of absence.
(c) Transferability. Except as
provided in this Section 6(c), (i) during the lifetime of a
Participant, only the Participant or the Participant’s
guardian or legal representative may exercise an Option or SAR, or
receive payment with respect to any other Award; and (ii) no Award
may be sold, assigned, transferred, exchanged or encumbered,
voluntarily or involuntarily, other than by will or the laws of
descent and distribution. Any attempted transfer in violation of
this Section 6(c) shall be of no effect. The Committee may,
however, provide in an Agreement or otherwise that an Award (other
than an Incentive Stock Option) may be transferred pursuant to a
domestic relations order or may be transferable by gift to any
“family member” (as defined in General Instruction
A.1(a)(5) to Form S-8 under the Securities Act of 1933) of the
Participant. Any Award held by a transferee shall continue to be
subject to the same terms and conditions that were applicable to
that Award immediately before the transfer thereof. For purposes of
any provision of the Plan relating to notice to a Participant or to
acceleration or termination of an Award upon the death or
termination of Service of a Participant, the references to
“Participant” shall mean the original grantee of an
Award and not any transferee.
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(d) Termination of Service. Unless
otherwise provided in an applicable Agreement or another
then-effective written agreement between a Participant and the
Company, and subject to Section 12 of this Plan, if a
Participant’s Service with the Company and all of its
Affiliates terminates, the following provisions shall apply (in all
cases subject to the scheduled expiration of an Option or SAR
Award, as applicable):
(1) Upon termination of
Service for Cause, all unexercised Option and SAR Awards and all
unvested portions of any other outstanding Awards shall be
immediately forfeited without consideration.
(2) Upon termination of
Service for any other reason, all unvested and unexercisable
portions of any outstanding Awards shall be immediately forfeited
without consideration.
(3) Upon termination of
Service for any reason other than Cause, death or Disability, the
currently vested and exercisable portions of Option and SAR Awards
may be exercised for a period of three months after the date of
such termination. However, if a Participant thereafter dies during
such three-month period, the vested and exercisable portions of the
Option and SAR Awards may be exercised for a period of one year
after the date of such termination.
(4) Upon termination of
Service due to death or Disability, the currently vested and
exercisable portions of Option and SAR Awards may be exercised for
a period of one year after the date of such
termination.
(e) Rights as Shareholder. No
Participant shall have any rights as a shareholder with respect to
any Shares covered by an Award unless and until the date the
Participant becomes the holder of record of the Shares, if any, to
which the Award relates.
(f) Performance-Based Awards. Any
Award may be granted as a performance-based Award if the Committee
establishes one or more measures of corporate, business unit or
individual performance which must be attained, and the performance
period over which the specified performance is to be attained, as a
condition to the grant, vesting, exercisability, lapse of
restrictions and/or settlement in cash or Shares of such Award. In
connection with any such Award, the Committee shall determine the
extent to which performance measures have been attained and other
applicable terms and conditions have been satisfied, and the degree
to which the grant, vesting, exercisability, lapse of restrictions
and/or settlement of such Award has been earned. The Committee
shall also have the authority to provide, in an Agreement or
otherwise, for the modification of a performance period and/or
adjustments to or waivers of the achievement of performance goals
under specified circumstances such as (i) the occurrence of events
that are unusual in nature or infrequently occurring, such as a
Change in Control, an equity restructuring (as described in Section
12(a)), acquisitions, divestitures, restructuring activities,
recapitalizations, or asset write-downs, (ii) a change in
applicable tax laws or accounting principles, or (iii) the
Participant’s death or Disability.
(g) Dividends and Dividend
Equivalents. No dividends, dividend equivalents or
distributions will be paid with respect to Shares subject to an
Option or SAR Award. Any dividends or distributions payable with
respect to Shares that are subject to the unvested portion of a
Restricted Stock Award will be subject to the same restrictions and
risk of forfeiture as the Shares to which such dividends or
distributions relate. In its discretion, the Committee may provide
in an Award Agreement for a Stock Unit Award or an Other
Stock-Based Award that the Participant will be entitled to receive
dividend equivalents, based on dividends actually declared and paid
on outstanding Shares, on the units or other Share equivalents
subject to the Stock Unit Award or Other Stock-Based Award, and
such dividend equivalents will be subject to the same restrictions
and risk of forfeiture as the units or other Share equivalents to
which such dividend equivalents relate. The additional terms of any
such dividend equivalents will be as set forth in the applicable
Agreement, including the time and form of payment and whether such
dividend equivalents will be credited with interest or deemed to be
reinvested in additional units or Share equivalents. Any Shares
issued or issuable during the term of this Plan as the result of
the reinvestment of dividends or the deemed reinvestment of
dividend equivalents in connection with an Award or a Prior Plan
Award shall be counted against, and replenish upon any subsequent
forfeiture, the Plan’s share reserve as provided in Section
4.
7. Stock
Option Awards.
(a) Type and Exercise Price. The
Agreement pursuant to which an Option Award is granted shall
specify whether the Option is an Incentive Stock Option or a
Non-Qualified Stock Option. The exercise price at which each Share
subject to an Option Award may be purchased shall be determined by
the Committee and set forth in the Agreement, and shall not be less
than the Fair Market Value of a Share on the Grant Date, except in
the case of Substitute Awards (to the extent consistent with Code
Section 409A and, in the case of Incentive Stock Options, Code
Section 424).
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(b) Payment of Exercise Price. The
purchase price of the Shares with respect to which an Option Award
is exercised shall be payable in full at the time of exercise. The
purchase price may be paid in cash or in such other manner as the
Committee may permit, including by payment under a broker-assisted
sale and remittance program, by withholding Shares otherwise
issuable to the Participant upon exercise of the Option or by
delivery to the Company of Shares (by actual delivery or
attestation) already owned by the Participant (in either case, such
Shares having a Fair Market Value as of the date the Option is
exercised equal to the purchase price of the Shares being
purchased).
(c) Exercisability and Expiration.
Each Option Award shall be exercisable in whole or in part on the
terms provided in the Agreement. No Option Award shall be
exercisable at any time after its scheduled expiration. When an
Option Award is no longer exercisable, it shall be deemed to have
terminated.
(d) Incentive Stock
Options.
(1) An Option Award
will constitute an Incentive Stock Option Award only if the
Participant receiving the Option Award is an Employee, and only to
the extent that (i) it is so designated in the applicable Agreement
and (ii) the aggregate Fair Market Value (determined as of the
Option Award’s Grant Date) of the Shares with respect to
which Incentive Stock Option Awards held by the Participant first
become exercisable in any calendar year (under the Plan and all
other plans of the Company and its Affiliates) does not exceed
$100,000 or such other amount specified by the Code. To the extent
an Option Award granted to a Participant exceeds this limit, the
Option Award shall be treated as a Non-Qualified Stock Option
Award. The maximum number of Shares that may be issued upon the
exercise of Incentive Stock Option Awards under the Plan shall be
100,000, subject to adjustment as provided in Section
12(a).
(2) No Participant may
receive an Incentive Stock Option Award under the Plan if,
immediately after the grant of such Award, the Participant would
own (after application of the rules contained in Code Section
424(d)) Shares possessing more than 10% of the total combined
Voting Power of all classes of stock of the Company or an
Affiliate, unless (i) the per Share exercise price for such Award
is at least 110% of the Fair Market Value of a Share on the Grant
Date and (ii) such Award will expire no later than five years after
its Grant Date.
(3) For purposes of
continued Service by a Participant who has been granted an
Incentive Stock Option Award, no approved leave of absence may
exceed three months unless reemployment upon expiration of such
leave is provided by statute or contract. If reemployment is not so
provided, then on the date six months following the first day of
such leave, any Incentive Stock Option held by the Participant
shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Non-Qualified Stock
Option.
(4) If an Incentive
Stock Option Award is exercised after the expiration of the
exercise periods that apply for purposes of Code Section 422, such
Option shall thereafter be treated as a Non-Qualified Stock
Option.
(5) The Agreement
covering an Incentive Stock Option Award shall contain such other
terms and provisions that the Committee determines necessary to
qualify the Option Award as an Incentive Stock Option
Award.
8. Stock
Appreciation Right Awards.
(a) Nature of Award. An Award of
Stock Appreciation Rights shall be subject to such terms and
conditions as are determined by the Committee, and shall provide a
Participant the right to receive upon exercise of the SAR Award all
or a portion of the excess of (i) the Fair Market Value as of the
date of exercise of the SAR Award of the number of Shares as to
which the SAR Award is being exercised, over (ii) the aggregate
exercise price for such number of Shares. The per Share exercise
price for any SAR Award shall be determined by the Committee and
set forth in the applicable Agreement, and shall not be less than
the Fair Market Value of a Share on the Grant Date, except in the
case of Substitute Awards (to the extent consistent with Code
Section 409A).
A-8
(b)
Exercise of SAR. Each SAR Award
may be exercisable in whole or in part at the times, on the terms
and in the manner provided in the Agreement. No SAR Award shall be
exercisable at any time after its scheduled expiration. When a SAR
Award is no longer exercisable, it shall be deemed to have
terminated. Upon exercise of a SAR Award, payment to the
Participant shall be made at such time or times as shall be
provided in the Agreement in the form of cash, Shares or a
combination of cash and Shares as determined by the Committee. The
Agreement may provide for a limitation upon the amount or
percentage of the total appreciation on which payment (whether in
cash and/or Shares) may be made in the event of the exercise of a
SAR Award.
9. Restricted
Stock Awards.
(a) Vesting and Consideration.
Shares subject to a Restricted Stock Award shall be subject to
vesting and the lapse of applicable restrictions based on such
conditions or factors and occurring over such period of time as the
Committee may determine in its discretion. The Committee may
provide whether any consideration other than Services must be
received by the Company or any Affiliate as a condition precedent
to the grant of a Restricted Stock Award, and may correspondingly
provide for Company reacquisition or repurchase rights if such
additional consideration has been required and some or all of a
Restricted Stock Award does not vest.
(b) Shares Subject to Restricted Stock
Awards. Unvested Shares subject to a Restricted Stock Award
shall be evidenced by a book-entry in the name of the Participant
with the Company’s transfer agent or by one or more Stock
certificates issued in the name of the Participant. Any such Stock
certificate shall be deposited with the Company or its designee,
together with an assignment separate from the certificate, in
blank, signed by the Participant, and bear an appropriate legend
referring to the restricted nature of the Restricted Stock
evidenced thereby. Any book-entry shall be subject to comparable
restrictions and corresponding stop transfer instructions. Upon the
vesting of Shares of Restricted Stock, and the Company’s
determination that any necessary conditions precedent to the
release of vested Shares (such as satisfaction of tax withholding
obligations and compliance with applicable legal requirements) have
been satisfied, such vested Shares shall be made available to the
Participant in such manner as may be prescribed or permitted by the
Committee. Except as otherwise provided in the Plan or an
applicable Agreement, a Participant with a Restricted Stock Award
shall have all the rights of a shareholder, including the right to
vote the Shares of Restricted Stock.
10. Stock
Unit Awards.
(a) Vesting and Consideration. A
Stock Unit Award shall be subject to vesting and the lapse of
applicable restrictions based on such conditions or factors and
occurring over such period of time as the Committee may determine
in its discretion. If vesting of a Stock Unit Award is conditioned
on the achievement of specified performance goals, the extent to
which they are achieved over the specified performance period shall
determine the number of Stock Units that will be earned and
eligible to vest, which may be greater or less than the target
number of Stock Units stated in the Agreement. The Committee may
provide whether any consideration other than Services must be
received by the Company or any Affiliate as a condition precedent
to the settlement of a Stock Unit Award.
(b) Settlement of Award. Following
the vesting of a Stock Unit Award, and the Company’s
determination that any necessary conditions precedent to the
settlement of the Award (such as satisfaction of tax withholding
obligations and compliance with applicable legal requirements) have
been satisfied, settlement of the Award and payment to the
Participant shall be made at such time or times in the form of
cash, Shares (which may themselves be considered Restricted Stock
under the Plan) or a combination of cash and Shares as determined
by the Committee.
11. Other Stock-Based
Awards. The Committee
may from time to time grant Shares and other Awards that are valued
by reference to and/or payable in whole or in part in Shares under
the Plan. The Committee shall determine the terms and conditions of
such Awards, which shall be consistent with the terms and purposes
of the Plan. The Committee may direct the Company to issue Shares
subject to restrictive legends and/or stop transfer instructions
that are consistent with the terms and conditions of the Award to
which the Shares relate.
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12. Changes
in Capitalization, Corporate Transactions, Change in
Control.
(a) Adjustments for Changes in
Capitalization. In the event of any equity restructuring
(within the meaning of FASB ASC Topic 718) that causes the per
share value of Shares to change, such as a stock dividend, stock
split, spinoff, rights offering or recapitalization through an
extraordinary dividend, the Committee shall make such adjustments
as it deems equitable and appropriate to (i) the aggregate number
and kind of Shares or other securities issued or reserved for
issuance under the Plan, (ii) the number and kind of Shares or
other securities subject to outstanding Awards, (iii) the exercise
price of outstanding Options and SARs, and (iv) any maximum
limitations prescribed by the Plan with respect to certain types of
Awards or the grants to individuals of certain types of Awards. In
the event of any other change in corporate capitalization,
including a merger, consolidation, reorganization, or partial or
complete liquidation of the Company, such equitable adjustments
described in the foregoing sentence may be made as determined to be
appropriate and equitable by the Committee to prevent dilution or
enlargement of rights of Participants. In either case, any such
adjustment shall be conclusive and binding for all purposes of the
Plan. No adjustment shall be made pursuant to this Section 12(a) in
connection with the conversion of any convertible securities of the
Company, or in a manner that would cause Incentive Stock Options to
violate Section 422(b) of the Code or cause an Award to
be subject to adverse tax consequences under Section 409A
of the Code.
(b) Corporate Transactions. The
following provisions shall apply to outstanding Awards in the event
of a Change in Control that involves a Corporate
Transaction.
(1) Continuation, Assumption or Replacement of
Awards. In the event of a Corporate Transaction, then the
surviving or successor entity (or its Parent) may continue, assume
or replace Awards outstanding as of the date of the Corporate
Transaction (with such adjustments as may be required or permitted
by Section 12(a)), and such Awards or replacements therefor shall
remain outstanding and be governed by their respective terms,
subject to Section 12(b)(4) below. A surviving or successor entity
may elect to continue, assume or replace only some Awards or
portions of Awards. For purposes of this Section 12(b)(1), an Award
shall be considered assumed or replaced if, in connection with the
Corporate Transaction and in a manner consistent with Code Section
409A (and Code Section 424 if the Award is an ISO), either (i) the
contractual obligations represented by the Award are expressly
assumed by the surviving or successor entity (or its Parent) with
appropriate adjustments to the number and type of securities
subject to the Award and the exercise price thereof that preserves
the intrinsic value of the Award existing at the time of the
Corporate Transaction, or (ii) the Participant has received a
comparable equity-based award that preserves the intrinsic value of
the Award existing at the time of the Corporate Transaction and
contains terms and conditions that are substantially similar to
those of the Award.
(2) Acceleration. If and to the extent that
outstanding Awards under the Plan are not continued, assumed or
replaced in connection with a Corporate Transaction, then (i) all
outstanding Option and SAR Awards shall become fully vested and
exercisable for such period of time prior to the effective time of
the Corporate Transaction as is deemed fair and equitable by the
Committee, and shall terminate at the effective time of the
Corporate Transaction, (ii) all outstanding Full Value Awards shall
fully vest immediately prior to the effective time of the Corporate
Transaction, and (iii) to the extent vesting of any Award is
subject to satisfaction of specified performance goals, such Award
shall be deemed “fully vested” for purposes of this
Section 12(b)(2) if the performance goals are deemed to have been
satisfied at the target level of performance and the vested portion
of the Award at that level of performance is proportionate to the
portion of the performance period that has elapsed as of the
effective time of the Corporate Transaction. The Committee shall
provide written notice of the period of accelerated exercisability
of Option and SAR Awards to all affected Participants. The exercise
of any Option or SAR Award whose exercisability is accelerated as
provided in this Section 12(b)(2) shall be conditioned upon the
consummation of the Corporate Transaction and shall be effective
only immediately before such consummation.
A-10
(3) Payment for Awards. If and to the
extent that outstanding Awards under the Plan are not continued,
assumed or replaced in connection with a Corporate Transaction,
then the Committee may provide that some or all of such outstanding
Awards shall be canceled at or immediately prior to the effective
time of the Corporate Transaction in exchange for payments to the
holders as provided in this Section 12(b)(3). The Committee will
not be required to treat all Awards similarly for purposes of this
Section 12(b)(3). The payment for any Award canceled shall be in an
amount equal to the difference, if any, between (i) the fair market
value (as determined in good faith by the Committee) of the
consideration that would otherwise be received in the Corporate
Transaction for the number of Shares subject to the Award, and (ii)
the aggregate exercise price (if any) for the Shares subject to
such Award. If the amount determined pursuant to the preceding
sentence is not a positive number with respect to any Award, such
Award may be canceled pursuant to this Section 12(b)(3) without
payment of any kind to the affected Participant. With respect to an
Award whose vesting is subject to the satisfaction of specified
performance goals, the number of Shares subject to such an Award
for purposes of this Section 12(b)(3) shall be the number of
Shares as to which the Award would have been deemed “fully
vested” for purposes of Section 12(b)(2). Payment of any
amount under this Section 12(b)(3) shall be made in such form, on
such terms and subject to such conditions as the Committee
determines in its discretion, which may or may not be the same as
the form, terms and conditions applicable to payments to the
Company’s shareholders in connection with the Corporate
Transaction, and may, in the Committee’s discretion, include
subjecting such payments to vesting conditions comparable to those
of the Award canceled, subjecting such payments to escrow or
holdback terms comparable to those imposed upon the Company’s
shareholders under the Corporate Transaction, or calculating and
paying the present value of payments that would otherwise be
subject to escrow or holdback terms.
(4) Termination After a Corporate
Transaction. If and to the extent that Awards are continued,
assumed or replaced under the circumstances described in Section
12(b)(1), and if within 12 months after the Corporate
Transaction a Participant experiences an involuntary termination of
Service for reasons other than Cause, then (i) outstanding
Option and SAR Awards issued to the Participant that are not yet
fully exercisable shall immediately become exercisable in full and
shall remain exercisable for one year following the
Participant’s termination of employment, and (ii) any Full
Value Awards that are not yet fully vested shall immediately vest
in full (with vesting in full for a performance-based award
determined as provided in Section 12(b)(2), except that the
proportionate vesting amount will be determined with respect to the
portion of the performance period during which the Participant was
a Service Provider).
(c) Other Change in Control. In the
event of a Change in Control that does not involve a Corporate
Transaction, if within 12 months after the Change in Control a
Participant experiences an involuntary termination of Service for
reasons other than Cause, then (i) outstanding Option and SAR
Awards issued to the Participant that are not yet fully exercisable
shall immediately become exercisable in full and shall remain
exercisable for one year following the Participant’s
termination of employment, (ii) subject to clause (iii) below,
any Full Value Awards that are not yet fully vested shall
immediately vest in full, and (iii) to the extent vesting of any
Award is subject to satisfaction of specified performance goals,
such Award shall be deemed “fully vested” for purposes
of this Section 12(c) if the performance goals are deemed to have
been satisfied at the target level of performance and the vested
portion of the Award at that level of performance is proportionate
to the portion of the performance period that has occurred up to
the date of such Participant’s termination of
Service.
(d) Dissolution or Liquidation.
Unless otherwise provided in an applicable Agreement, in the event
of a proposed dissolution or liquidation of the Company, the
Committee will notify each Participant as soon as practicable prior
to the effective date of such proposed transaction. An Award will
terminate immediately prior to the consummation of such proposed
action.
13. Plan Participation
and Service Provider Status. Status as a Service Provider shall not
be construed as a commitment that any Award will be made under the
Plan to that Service Provider or to eligible Service Providers
generally. Nothing in the Plan or in any Agreement or related
documents shall confer upon any Service Provider or Participant any
right to continued Service with the Company or any Affiliate, nor
shall it interfere with or limit in any way any right of the
Company or any Affiliate to terminate the person’s Service at
any time with or without Cause or change such person’s
compensation, other benefits, job responsibilities or
title.
A-11
14. Tax
Withholding. The
Company or any Affiliate, as applicable, shall have the right to
(i) withhold from any cash payment under the Plan or any other
compensation owed to a Participant an amount sufficient to cover
any required withholding taxes related to the grant, vesting,
exercise or settlement of an Award, and (ii) require a Participant
or other person receiving Shares under the Plan to pay a cash
amount sufficient to cover any required withholding taxes before
actual receipt of those Shares. In lieu of all or any part of a
cash payment from a person receiving Shares under the Plan, the
Committee may permit the Participant to satisfy all or any part of
the required tax withholding obligations (but not to exceed the
maximum individual statutory tax rate in each applicable
jurisdiction) by authorizing the Company to withhold a number of
the Shares that would otherwise be delivered to the Participant
pursuant to the Award, or by transferring to the Company Shares
already owned by the Participant, with the Shares so withheld or
delivered having a Fair Market Value on the date the taxes are
required to be withheld equal to the amount of taxes to be
withheld.
15. Effective
Date, Duration, Amendment and Termination of the
Plan.
(a) Effective Date. The Plan shall
become effective on the date it is approved by the Company’s
shareholders, which shall be considered the date of its adoption
for purposes of Treasury Regulation §1.422-2(b)(2)(i). No
Awards shall be made under the Plan prior to its effective date. If
the Company’s shareholders fail to approve the Plan by
July 31, 2019, the Plan will be of no further force or
effect.
(b) Duration of the Plan. The Plan
shall remain in effect until all Shares subject to it are
distributed, all Awards have expired or terminated, the Plan is
terminated pursuant to Section 15(c), or the tenth anniversary of
the effective date of the Plan, whichever occurs first (the
“Termination Date”). Awards made before the Termination
Date shall continue to be outstanding in accordance with their
terms and the terms of the Plan unless otherwise provided in the
applicable Agreements.
(c) Amendment and Termination of the
Plan. The Board may at any time terminate, suspend or amend
the Plan. The Company shall submit any amendment of the Plan to its
shareholders for approval only to the extent required by applicable
laws or regulations or the rules of any securities exchange on
which the Shares may then be listed. No termination, suspension, or
amendment of the Plan may materially impair the rights of any
Participant under a previously granted Award without the
Participant’s consent, unless such action is necessary to
comply with applicable law or stock exchange rules.
(d) Amendment of Awards. Subject to
Section 15(e), the Committee may unilaterally amend the terms of
any Agreement evidencing an Award previously granted, except that
no such amendment may materially impair the rights of any
Participant under the applicable Award without the
Participant’s consent, unless such amendment is necessary to
comply with applicable law or stock exchange rules or any
compensation recovery policy as provided in Section
16(i).
(e) No Option or SAR Repricing.
Except as provided in Section 12(a), no Option or Stock
Appreciation Right Award granted under the Plan may be (i) amended
to decrease the exercise price thereof, (ii) cancelled in
conjunction with the grant of any new Option or Stock Appreciation
Right Award with a lower exercise price, (iii) cancelled in
exchange for cash, other property or the grant of any Full Value
Award at a time when the per share exercise price of the Option or
Stock Appreciation Right Award is greater than the current Fair
Market Value of a Share, or (iv) otherwise subject to any action
that would be treated under accounting rules as a
“repricing” of such Option or Stock Appreciation Right
Award, unless such action is first approved by the Company’s
shareholders.
16. Other
Provisions.
(a) Unfunded Plan. The Plan shall
be unfunded and the Company shall not be required to segregate any
assets that may at any time be represented by Awards under the
Plan. Neither the Company, its Affiliates, the Committee, nor the
Board shall be deemed to be a trustee of any amounts to be paid
under the Plan nor shall anything contained in the Plan or any
action taken pursuant to its provisions create or be construed to
create a fiduciary relationship between the Company and/or its
Affiliates, and a Participant. To the extent any person has or
acquires a right to receive a payment in connection with an Award
under the Plan, this right shall be no greater than the right of an
unsecured general creditor of the Company.
A-12
(b) Limits of Liability. Except as
may be required by law, neither the Company nor any member of the
Board or of the Committee, nor any other person participating
(including participation pursuant to a delegation of authority
under Section 3(c) of the Plan) in any determination of any
question under the Plan, or in the interpretation, administration
or application of the Plan, shall have any liability to any party
for any action taken, or not taken, in good faith under the
Plan.
(c) Compliance with Applicable Legal
Requirements and Company Policies. No Shares distributable
pursuant to the Plan shall be issued and delivered unless and until
the issuance of the Shares complies with all applicable legal
requirements, including compliance with the provisions of
applicable state and federal securities laws, and the requirements
of any securities exchanges on which the Company’s Shares
may, at the time, be listed. During any period in which the
offering and issuance of Shares under the Plan is not registered
under federal or state securities laws, Participants shall
acknowledge that they are acquiring Shares under the Plan for
investment purposes and not for resale, and that Shares may not be
transferred except pursuant to an effective registration statement
under, or an exemption from the registration requirements of, such
securities laws. Any stock certificate or book-entry evidencing
Shares issued under the Plan that are subject to securities law
restrictions shall bear or be accompanied by an appropriate
restrictive legend or stop transfer instruction. Notwithstanding
any other provision of this Plan, the acquisition, holding or
disposition of Shares acquired pursuant to the Plan shall in all
events be subject to compliance with applicable Company policies,
including those relating to insider trading, pledging or hedging
transactions, minimum post-vesting holding periods and stock
ownership guidelines, and to forfeiture or recovery of compensation
as provided in Section 16(i).
(d) Other Benefit and Compensation
Programs. Payments and other benefits received by a
Participant under an Award made pursuant to the Plan shall not be
deemed a part of a Participant’s regular, recurring
compensation for purposes of the termination, indemnity or
severance pay laws of any country and shall not be included in, nor
have any effect on, the determination of benefits under any other
employee benefit plan, contract or similar arrangement provided by
the Company or an Affiliate unless expressly so provided by such
other plan, contract or arrangement, or unless the Committee
expressly determines that an Award or portion of an Award should be
included to accurately reflect competitive compensation practices
or to recognize that an Award has been made in lieu of a portion of
competitive cash compensation.
(e) Governing Law. To the extent
that federal laws do not otherwise control, the Plan and all
determinations made and actions taken pursuant to the Plan shall be
governed by the laws of the State of Minnesota without regard to
its conflicts-of-law principles and shall be construed
accordingly.
(f) Severability. If any provision
of the Plan shall be held illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining parts of
the Plan, and the Plan shall be construed and enforced as if the
illegal or invalid provision had not been included.
(g) Code Section 409A. It is
intended that (i) all Awards of Options, SARs and Restricted Stock
under the Plan will not provide for the deferral of compensation
within the meaning of Code Section 409A and thereby be exempt from
Code Section 409A, and (ii) all other Awards under the Plan will
either not provide for the deferral of compensation within the
meaning of Code Section 409A, or will comply with the requirements
of Code Section 409A, and Awards shall be structured and the Plan
administered and interpreted in accordance with this intent. The
Plan and any Agreement may be unilaterally amended by the Company
in any manner deemed necessary or advisable by the Committee or
Board in order to maintain such exemption from or compliance with
Code Section 409A, and any such amendment shall conclusively be
presumed to be necessary to comply with applicable law.
Notwithstanding anything to the contrary in the Plan or any
Agreement, with respect to any Award that constitutes a deferral of
compensation subject to Code Section 409A:
(1) If
any amount is payable under such Award upon a termination of
Service, a termination of Service will be deemed to have occurred
only at such time as the Participant has experienced a
“separation from service” as such term is defined for
purposes of Code Section 409A;
(2) If
any amount shall be payable with respect to any such Award as a
result of a Participant’s “separation from
service” at such time as the Participant is a
“specified employee” within the meaning of Code Section
409A, then no payment shall be made, except as permitted under Code
Section 409A, prior to the first business day after the
earlier of (i) the date that is six months after the
Participant’s separation from service or (ii) the
Participant’s death. Unless the Committee has adopted a
specified employee identification policy as contemplated by Code
Section 409A, specified employees will be identified in accordance
with the default provisions specified under Code
Section 409A.
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None of the
Company, the Board, the Committee nor any other person involved
with the administration of this Plan shall (i) in any way be
responsible for ensuring the exemption of any Award from, or
compliance by any Award with, the requirements of Code Section
409A, (ii) have any obligation to design or administer the Plan or
Awards granted thereunder in a manner that minimizes a
Participant’s tax liabilities, including the avoidance of any
additional tax liabilities under Code Section 409A, and
(iii) shall have any liability to any Participant for any such
tax liabilities.
(h) Rule 16b-3. It is intended that
the Plan and all Awards granted pursuant to it shall be
administered by the Committee so as to permit the Plan and Awards
to comply with Exchange Act Rule 16b-3. If any provision of the
Plan or of any Award would otherwise frustrate or conflict with the
intent expressed in this Section 16(h), that provision to the
extent possible shall be interpreted and deemed amended in the
manner determined by the Committee so as to avoid the conflict. To
the extent of any remaining irreconcilable conflict with this
intent, the provision shall be deemed void as applied to
Participants subject to Section 16 of the Exchange Act to the
extent permitted by law and in the manner deemed advisable by the
Committee.
(i) Forfeiture and Compensation
Recovery.
(1) The Committee may
specify in an Agreement that the Participant’s rights,
payments, and benefits with respect to an Award will be subject to
reduction, cancellation, forfeiture or recovery by the Company upon
the occurrence of certain specified events, in addition to any
otherwise applicable vesting or performance conditions of an Award.
Such events may include termination of Service for Cause; violation
of any material Company or Affiliate policy; breach of
noncompetition, non-solicitation or confidentiality provisions that
apply to the Participant; a determination that the payment of the
Award was based on an incorrect determination that financial or
other criteria were met or other conduct by the Participant that is
detrimental to the business or reputation of the Company or its
Affiliates.
(2) Awards and any
compensation associated therewith may be made subject to
forfeiture, recovery by the Company or other action pursuant to any
compensation recovery policy adopted by the Board or the Committee
at any time, including in response to the requirements of Section
10D of the Exchange Act and any implementing rules and regulations
thereunder, or as otherwise required by law. Any Agreement may be
unilaterally amended by the Committee to comply with any such
compensation recovery policy.
A-14
Appendix
B
INSIGNIA
SYSTEMS, INC.
EMPLOYEE
STOCK PURCHASE PLAN
(as Amended and
Restated by Board of Directors May 21, 2018)
(Subject to
Shareholder Approval)
1. Establishment of Plan. Insignia
Systems, Inc. (hereinafter referred to as the
“Company”) proposes to grant to certain employees of
the Company the opportunity to purchase common stock of the
Company. Such common stock shall be purchased pursuant to the plan
herein set forth which shall be known as the “INSIGNIA
SYSTEMS, INC. EMPLOYEE STOCK PURCHASE PLAN” (hereinafter
referred to as the “Plan”). The Company intends that
the Plan shall qualify as an “Employee Stock Purchase
Plan” under Section 423 of the Internal Revenue Code of 1986,
as amended, and shall be construed in a manner consistent with the
requirements of said Section 423 and the regulations
thereunder.
2. Purpose. The Plan is intended
to encourage stock ownership by employees of the Company, and as an
incentive to them to remain in employment, improve operations,
increase profits, and contribute more significantly to the
Company’s success.
3. Administration. The Plan shall
be administered by a stock purchase committee (hereinafter referred
to as the “Committee”) consisting of not less than
three directors or employees of the Company, as designated by the
Board of Directors of the Company (hereinafter referred to as the
“Board of Directors”). The Board of Directors shall
fill all vacancies in the Committee and may remove any member of
the Committee at any time, with or without cause. The Committee
shall select its own chairman and hold its meetings at such times
and places as it may determine. All determinations of the Committee
shall be made by a majority of its members. Any decision which is
made in writing and signed by a majority of the members of the
Committee shall be effective as fully as though made by a majority
vote at a meeting duly called and held. The determinations of the
Committee shall be made in accordance with its judgment as to the
best interests of the Company, its employees and it shareholders
and in accordance with the purposes of the Plan; provided, however,
that the provisions of the Plan shall be construed in a manner
consistent with the requirements of Section 423 of the Internal
Revenue Code, as amended. Such determinations shall be binding upon
the Company and the participants in the Plan unless otherwise
determined by the Board of Directors. The Company shall pay all
expenses of administering the Plan. No member of the Board of
Directors or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any
option granted under it.
4. Duration and Phases of the
Plan.
(a) The Plan will
commence on January 1, 1993, and will continue until terminated by
the Board pursuant to Section 15, except that any phase commenced
prior to such termination shall, if necessary, be allowed to
continue beyond such termination until completion.
(b) The Plan shall be
carried out in one or more phases, each phase being for a period of
one year. Each phase shall commence immediately after the
termination of the preceding phase. The existence and date of
commencement of a phase (the “Commencement Date”) shall
be determined by the Committee, provided that the commencement of
the first phase shall be within twelve (12) months before or after
the date of approval of the Plan by the shareholders of the
Company. In the event all of the stock reserved for grant of
options hereunder is issued pursuant to the terms hereof prior to
the commencement of one or more phases scheduled by the Committee
or the number of shares remaining is so small, in the opinion of
the Committee, as to render administration of any succeeding phase
impracticable, such phase or phases shall be canceled. Phases shall
be numbered successively as Phase 1, Phase 2 and Phase
3.
(c) The Board of
Directors may elect to accelerate the termination date of any phase
effective on the date specified by the Board of Directors in the
event of (i) any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or
pursuant to which shares would be converted into cash, securities
or other property, other than a merger of the Company in which
shareholders immediately prior to the merger have the same
proportionate ownership of stock in the surviving corporation
immediately after the merger; (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the
Company, or (iii) any plan or liquidation or dissolution of the
Company.
B-1
5. Eligibility. All Employees, as
defined in Paragraph 19 hereof, who are employed by the Company at
least one day prior to the Commencement Date of a phase shall be
eligible to participate in such phase.
6. Participation. Participation in
the Plan is voluntary. An eligible Employee may elect to
participate in any phase of the plan, and thereby become a
“Participant” in the Plan, by completing the Plan
payroll deduction form provided by the Company and delivering it to
the Company or its designated representative prior to the
Commencement Date of that phase. Payroll deductions for a
Participant shall commence on the first payday after the
Commencement Date of the phase and shall terminate on the last
payday immediately prior to or coinciding with the termination date
of that phase unless sooner terminated by the Participant as
provided in Paragraph 9 hereof.
7. Payroll
Deductions.
(a) Upon enrollment, a
Participant shall elect to make contributions to the Plan by
payroll deductions (in full dollar amounts and in amounts
calculated to be as uniform as practicable throughout the period of
the phase), in the aggregate amount not in excess of 10% of such
Participant’s Base Pay for the term of the Phase, as
determined according to Paragraph 19 hereof.
The minimum
authorized payroll deduction must aggregate to not less than $10
per pay period.
(b) In the event that
the Participant’s compensation for any pay period is
terminated or reduced from the compensation rate for such a period
as of the Commencement Date of the phase for any reason so that the
amount actually withheld on behalf of the Participant as of the
termination date of the phase is less than the amount anticipated
to be withheld over the phase year as determined on the
Commencement Date of the phase, then the extent to which the
Participant may exercise his option shall be based on the amount
actually withheld on his behalf. In the event of a change in the
pay period of any Participant, such as from bi-weekly to monthly,
an appropriate adjustment shall be made to the deduction in each
new pay period so as to ensure the deduction of the proper amount
authorized by the Participant.
(c) All payroll
deductions made for Participants shall be credited to their
accounts under the Plan. A Participant may not make any separate
cash payments into such account.
(d) Except for his
right to discontinue participation in the Plan as provided in
Paragraph 9, no Participant shall be entitled to increase or
decrease the amount to be deducted in a given phase after the
Commencement Date.
8. Options.
(a) Grant of Option.
(i) A Participant who
is employed by the Company as of the Commencement Date of a phase
shall be granted an option as of such date to purchase a number of
full shares of Company common stock to be determined by dividing
the total amount to be credited to that Participant’s account
under Paragraph 7 hereof by the option price set forth in Paragraph
8(a)(ii)(A) hereof, subject to the limitations of Paragraph 10
hereof.
(ii) The option price
for such shares of common stock shall be the lower of:
A. Eighty-five percent
(85%) of the fair market value of such shares of common stock on
the Commencement Date of the phase; or
B. Eighty-five percent
(85%) of the fair market value of such shares of common stock on
the termination date of the phase.
(iii) The fair market
value of shares of common stock of the Company shall be determined
by the Committee for each valuation date in a manner acceptable
under Section 423 of the Internal Revenue Code of
1986.
B-2
(iv) Anything herein to
the contrary notwithstanding, no Employee shall be granted an
option hereunder:
A. Which exceeds a
10,000-share limit per Employee for each plan phase;
B. Which permits his
rights to purchase stock under all employee stock purchase plans of
the Company, its subsidiaries or its parent, if any, to accrue at a
rate which exceeds Twenty-Five Thousand Dollars ($25,000) of the
fair market value of such stock (determined at the time such option
is granted) for each calendar year in which such option is
outstanding at any time;
C. If immediately
after the grant such Employee would own and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of
the Company, its parent, if any, or of any subsidiary of the
Company. For purposes of determining stock ownership under this
Paragraph, the rules of Section 424(d) of the Internal Revenue
Code, as amended, shall apply; or
D. Which can be
exercised after the expiration of 27 months from the date the
option is granted.
(b) Exercise of
Option.
(i) Unless a
Participant gives written notice to the Company pursuant to
Paragraph 8(b)(ii) or Paragraph 9 prior to the termination date of
a phase, his option for the purchase of shares will be exercised
automatically for him as of such termination date for the purchase
of the number of full shares of Company common stock which the
accumulated payroll deductions in his account at that time will
purchase at the applicable option price, subject to the limitations
set forth in Paragraph 10 hereof.
(ii) A Participant may,
by written notice to the Company at any time during the thirty (30)
day period immediately preceding the termination date of a phase,
elect, effective as of the termination date of that phase, to
exercise his option for a specified number of full shares less than
the maximum number which may be purchased under his
option.
(iii) As promptly as
practicable after the termination date of any phase, the Company
will deliver to each Participant herein the common stock purchased
upon the exercise of his option, together with a cash payment equal
to the balance, if any, of his account which was not used for the
purchase of common stock with interest accrued
thereon.
9. Withdrawal or Termination of
Participation.
(a) A Participant may,
at any time prior to the termination date of a phase, withdraw all
payroll deductions then credited to his account by giving written
notice to the Company. Promptly upon receipt of such notice of
withdrawal, all payroll deductions credited to the
Participant’s account will be paid to him with interest
accrued thereon and no further payroll deductions will be made
during the phase. In such event, the option granted the Participant
under that phase of the Plan shall lapse immediately. Partial
withdrawals of payroll deductions hereunder may not be
made.
(b) In the event of the
death of a Participant, the person or persons specified in
Paragraph 14 may give notice to the Company within sixty (60) days
of the death of the Participant electing to purchase the number of
full shares which the accumulated payroll deductions in the account
of such deceased Participant will purchase at the option price
specified in Paragraph 8(a)(ii) and have the balance in the account
distributed in cash with interest accrued thereon. If no such
notice is received by the Company within said sixty (60) days, the
accumulated payroll deductions will be distributed in full in cash
with interest accrued thereon.
B-3
(c) Upon termination of
Participant’s employment for any reason other than death of
the Participant, the payroll deductions credited to his account,
plus interest, shall be returned to him.
10. Stock Reserved for
Options.
(a) One Million Seven
Hundred Thousand (1,700,000)1 shares of the
Company’s common stock are reserved for issuance upon the
exercise of options to be granted under the Plan. Shares subject to
the unexercised portion of any lapsed or expired option may again
be subject to option under the Plan.
(b) If the total number
of shares of the Company common stock for which options are to be
granted for a given phase as specified in Paragraph 8 exceeds the
number of shares then remaining available under the Plan (after
deduction of all shares for which options have been exercised or
are then outstanding) and if the Committee does not elect to cancel
such phase pursuant to Paragraph 4, the Committee shall make a pro
rata allocation of the shares remaining available in as uniform and
equitable a manner as it shall consider practicable. In such event,
the options to be granted and the payroll deductions to be made
pursuant to the Plan which would otherwise be effected may, in the
discretion of the Committee, be reduced accordingly. The Committee
shall give written notice of such reduction to each Participant
affected.
(c) The Participant (or
a joint tenant named pursuant to Paragraph 10(d) hereof) shall have
no rights as a shareholder with respect to any shares subject to
the Participant’s option until the date of the issuance of a
stock certificate evidencing such shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash,
securities or other property), distributions or other rights for
which the record date is prior to the date such stock certificate
is actually issued, except as otherwise provided in Paragraph 12
hereof.
(d) The shares of the
Company common stock to be delivered to a Participant pursuant to
the exercise of an option under the Plan will be registered in the
name of the Participant or, if the Participant so directs by
written notice to the Committee prior to the termination date of
that phase of the Plan, in the names of the Participant and one
other person the Participant may designate as his joint tenant with
rights of survivorship, to the extent permitted by
law.
11. Accounting and Use of Funds.
Payroll deductions for each Participant shall be credited to an
account established for him under the Plan. A Participant may not
make any separate case payments into such account. Such account
shall be solely for bookkeeping purposes and no separate fund or
trust shall be established hereunder and the Company shall not be
obligated to segregate such funds. All funds from payroll
deductions received or held by the Company under the Plan may be
used, without limitation, for any corporate purpose by the
Company.
12. Adjustment
Provision.
(a) Subject to any
required action by the shareholders of the Company, the number of
shares covered by each outstanding option, and the price per share
thereof in each such option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of the
Company common stock resulting from a subdivision or consolidation
of shares or the payment of a share dividend (but only on the
shares) or any other increase or decrease in the number of such
shares effected without receipt of consideration by the
Company.
(b) In the event of a
change in the shares of the Company as presently constituted, which
is limited to a change of all its authorized shares with par value
into the same number of shares with a different part value or
without par value, the shares resulting from any such change shall
be deemed to be the shares within the meaning of this
Plan.
1 Represents a
300,000-share increase from the 1,400,000 shares available under
the current ESPP.
B-4
13. Non-Transferability of
Options.
(a) Options granted
under any phase of the Plan shall not be transferable except under
the laws of descent and distribution and shall be exercisable only
by the Participant during his lifetime and after his death only by
his beneficiary of the representative of his estate as provided in
Paragraph 9(b) hereof.
(b) Neither payroll
deductions credited to a Participant’s account, nor any
rights with regard to the exercise of an option or to receive
common stock under any phase of the Plan may be assigned,
transferred, pledged, or otherwise disposed of in any way by the
Participant. Any such attempted assignment, transfer, pledge or
other disposition shall be null and void and without effect, except
that the Company may, at its option, treat such act as an election
to withdraw funds in accordance with Paragraph 9.
14. Designation of Beneficiary. A
Participant may file a written designation of a beneficiary who is
to receive any cash to the Participant’s credit plus interest
thereon under any phase of the Plan in the event of such
Participant’s death prior to exercise of his option pursuant
to Paragraph 9(b) hereof, or to exercise his option and become
entitled to any stock and/or cash upon such exercise in the event
of the Participant’s death prior to exercise of the option
pursuant to Paragraph 9(b) hereof. The beneficiary designation may
be changed by the Participant at any time by written notice to the
Company.
Upon the death of a
Participant and upon receipt by the Company of proof deemed
adequate by it of the identity and existence at the
Participant’s death of a beneficiary validly designated under
the Plan, the Company shall in the event of the Participant’s
death under the circumstances described in Paragraph 9(b) hereof,
allow such beneficiary to exercise the Participant’s option
pursuant to Paragraph 9(b) if such beneficiary is living on the
termination date of the phase and deliver to such beneficiary the
appropriate stock and/or cash after exercise of the option. In the
event there is no validly designated beneficiary under the Plan who
is living at the time of the Participant’s death under the
circumstances described in Paragraph 9(b) or in the event the
option lapses, the Company shall deliver the cash credited to the
account of the Participant with interest to the executor or
administrator of the estate of the Participant, or if no such
executor or administrator has been appointed to the knowledge of
the Company, it may, in its discretion, deliver such cash to the
spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.
The Company will not be responsible for or be required to give
effect to the disposition of any cash or stock or the exercise of
any option in accordance with any will or other testamentary
disposition made by such Participant or in accordance with the
provision of any law concerning intestacy, or otherwise. No
designated beneficiary shall, prior to the death of a Participant
by whom he has been designated, acquire any interest in any stock
or in any option or in the cash credited to the Participant under
any phase of the Plan.
15. Amendment and Termination. The
Plan may be terminated at any time by the Board of Directors
provided that, except as permitted in Paragraph 4(c) with respect
to an acceleration of the termination date of any phase, no such
termination will take effect with respect to any options then
outstanding. Also, the Board may, from time to time, amend the Plan
as it may deem proper and in the best interests of the Company or
as may be necessary to comply with Section 423 of the Internal
Revenue Code of 1986, as amended, or other applicable laws or
regulations; provided, however, that no such amendment shall,
without prior approval of the shareholders of the Company (1)
increase the total number of shares for which options may be
granted under the Plan (except as provided in Paragraph 12 herein),
(2) permit aggregate payroll deductions in excess of ten percent
(10%) of a Participant’s compensation as of the Compensation
Date of a phase, or (3) impair any outstanding option.
16. Interest. In any situation
where the Plan provides for the payment of interest on a
Participant’s payroll deductions, such interest shall be
determined by averaging the month-end balances in the
Participant’s account for the period of his participation and
computing interest thereon at the initial rate of three percent
(3%) per annum. This interest rate may be adjusted periodically by
the Committee as it deems appropriate.
17. Notices. All notices or other
communications in connection with the Plan or any phase thereof
shall be in the form specified by the Committee and shall be deemed
to have been duly given when received by the Participant or his
designated personal representative or beneficiary or by the Company
or its designated representative, as the case may be.
B-5
18. Participation of Subsidiaries.
The Employees of any Subsidiary of the Company shall be entitled to
participate in the Plan on the same basis as Employees of the
Company, unless the Board of Directors determines otherwise.
Effective as of the date of coverage of any Subsidiary, any
references herein to the “Company” shall be interpreted
as referring to such Subsidiary as well as to Insignia Systems,
Inc.
In the event that
any Subsidiary which is covered under the Plan ceases to be a
Subsidiary of Insignia Systems, Inc. the employees of such
Subsidiary shall be considered to have terminated their employment
for purposes of Paragraph 9 hereof as of the date such Subsidiary
ceases to be such a Subsidiary.
19. Definitions.
(a) “Subsidiary”
shall include any corporation defined as a subsidiary of the
Company in Section 424(f) of the Internal Revenue Code of 1986, as
amended.
(b) “Employee”
shall mean any employee, including an officer, of the Company who
as of the day immediately preceding the Commencement Date of a
phase is customarily employed by the Company for more than twenty
(20) hours per week and more than five (5) months in a calendar
year.
(c) “Base
Pay” is the regular pay for employment for each employee as
annualized for a twelve (12) month period, exclusive of overtime,
commissions, bonuses, disability payments, shift differentials,
incentives and other similar payments, determined as of the
Commencement Date of each phase.
B-6
Appendix
C
302A.671
CONTROL SHARE ACQUISITIONS.
Subdivision 1.
Application. (a) Unless
otherwise expressly provided in the articles or in bylaws approved
by the shareholders of an issuing public corporation, this section
applies to a control share acquisition. A shareholder’s
proposal to amend the corporation’s articles or bylaws to
cause this section to be inapplicable to the corporation requires
the vote set forth in subdivision 4a, paragraph (b), in order for
it to be effective, unless it is approved by a committee of the
board comprised solely of directors who:
(1) are neither
officers nor employees of, nor were during the five years preceding
the formation of the committee officers or employees of, the
corporation or a related organization;
(2) are neither
acquiring persons nor affiliates or associates of an acquiring
person;
(3) were not
nominated for election as directors by an acquiring person or an
affiliate or associate of an acquiring person; and
(4) were directors
at the time an acquiring person became an acquiring person or were
nominated, elected, or recommended for election as directors by a
majority of those directors.
(b) The shares of
an issuing public corporation acquired by an acquiring person in a
control share acquisition that exceed the threshold of voting power
of any of the ranges specified in subdivision 2, paragraph (d),
shall have only the voting rights as shall be accorded to them
pursuant to subdivision 4a.
Subd. 2.
Information statement. An
acquiring person shall deliver to the issuing public corporation at
its principal executive office an information statement containing
all of the following:
(a) the identity
and background of the acquiring person, including the identity and
background of each member of any partnership, limited partnership,
syndicate, or other group constituting the acquiring person, and
the identity and background of each affiliate and associate of the
acquiring person, including the identity and background of each
affiliate and associate of each member of such partnership,
syndicate, or other group; provided, however, that with respect to
a limited partnership, the information need only be given with
respect to a partner who is denominated or functions as a general
partner and each affiliate and associate of the general
partner;
(b) a reference
that the information statement is made under this
section;
(c) the number and
class or series of shares of the issuing public corporation
beneficially owned, directly or indirectly, before the control
share acquisition by each of the persons identified pursuant to
paragraph (a);
(d) the number and
class or series of shares of the issuing public corporation
acquired or proposed to be acquired pursuant to the control share
acquisition by each of the persons identified pursuant to paragraph
(a) and specification of which of the following ranges of voting
power in the election of directors that, except for this section,
resulted or would result from consummation of the control share
acquisition:
(1) at least 20
percent but less than 33-1/3 percent;
(2) at least 33-1/3
percent but less than or equal to 50 percent;
(3) over 50
percent; and
(e) the terms of
the control share acquisition or proposed control share
acquisition, including, but not limited to, the source of funds or
other consideration and the material terms of the financial
arrangements for the control share acquisition; plans or proposals
of the acquiring person (including plans or proposals under
consideration) to (1) liquidate or dissolve the issuing public
corporation, (2) sell all or a substantial part of its assets, or
merge it or exchange its shares with any other person, (3) change
the location of its principal place of business or its principal
executive office or of a material portion of its business
activities, (4) change materially its management or policies of
employment, (5) change materially its charitable or community
contributions or its policies, programs, or practices relating
thereto, (6) change materially its relationship with suppliers or
customers or the communities in which it operates, or (7) make any
other material change in its business, corporate structure,
management or personnel; and other objective facts as would be
substantially likely to affect the decision of a shareholder with
respect to voting on the control share
acquisition.
If any material
change occurs in the facts set forth in the information statement,
including but not limited to any material increase or decrease in
the number of shares of the issuing public corporation acquired or
proposed to be acquired by the persons identified pursuant to
paragraph (a), the acquiring person shall promptly deliver to the
issuing public corporation at its principal executive office an
amendment to the information statement containing information
relating to the material change. An increase or decrease or
proposed increase or decrease equal, in the aggregate for all
persons identified pursuant to paragraph (a), to one percent or
more of the total number of outstanding shares of any class or
series of the issuing public corporation
C-1
shall be deemed
“material” for purposes of this paragraph; an increase
or decrease or proposed increase or decrease of less than this
amount may be material, depending upon the facts and
circumstances.
Subd. 3. Meeting
of shareholders. If the acquiring person so requests in
writing at the time of delivery of an information statement
pursuant to subdivision 2, and has made, or has made a bona fide
written offer to make, a control share acquisition and gives a
written undertaking to pay or reimburse the issuing public
corporation’s expenses of a special meeting, except the
expenses of the issuing public corporation in opposing according
voting rights with respect to shares acquired or to be acquired in
the control share acquisition, within ten days after receipt by the
issuing public corporation of the information statement, a special
meeting of the shareholders of the issuing public corporation shall
be called pursuant to section 302A.433, subdivision 1, for the sole
purpose of considering the voting rights to be accorded to shares
referred to in subdivision 1, paragraph (b), acquired or to be
acquired pursuant to the control share acquisition. The special
meeting shall be held no later than 55 days after receipt of the
information statement and written undertaking to pay or reimburse
the issuing public corporation’s expenses of the special
meeting, unless the acquiring person agrees to a later date. If the
acquiring person so requests in writing at the time of delivery of
the information statement, (1) the special meeting shall not be
held sooner than 30 days after receipt by the issuing public
corporation of the information statement and (2) the record date
for the meeting must be at least 30 days prior to the date of the
meeting. If no request for a special meeting is made, consideration
of the voting rights to be accorded to shares referred to in
subdivision 1, paragraph (b), acquired or to be acquired pursuant
to the control share acquisition shall be presented at the next
special or annual meeting of the shareholders of which notice has
not been given, unless prior thereto the matter of the voting
rights becomes moot. The issuing public corporation is not required
to have the voting rights to be accorded to shares acquired or to
be acquired according to a control share acquisition considered at
the next special or annual meeting of the shareholders unless it
has received the information statement and documents required by
subdivision 4 at least 55 days before the meeting. The notice of
the meeting shall at a minimum be accompanied by a copy of the
information statement (and a copy of any amendment to the
information statement previously delivered to the issuing public
corporation) and a statement disclosing that the board of the
issuing public corporation recommends approval of, expresses no
opinion and is remaining neutral toward, recommends rejection of,
or is unable to take a position with respect to according voting
rights to shares referred to in subdivision 1, paragraph (b),
acquired or to be acquired in the control share acquisition. The
notice of meeting shall be given at least ten days prior to the
meeting. Any amendments to the information statement received after
mailing of the notice of the meeting must be mailed promptly to the
shareholders by the issuing public corporation.
Subd. 4.
Financing. Notwithstanding
anything to the contrary contained in this chapter, no call of a
special meeting of the shareholders of the issuing public
corporation shall be made pursuant to subdivision 3 and no
consideration of the voting rights to be accorded to shares
referred to in subdivision 1, paragraph (b), acquired or to be
acquired pursuant to a control share acquisition shall be presented
at any special or annual meeting of the shareholders of the issuing
public corporation unless at the time of delivery of the
information statement pursuant to subdivision 2, the acquiring
person shall have entered into, and shall deliver to the issuing
public corporation a copy or copies of, a definitive financing
agreement or definitive financing agreements, with one or more
responsible financial institutions or other entities having the
necessary financial capacity, for any financing of the control
share acquisition not to be provided by funds of the acquiring
person. A financing agreement is not deemed not definitive for
purposes of this subdivision solely because it contains conditions
or contingencies customarily contained in term loan agreements with
financial institutions.
Subd. 4a.
Voting rights. (a) Shares
referred to in subdivision 1, paragraph (b), acquired in a control
share acquisition shall have the same voting rights as other shares
of the same class or series only if approved by resolution of
shareholders of the issuing public corporation at a special or
annual meeting of shareholders pursuant to subdivision
3.
(b) The resolution
of shareholders must be approved by (1) the affirmative vote of the
holders of a majority of the voting power of all shares entitled to
vote including all shares held by the acquiring person, and (2) the
affirmative vote of the holders of a majority of the voting power
of all shares entitled to vote excluding all interested shares. A
class or series of shares of the issuing public corporation is
entitled to vote separately as a class or series if any provision
of the control share acquisition would, if contained in a proposed
amendment to the articles, entitle the class or series to vote
separately as a class or series.
(c) To have the
voting rights accorded by approval of a resolution of shareholders,
any proposed control share acquisition not consummated prior to the
time of the shareholder approval must be consummated within 180
days after the shareholder approval.
(d) Any shares
referred to in subdivision 1, paragraph (b), acquired in a control
share acquisition that do not have voting rights accorded to them
by approval of a resolution of shareholders shall regain their
voting rights upon transfer to a person other than the acquiring
person or any affiliate or associate of the acquiring person unless
the acquisition of the shares by the other person constitutes a
control share acquisition, in which case the voting rights of the
shares are subject to the provisions of this
section.
C-2
Subd. 5.
Rights of action. An
acquiring person, an issuing public corporation, and shareholders
of an issuing public corporation may sue at law or in equity to
enforce the provisions of this section and section 302A.449,
subdivision 7.
Subd. 6.
Redemption. Unless otherwise
expressly provided in the articles or in bylaws approved by the
shareholders of an issuing public corporation, the issuing public
corporation shall have the option to call for redemption all but
not less than all shares referred to in subdivision 1, paragraph
(b), acquired in a control share acquisition, at a redemption price
equal to the market value of the shares at the time the call for
redemption is given, in the event (1) an information statement has
not been delivered to the issuing public corporation by the
acquiring person by the tenth day after the control share
acquisition, or (2) an information statement has been delivered but
the shareholders have voted not to accord voting rights to such
shares pursuant to subdivision 4a, paragraph (b). The call for
redemption shall be given by the issuing public corporation within
30 days after the event giving the issuing public corporation the
option to call the shares for redemption and the shares shall be
redeemed within 60 days after the call is given.
302A.011 DEFINITIONS.1
Subd. 37. Acquiring person.
“Acquiring person” means a person that makes or
proposes to make a control share acquisition. When two or more
persons act as a partnership, limited partnership, syndicate, or
other group pursuant to any written or oral agreement, arrangement,
relationship, understanding, or otherwise for the purposes of
acquiring, owning, or voting shares of an issuing public
corporation, all members of the partnership, syndicate, or other
group constitute a “person.”
“Acquiring
person” does not include (a) a licensed broker/dealer or
licensed underwriter who (1) purchases shares of an issuing public
corporation solely for purposes of resale to the public and (2) is
not acting in concert with an acquiring person, or (b) a person who
becomes entitled to exercise or direct the exercise of a new range
of voting power within any of the ranges specified in section
302A.671, subdivision 2, paragraph (d), solely as a result of a
repurchase of shares by, or recapitalization of, the issuing public
corporation or similar action unless (1) the repurchase,
recapitalization, or similar action was proposed by or on behalf
of, or pursuant to any written or oral agreement, arrangement,
relationship, understanding, or otherwise with, the person or any
affiliate or associate of the person or (2) the person thereafter
acquires beneficial ownership, directly or indirectly, of
outstanding shares entitled to vote of the issuing public
corporation and, immediately after the acquisition, is entitled to
exercise or direct the exercise of the same or a higher range of
voting power under section 302A.671, subdivision 2, paragraph (d),
as the person became entitled to exercise as a result of the
repurchase, recapitalization, or similar action.
Subd. 38. Control share acquisition.
“Control share acquisition” means an acquisition,
directly or indirectly, by an acquiring person of beneficial
ownership of shares of an issuing public corporation that, except
for section 302A.671, would, when added to all other shares of the
issuing public corporation beneficially owned by the acquiring
person, entitle the acquiring person, immediately after the
acquisition, to exercise or direct the exercise of a new range of
voting power within any of the ranges specified in section
302A.671, subdivision 2, paragraph (d), but does not include any of
the following:
(a) an acquisition
before, or pursuant to an agreement entered into before,
August 1, 1984;
(b) an acquisition
by a donee pursuant to an inter vivos gift not made to avoid
section 302A.671 or by a distributee as defined in section
524.1-201, clause (10);
(c) an acquisition
pursuant to a security agreement not created to avoid section
302A.671;
(d) an acquisition
under sections 302A.601 to 302A.661, if the issuing public
corporation is a party to the transaction;
(e) an acquisition
from the issuing public corporation;
(f) an acquisition
for the benefit of others by a person acting in good faith and not
made to avoid section 302A.671, to the extent that the person may
not exercise or direct the exercise of the voting power or
disposition of the shares except upon the instruction of
others;
(g) an acquisition
pursuant to a savings, employee stock ownership, or other employee
benefit plan of the issuing public corporation or any of its
subsidiaries, or by a fiduciary of the plan acting in a fiduciary
capacity pursuant to the plan; or
(h) an acquisition
pursuant to an offer to purchase for cash pursuant to a tender
offer, or to exchange for stock pursuant to an exchange offer, all
shares of the voting stock of the issuing public
corporation:
(1) that has been
approved by a majority vote of the members of a committee composed
solely of one or more disinterested members of the board of the
issuing public corporation formed pursuant to section 302A.673,
subdivision 1, paragraph (d), before the commencement of, or the
public announcement of the intent to commence, the tender or
exchange offer; and
1 Terms not used in
302A.671 omitted.
C-3
(2) pursuant to
which the acquiring person will become the owner of over 50 percent
of the voting stock of the issuing public corporation outstanding
at the time of the transaction.
For purposes of
this subdivision, shares beneficially owned by a plan described in
clause (g), or by a fiduciary of a plan described in clause (g)
pursuant to the plan, are not deemed to be beneficially owned by a
person who is a fiduciary of the plan.
Subd. 39. Issuing public corporation.
“Issuing public corporation” means either: (1) a
publicly held corporation that has at least 50 shareholders; or (2)
any other corporation that has at least 100 shareholders, provided
that if, before January 1, 1998, a corporation that has at least 50
shareholders elects to be an issuing public corporation by express
amendment contained in the articles or bylaws, including bylaws
approved by the board, that corporation is an issuing public
corporation if it has at least 50 shareholders.
Subd. 40. Publicly held corporation.
“Publicly held corporation” means a corporation that
has a class of equity securities registered pursuant to section 12,
or is subject to section 15(d), of the Securities Exchange Act of
1934.
Subd. 41. Beneficial owner; beneficial
ownership. (a) “Beneficial owner,” when used
with respect to shares or other securities, includes, but is not
limited to, any person who, directly or indirectly through any
written or oral agreement, arrangement, relationship,
understanding, or otherwise, has or shares the power to vote, or
direct the voting of, the shares or securities or has or shares the
power to dispose of, or direct the disposition of, the shares or
securities, except that:
(1) a person shall
not be deemed the beneficial owner of shares or securities tendered
pursuant to a tender or exchange offer made by the person or any of
the person’s affiliates or associates until the tendered
shares or securities are accepted for purchase or exchange;
and
(2) a person shall
not be deemed the beneficial owner of shares or securities with
respect to which the person has the power to vote or direct the
voting arising solely from a revocable proxy given in response to a
proxy solicitation required to be made and made in accordance with
the applicable rules and regulations under the Securities Exchange
Act of 1934 and is not then reportable under that act on a Schedule
13D or comparable report, or, if the corporation is not subject to
the rules and regulations under the Securities Exchange Act of
1934, would have been required to be made and would not have been
reportable if the corporation had been subject to the rules and
regulations.
(b)
“Beneficial ownership” includes, but is not limited to,
the right to acquire shares or securities through the exercise of
options, warrants, or rights, or the conversion of convertible
securities, or otherwise. The shares or securities subject to the
options, warrants, rights, or conversion privileges held by a
person shall be deemed to be outstanding for the purpose of
computing the percentage of outstanding shares or securities of the
class or series owned by the person, but shall not be deemed to be
outstanding for the purpose of computing the percentage of the
class or series owned by any other person. A person shall be deemed
the beneficial owner of shares and securities beneficially owned by
any relative or spouse of the person or any relative of the spouse,
residing in the home of the person, any trust or estate in which
the person owns ten percent or more of the total beneficial
interest or serves as trustee or executor or in a similar fiduciary
capacity, any organization in which the person owns ten percent or
more of the equity, and any affiliate of the person.
(c) When two or
more persons act or agree to act as a partnership, limited
partnership, syndicate, or other group for the purposes of
acquiring, owning, or voting shares or other securities of a
corporation, all members of the partnership, syndicate, or other
group are deemed to constitute a “person” and to have
acquired beneficial ownership, as of the date they first so act or
agree to act together, of all shares or securities of the
corporation beneficially owned by the person.
Subd. 42.
Interested shares.
“Interested shares” means the shares of an issuing
public corporation beneficially owned by any of the following
persons: (1) the acquiring person, (2) any officer of the issuing
public corporation, or (3) any employee of the issuing public
corporation who is also a director of the issuing public
corporation.
Subd. 43.
Affiliate.
“Affiliate” means a person that directly or indirectly
controls, is controlled by, or is under common control with, a
specified person.
Subd. 45.
Associate.
“Associate,” when used to indicate a relationship with
any person, means any of the following:
(1) any
organization of which the person is an officer or partner or is,
directly or indirectly, the beneficial owner of ten percent or more
of any class or series of shares entitled to vote or other equity
interest;
(2) any trust or
estate in which the person has a substantial beneficial interest or
as to which the person serves as trustee or executor or in a
similar fiduciary capacity;
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(3) any relative or
spouse of the person, or any relative of the spouse, residing in
the home of the person.
Subd. 48.
Control.
“Control,” including the terms
“controlling,” “controlled by,” and
“under common control with,” means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or
otherwise. A person’s beneficial ownership of ten percent or
more of the voting power of a corporation’s outstanding
shares entitled to vote in the election of directors creates a
presumption that the person has control of the corporation.
Notwithstanding the foregoing, a person is not considered to have
control of a corporation if the person holds voting power, in good
faith and not for the purpose of avoiding section 302A.673, as an
agent, bank, broker, nominee, custodian, or trustee for one or more
beneficial owners who do not individually or as a group have
control of the corporation.
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