UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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ENSYNC, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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EnSync, Inc.
N93 W14475 Whittaker Way
Menomonee Falls, Wisconsin 53051
NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 14, 2016
Dear Shareholder:
You are cordially invited to attend the
annual meeting of shareholders of EnSync, Inc. to be held at the Radisson Hotel, N88 W14750 Main Street, Menomonee Falls, Wisconsin
53051, on Monday, November 14, 2016 at 10:00 a.m., local time. At the 2016 Annual Meeting, shareholders will be asked to:
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elect the three Class III directors nominated by the Board of Directors for three year terms;
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vote, on a non-binding advisory basis, on the compensation paid to our named executive officers;
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approve an amendment to the 2010 Omnibus Long-Term Incentive Plan to increase the number of shares reserved for issuance thereunder
by 4,000,000 shares, and approve increased individual award limits and re-approve performance measures under the plan for purposes
of Section 162(m) of the Internal Revenue Code;
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approve an amendment to the 2012 Non-Employee Director Equity Compensation Plan to increase the number of shares reserved for
issuance thereunder by 1,200,000 shares; and
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ratify the appointment of Baker Tilly Virchow Krause, LLP as our independent registered public accounting firm.
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On or about October 10, 2016, we
will mail to each of our shareholders paper copies of our proxy statement and annual report for fiscal 2016. The proxy
materials contain this formal notice to each of our shareholders of our upcoming annual meeting. Details regarding the
meeting and the business to be conducted are described in the accompanying proxy statement. In addition to considering the
matters described in the proxy statement, we will report on matters of interest to our shareholders.
We look forward to your attending either
in person or by proxy. Your vote is important, and I hope that you will vote as soon as possible by following the voting instructions
set forth in the enclosed proxy materials.
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Very
truly yours,
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Bradley L. Hansen
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Chief Executive Officer and President
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October 10, 2016
EnSync, Inc.
N93 W14475 Whittaker Way
Menomonee Falls, Wisconsin 53051
PROXY
STATEMENT
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2016 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
NOVEMBER 14, 2016.
The
notice of the annual meeting of shareholders and proxy statement are available at http://www.envisionreports.com/ESNC
Unless the context requires otherwise,
all references to “we”, “us”, “our” or the “Company” refer to EnSync, Inc. and
its subsidiaries. Our fiscal year ends on June 30 of each year. In this proxy statement, we refer to fiscal years by reference
to the calendar year in which they end (e.g., the fiscal year ended June 30, 2016 is referred to as “fiscal 2016”).
The enclosed proxy is solicited by the
Board of Directors of EnSync, Inc. for use at the Annual Meeting of Shareholders to be held on Monday, November 14, 2016 at 10:00
a.m., local time, or at any postponement or adjournment of the annual meeting, for the purposes set forth in this proxy statement
and in the accompanying notice of annual meeting of shareholders. The annual meeting will be held at the Radisson Hotel, N88 W14750
Main Street, Menomonee Falls, Wisconsin 53051.
The expenses of printing and mailing proxy
materials, including expenses involved in forwarding materials to beneficial owners of stock, will be paid by us. No solicitation
other than by mail is contemplated, except that our officers or employees may solicit the return of proxies from certain shareholders
by telephone.
Our Board of Directors recommends that
our shareholders vote their shares:
“
FOR
” the three Class
III directors nominated by the Board of Directors to serve until the 2019 annual meeting of shareholders;
“
FOR
” the approval,
on a non-binding advisory basis, of the proposal regarding the compensation paid to our named executive officers;
“
FOR
” the proposal to
amend the 2010 Omnibus Long-Term Incentive Plan to increase the number of shares reserved for issuance thereunder by 4,000,000
shares, and approve increased individual award limits and re-approve performance measures under the plan for purposes of Section
162(m) of the Internal Revenue Code;
“
FOR
” the proposal to
amend the 2012 Non-Employee Director Equity Compensation Plan to increase the number of shares reserved for issuance thereunder
by 1,200,000 shares; and
“
FOR
” the ratification
of the appointment of Baker Tilly Virchow Krause, LLP as our independent registered public accounting firm.
Only shareholders of record at the close
of business on September 27, 2016 are entitled to notice of and to vote at the annual meeting. As of the record date, there were
47,752,821 shares of common stock, $0.01 par value per share, 2,300 shares of series B convertible preferred stock, $0.01 par value
per share, and 28,048 shares of series C convertible preferred stock, $0.01 par value per share, issued and outstanding and entitled
to vote at the annual meeting. Each holder of our common stock is entitled to one vote for each share of our common stock held
as of the close of business on the record date, and each holder of our series B convertible preferred stock is entitled to one
vote for each share of our common stock issuable upon conversion of our series B convertible preferred stock held as of the close
of business on the record date. As of the record date, each share of our series B convertible preferred stock was convertible into
1,381 shares of common stock. Accordingly, each share of our series B convertible preferred stock is entitled to 1,381 votes on
each matter presented at the annual meeting.
Based on an Amendment No. 1 to Schedule 13D jointly filed with
the SEC on September 29, 2016 by (i) Melodious Investments Company Limited, a British Virgin Islands Company (“MICL”)
and wholly owned subsidiary of Melodious International Investments Group Limited (“MIIGL”), (ii) MIIGL, a British Virgin
Islands company wholly owned by Jilun He, and (iii) Jilun He, who is the sole director of both MICL and MIIGL (together with MICL
and MIIGL, the “Reporting Persons”), the Reporting Persons indicated they shared power to vote or direct the vote of
8,000,000 shares of the Company’s common stock as of the record date. In addition, as of the record date, Jilun He
has the sole power to vote or direct the vote of 4,511,403 shares of the Company’s common stock and has the sole power to
dispose or to direct the disposition of 4,511,403 shares of the Company’s common stock. As of the record date, however,
due to the provisions of the Wisconsin Business Corporation Law (the “WBCL”) described below, the voting power of the
Reporting Persons at the annual meeting will be limited to 9,846,648 votes. This amount represents approximately 20.62% of
the outstanding shares of common stock as of the record date. Under the WBCL and the control share voting restrictions provided
therein, the voting power of shares of a Wisconsin corporation held by any person or persons “acting as a group for the purpose
of acquiring or holding securities” (including shares issuable upon conversion of convertible securities or upon exercise
of options or warrants) in excess of 20% of the voting power in the election of directors is limited to 10% of the full voting
power of those shares. This voting restriction applies to shareholders of a Wisconsin corporation unless such corporation has affirmatively
provided otherwise in its articles of incorporation or another exemption applies. These control share voting restrictions
are applicable to the Reporting Persons because the Company has not affirmatively opted out of such restrictions in its articles
of incorporation and no other exemption applies. In addition, under the WBCL and the business combination restrictions provided
therein, a Wisconsin corporation may not complete a business combination (generally defined as a merger or share exchange) with
a person who is the beneficial owner of 10% or more of the voting power of the corporation’s outstanding voting stock (an
“interested stockholder”) within three years following the date of the share acquisition that caused the person to
become an interested stockholder, unless the corporation’s board of directors approved such share acquisition before it took
place. Because the Company’s board of directors did not approve the Reporting Persons’ acquisition of shares of the
Company’s common stock, these restrictions would apply to any potential business combination involving the Reporting Persons.
The presence, in person or by proxy, of
one-third of the total votes entitled to be cast on each matter at the annual meeting will constitute a quorum at the annual meeting.
Abstentions and broker non-votes, which are proxies from brokers or nominees indicating that such persons have not received instructions
from the beneficial owners or other persons entitled to vote shares as to a matter with respect to which brokers or nominees do
not have discretionary power to vote, will be treated as present for purposes of determining the quorum.
Directors are elected by a plurality of
the votes cast by shareholders entitled to vote at the annual meeting, which means the three nominees receiving the most affirmative
votes will be elected. On all other matters, an affirmative vote of at least a majority of the votes cast is required for approval.
The holders of the shares of our common
stock and series B convertible preferred stock issued and outstanding as of the record date will vote together, on a combined basis,
on each matter to be presented at the annual meeting.
Banks, brokers and other holders of record
do not have discretionary authority to vote shares held in street name in connection with non-routine proposals, which include
all the proposals other than the ratification of the appointment of Baker Tilly Virchow Krause, LLP as our independent registered
public accounting firm. As a result, broker non-votes will occur at the 2016 Annual Meeting with respect to these non-routine proposals.
However, since broker non-votes are not counted as votes cast they will have no effect on the outcome of these proposals.
Banks, brokers and other holders of record
have discretionary authority to vote shares held in street name, even if they do not receive instructions from the beneficial owner,
on routine proposals, which includes the ratification of the appointment of an independent registered public accounting firm. Accordingly,
if you do not provide your bank, broker or other holder of record with voting instructions with respect to this proposal, such
holder will have discretionary authority to vote your shares held in street name on this proposal at the 2016 Annual Meeting.
As a result of this discretionary authority, broker non-votes are not expected to occur in connection with Proposal 5 at the annual
meeting.
We are mailing printed copies of this
proxy statement, our Annual Report to Shareholders, and other proxy materials to our shareholders on or about October 10,
2016. These proxy materials contain the formal Shareholder Meeting Notice for the 2016 Annual Meeting (the
“Notice”) and instructions as to how shareholders may submit proxies by telephone or over the Internet.
If a proxy is granted properly by
using the Internet or telephone procedures specified in the proxy materials or a proxy card is properly signed and returned
to us and not revoked, it will be voted in accordance with the instructions given. Each shareholder may revoke a previously
granted proxy at any time before it is exercised by using the Internet or telephone procedures specified in the proxy materials
or by submitting written notice of revocation or a duly executed proxy bearing a later date to us. Attendance at the annual
meeting will not, in itself, constitute revocation of a proxy but a shareholder in attendance may request a ballot and vote
in person, which revokes a prior granted proxy. Where a proxy is properly signed and returned without indicating any voting
instructions regarding a proposal, the shares represented by the proxy will be voted in the manner recommended by the Board
of Directors on all matters presented in this proxy statement.
The Board of Directors knows of no other
matters to be presented at the annual meeting. If any other matter should be presented at the annual meeting, the proxy holders
may vote any shares represented by proxy in their discretion.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain
information regarding beneficial ownership of our common stock as of September 30, 2016 by:
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each person or group of affiliated persons known by us to be the beneficial owner of more than 5% of our common stock;
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each executive officer included in the Summary Compensation Table below;
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each person nominated to become director; and
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all executive officers, directors and nominees as a group.
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Unless otherwise noted below, the address
of each person listed on the table is c/o EnSync, Inc. at N93 W14475 Whittaker Way, Menomonee Falls, Wisconsin 53051. To our knowledge,
and subject to applicable community property laws, each person listed below has sole voting and investment power over the shares
shown as beneficially owned except to the extent jointly owned with spouses or otherwise noted below.
Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission (the “SEC”). The information does not necessarily indicate
ownership for any other purpose. Under these rules, a person is deemed the beneficial owner of a security if that person has the
right to acquire beneficial ownership of such security within 60 days after September 30, 2016, including the right to acquire
shares of common stock subject to options, warrants or convertible preferred stock. Shares of common stock subject to options and
warrants that may be exercised within 60 days after September 30, 2016 are deemed to be beneficially owned and outstanding for
purposes of calculating the number of shares and the percentage of common stock beneficially owned by the shareholder holding the
options or warrants, but are not deemed to be beneficially owned and outstanding for purposes of computing the percentage beneficially
owned by any other person. The applicable percentage of common stock outstanding as of September 30, 2016 is based upon 47,824,821
shares outstanding on that date.
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Amount and Nature of Beneficial Ownership
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Name of Beneficial Owner
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Common Stock
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Shares
Underlying
Convertible
Preferred Stock,
Options and
Warrants (1)
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Total
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Percentage
of Class
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Directors, Nominees and Executive Officers
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Richard A. Abdoo
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663,670
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366,971
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1,030,641
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2.1
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%
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Eric C. Apfelbach
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153,365
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139,151
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292,516
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*
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Hoong Khoeng Cheong
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-
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-
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-
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*
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Manfred E. Birnbaum
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359,405
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37,785
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397,190
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*
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Kevin A. Dennis
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7,262
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133,400
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140,662
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*
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Bradley L. Hansen
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270,000
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240,000
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510,000
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1.1
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%
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Paul F. Koeppe
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827,154
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438,103
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1,265,257
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2.6
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%
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Daniel A. Nordloh
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4,000
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91,000
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95,000
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*
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James H. Ozanne
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51,862
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15,000
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66,862
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*
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Theodore Stern
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927,792
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(2)
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1,443,638
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(3)
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2,371,430
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4.8
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%
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Frederick Vaske
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51,936
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120,000
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171,936
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*
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Dilek Wagner
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-
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76,733
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76,733
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*
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Frederick D. Whisman
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23,935
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120,000
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143,935
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*
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Directors, Nominees and Executive Officers as a group (13 persons)
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3,340,382
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3,221,781
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6,562,163
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12.9
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%
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Five Percent Stockholders
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Melodious Investments Company Limited
(4)
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13,168,513
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-
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13,168,513
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27.5
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%
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(1)
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Includes shares of common stock issuable upon the exercise of warrants and stock options exercisable within 60 days of September
30, 2016 and shares of common stock underlying shares of series B convertible preferred stock convertible within 60 days of September
30, 2016. Does not include shares of common stock issuable upon the exercise of stock options not exercisable within 60 days of
September 30, 2016. Also does not include shares of common stock underlying vested restricted stock unit awards that are issuable
following separation from service as follows: Richard Abdoo (463,684 shares); Eric Apfelbach (144,000 shares); Manfred Birnbaum
(121,105 shares); Bradley Hansen (270,000 shares); Paul Koeppe (502,098 shares); James Ozanne (410,552 shares); and Theodore Stern
(203,640 shares).
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(2)
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617,187 of these shares are held by Bomoseen Associates, LP. Mr. Stern shares voting and dispositive power over these shares.
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(3)
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Includes shares of stock issuable upon the exercise of warrants and shares underlying shares of series B convertible preferred
stock held by Bomoseen Associates, LP. Mr. Stern shares voting and dispositive power over these shares.
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(4)
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Consists of 13,168,513 shares beneficially owned by Melodious Investments Company Limited (“MICL”), a
British Virgin Islands company and wholly owned subsidiary of
Melodious International Investments Group Limited
(“MIIGL”), which is a British Virgin Islands company wholly owned by Jilun He, who is the sole director of both
MICL and MIIGL. Jilun He has the sole power to vote or to direct the vote of 5,168,513 shares and has the sole power to
dispose or to direct the disposition of 5,168,513 shares. Each of MICL, MIIGL and Jilun He have the shared power to vote or
to direct the vote of 8,000,000 shares and have the shared power to dispose or to direct the disposition of 8,000,000
shares. Does not include 17,000,000 shares of common stock
underlying shares of series C convertible preferred stock not convertible
within 60 days of September 30, 2016. The principal business address of each of MICL, MIIGL and Jilun He is Sea Meadow
House, Blackburne Highway, (P.O. Box 116), Road Town, Tortola,
British Virgin Islands. This information has been obtained from an
Amendment No. 1 to Schedule 13D jointly filed by MICL, MIIGL and Jilun He with the SEC on September 29, 2016.
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PROPOSAL 1—ELECTION OF DIRECTORS
The Company’s Board of Directors
currently consists of eight members and is divided into three classes serving terms of three years. Shareholders elect one class
of directors at each annual meeting. Three directors are to be elected at this annual meeting to hold office until the 2019 annual
meeting of shareholders or until a successor has been duly elected and qualified. Upon the recommendation of the Nominating/Governance
Committee of our Board of Directors, the Board of Directors has nominated and recommended Eric C. Apfelbach, Paul F. Koeppe and
Theodore Stern for election to the Board of Directors, each as a Class III director.
Shares represented by all proxies received
by the Board of Directors and not marked so as to withhold authority to vote for any individual nominee will be voted “
FOR
”
the election of all the nominees named below. The Board of Directors knows of no reason why any such nominee would be unable or
unwilling to serve, but if such should be the case, proxies may be voted for the election of some other person nominated by the
Board of Directors.
Election of the directors requires the
affirmative vote of a plurality of the votes cast by the holders of our common stock and series B convertible preferred stock,
voting together on a combined basis. Accordingly, the two director nominees receiving the most affirmative votes will be elected.
An abstention or broker non-vote will have no effect on the outcome of the election of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS
A VOTE “FOR” THE NOMINEES LISTED BELOW
Information Concerning Directors and Nominees for Director
The following table sets forth the nominees
to be elected at the annual meeting and continuing directors and, for each nominee and director whose term of office will extend
beyond the annual meeting, the year such director was first elected as a director, the positions currently held by each director
with us, the year each director’s current term will expire and the current class of each director.
Nominee’s or Director’s
Name and Year First
Became Director
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Age
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Position with the Company
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Year Current
Term Will
Expire
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Current
Class of
Director
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Nominees for Class III Directors:
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Eric C. Apfelbach
2010
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55
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Vice Chairman and Director
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2016
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III
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Paul F. Koeppe
2009
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67
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Chairman and Director
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2016
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III
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Theodore Stern
2014
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87
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Director
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2016
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III
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Continuing Directors:
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Hoong Khoeng Cheong
2015
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51
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Director
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2017
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I
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Bradley L. Hansen
2014
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54
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President, Chief Executive Officer and Director
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2017
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I
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James H. Ozanne
1998
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73
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Director
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2017
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I
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Richard A. Abdoo
2009
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72
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Director
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2018
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II
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Manfred E. Birnbaum
2007
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83
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Director
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2018
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II
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Set forth below is background information
for each current director and nominee for director, as well as information regarding additional experience, qualifications, attributes
or skills that led the Board of Directors to conclude that such director or nominee should serve on the Board of Directors.
Richard A. Abdoo
is president of
R.A. Abdoo & Co. LLC, an environmental and energy consulting firm. Prior to starting this business, he was chairman and chief
executive officer of Wisconsin Energy Corporation (NYSE: WEC) from 1991 until his retirement in 2004. He also served as President
from 1991 to 2003 and joined the company in 1975 as Director of Strategic Planning. During his administration, Wisconsin Energy
Corporation grew to become a Fortune 500 company through a series of mergers and acquisitions. Mr. Abdoo currently serves as a
director of NiSource Inc. (NYSE: NI), a natural gas and electric generation and distribution company. Mr. Abdoo previously served
as a director of Renegy Holdings, Inc., M&I Marshall & Ilsley Corporation and AK Steel (NYSE: AKS), a steel products producer.
He is currently a member of St. Jude’s Children’s Research Hospital’s Professional Advisory Board, a registered
professional engineer in Michigan, Ohio, Pennsylvania and Wisconsin, and a longtime member of the American Economic Association.
In 2000, Mr. Abdoo was awarded the Ellis Island Medal of Honor, presented to Americans of diverse origins for their outstanding
contributions to their own ethnic groups and to American society. Honorees typically include U.S. presidents, Nobel Prize winners
and leaders of industry. Mr. Abdoo received a Master of Arts degree in Economics from University of Detroit and a Bachelor of Science
degree in Electrical Engineering from University of Dayton.
Mr. Abdoo’s extensive knowledge of
the energy and energy services industries, and his extensive experience serving on the boards of directors of other companies qualify
him to serve as a member of our Board of Directors.
Eric C. Apfelbach
has served as
our Vice Chairman of the Board since July 2015. Mr. Apfelbach served as our Chief Executive Officer from January 2010 to July 2015.
From December 2008 until September 2009, Mr. Apfelbach served as President and CEO of M2E Power, Inc., a start-up technology company.
From August 2003 until November 2008, Mr. Apfelbach served as President, CEO and a member of the board of directors, including
Chairman from 2004 to 2008, of Virent Energy Systems, Inc., a catalytic biofuel and chemical company. Before Virent, Mr. Apfelbach
co-founded Alfalight, Inc. where, as President and CEO, he helped grow the high power diode laser company to 85 employees in two
years and led the company through multiple financings. Prior to Alfalight, Mr. Apfelbach was Vice President of Global Sales and
Marketing at Planar Systems, Inc. (Nasdaq: PLNR), a flat-panel display designer and manufacturer, and held operating responsibility
for the LCD division. He began his career working as an engineer in the semiconductor industry, rising to senior management at
Applied Materials, one of the world’s largest semiconductor equipment companies. In 2006, he was elected to the Board of
the Wisconsin Technology Council. He also serves on the University of Wisconsin Department of Chemical and Biological Engineering
Board of Visitors. Mr. Apfelbach received a Bachelor of Science degree in Chemical Engineering from the University of Wisconsin-Madison
in 1984.
Mr. Apfelbach brings extensive business
and leadership experience to the Board of Directors. With his significant knowledge of and breadth of experience in the high technology
industry in general and the alternative energy industry in particular, he provides the Board of Directors with a vital understanding
of our business.
Manfred E. Birnbaum
has served on
the Board of Directors since 2007 and has been an independent management consultant in the energy and power industries since 1994.
Mr. Birnbaum’s consulting services include assistance on divestitures, contract dispute resolution, technology licensing,
and developing marketing strategies. From 1982 to 1985, Mr. Birnbaum was Chief Executive Officer of English Electric Corp., a wholly
owned subsidiary of General Electric Company of England. Prior to that, Mr. Birnbaum held various senior management positions at
Westinghouse Electric Corporation between 1958 and 1982. Mr. Birnbaum serves as a director of STW Resources Holding Corp. (OTC:
STWS), a water reclamation services company. Mr. Birnbaum earned a B.A. in mechanical engineering from Polytechnic Institute of
the City University of New York and a Master of Science degree in Electrical Engineering from the University of Pennsylvania.
Mr. Birnbaum’s longstanding quality
service as a member of our Board of Directors, as well as his significant experience serving as Chief Executive Officer of English
Electric Corp., gives him an understanding of the role of the board of directors and management. He also brings to the Board of
Directors expertise and leadership skills he has acquired as an executive and consultant in the energy and power industries.
Paul F. Koeppe
has served as our
Chairman since September 2010. Mr. Koeppe was President, CEO and founder of Superconductivity, Inc., a manufacturer
of superconducting magnetic energy storage systems, from 1988 to 1997 when it was acquired by American Superconductor Corp. (Nasdaq:
AMSC), an electricity solutions company. He then served as Executive Vice President of Strategic Planning for American Superconductor
until his retirement in 2001. From 1993 to 1995, Mr. Koeppe was acting CEO and chairman of the executive committee of the board
of directors of Best Power, Inc., a supplier of uninterruptible power supply equipment. Mr. Koeppe also serves as a director of
InContact, Inc. (Nasdaq: SAAS), a developer of contact center software. Mr. Koeppe also served as a director of Distributed Energy
Systems Corp., from 2003 to 2010 and also as a member of the Board of Directors at Northern Power Systems from 1998 until 2003
when Northern was acquired by Distributed Energy Systems Corp. Prior to founding Superconductivity, Inc. Mr. Koeppe worked for
Wisconsin Power and Light Company for 15 years in a variety of functions. He has earned a Bachelor of Arts degree in Business Administration
from Lakeland College and Associate Degrees in Materials Management and Electrical Power Technology.
Mr. Koeppe’s extensive executive,
managerial and leadership experience, including many years in the energy services industry, positions him well to serve as a member
of our Board of Directors. His business acumen and experience on the boards of directors of numerous companies make him a valuable
addition to our Board of Directors.
Theodore Stern
has served in several
executive positions in the energy and software industries over his career. He currently serves as Chairman of the Board
of Directors of InContact, Inc. (Nasdaq: SAAS), a rapidly growing software-as-a-service company in Salt Lake City, UT. Mr.
Stern also was a Senior Executive Vice President and member of the Board of Directors of Westinghouse Electric Corporation until
his retirement. In his last position at Westinghouse Electric, Mr. Stern was responsible for multiple business units,
including Power Generation, Energy Systems and Governmental and Environmental Affairs. The businesses reporting to Mr.
Stern totaled more than $3 billion in annual revenue and 50,000 employees. Mr. Stern served as Vice Chairman of the
Board of Directors of Superconductivity, Inc. of Madison, WI, a small technology company, until it was acquired in April 1997. Mr.
Stern also served on the board of directors of Copperweld Corporation of Pittsburgh, PA, a privately-owned steel and cable manufacturer,
until its acquisition by LTV. Mr. Stern also served on the board of directors of Northern Power Systems of Waitsfield,
VT, a privately-owned manufacturer of renewable and distributed generation systems until it was acquired by Distributed Energy
Systems Incorporated (DESC). Mr. Stern also served on the board of directors of DESC. Mr. Stern holds a Bachelor
of Science degree in Mechanical Engineering from the Pratt Institute and a Master of Arts degree in Theoretical Mathematics from
New York University. He is a fellow of the American Society of Mechanical Engineers and a member of the National Academy
of Engineering. He is the author of a number of technical papers on nuclear power technology.
Mr. Stern brings his over 20-years of experience
serving as a director with public companies to our Board of Directors. This experience, which includes service as chairman and
as a member of audit, compensation and governance committees, provides our Board of Directors with a valuable perspective regarding
public company governance, corporate management and strategy, and board practices.
Hoong Khoeng Cheong
has more than
20 years of engineering and operation experience in solar and electronics industries. He has served in various management positions
at LDK Solar Co., Ltd. from 2011 to 2014, and was appointed as the Chairman of the Management Board and Chief Executive Officer
of Sunways AG, a publicly-listed company in Germany. In October 2014, LDK Solar Co., Ltd. and its U.S. subsidiaries filed for Chapter
15 bankruptcy protection in Wilmington, Delaware. Mr. Cheong previously served as the General Manager of SPI Solar, Inc. (as successor-in-interest
via merger to Solar Power, Inc.) from 2007 to 2011 and was responsible for PV (Solar) system design and development, as well as
the manufacturing of key components for solar modules and racking systems before joining LDK Solar Co., Ltd. Prior to joining the
solar industry in 2007, Mr. Cheong spent 16 years in the electronics industry responsible for engineering development and manufacturing
of liquid crystal display products, and he served as the Vice President of Engineering of an affiliate of Flextronics.
Mr. Cheong’s extensive executive,
managerial and leadership experience, including many years in the solar industry, positions him well to serve as a member of our
Board of Directors.
Pursuant to the Governance Agreement, dated
as of July 13, 2015, between the Company and SPI Energy Co., Ltd. (the “Governance Agreement”), SPI Energy Co., Ltd.
is currently entitled to nominate one director to our Board of Directors. Mr. Cheong has been nominated by SPI Energy Co., Ltd.
in accordance with the Governance Agreement.
Bradley L. Hansen
has served as
our President and Chief Executive Officer since July 2015. Mr. Hansen served as our President and Chief Operating Officer
from May 2014 to July 2015. Since December 2011, Mr. Hansen has also served as the Chief Executive Officer of Anhui
Meineng Energy, our China joint venture company, where he has led Meineng’s organization and development. In 2010,
Mr. Hansen founded and continues to serve as Managing Partner of PowerSav Inc., a boutique private equity fund targeting China
government policy supported markets. Mr. Hansen has extensive expertise in the international renewable energy and semi-conductor
industries, having held various executive positions with Applied Materials, Inc. (Nasdaq: AMAT) from 1989 to 2010. While
at Applied Materials, Mr. Hansen led global sales and site operation organizations for its solar product line, an important growth
driver for the company. Prior to this role, Mr. Hansen directed the acquisition and integration activities for Applied
Materials strategic Applied Film Corporation (formerly Nasdaq: AFCO). Mr. Hansen also held a number of key product development
and operations roles at Applied Materials, including Vice President and General Manager of the Chemical Mechanical Planarization
Product Business Group. Prior to Applied Materials, Mr. Hansen worked as an Engineer and Program Manager for the Boeing
Electronics Company Division of The Boeing Company (NYSE: BA). Mr. Hansen holds a Bachelor of Science degree in Manufacturing Engineering
from Brigham Young University and an MBA from Seattle University.
Mr. Hansen brings to the Board of Directors
deep knowledge of the Company’s industry and markets and broad management and business experience, including extensive experience
doing business in China.
James H. Ozanne
has served in executive
and director positions in the financial services industries since 1972. During this time he has held the positions of
Chief Financial Officer, President, Chief Executive Officer and Chairman of several leasing, rental, and consumer finance businesses
ranging from full service railcar leasing to general equipment finance and grocery pallet rental. He was President and
Chief Executive Officer of Nation Financial Holdings and its predecessor, US WEST Capital. Prior to that, he served as Executive
Vice President of GE Capital responsible for the Consumer Finance and Operating Lease/Asset Management business units. Mr. Ozanne
was a director of United Rentals, Inc. (NYSE: URI), the largest equipment rental company in the world, and is a director of NMI
Holdings, Inc. (NASDAQ: NMIH). Previously, Mr. Ozanne was Lead Independent Director of RSC Holdings Inc., a director
of Financial Security Assurance Holdings Ltd. and Distributed Energy Systems Corp., Vice Chairman and director of Fairbanks Capital
Corp. and Chairman of Source One Mortgage Corporation. Mr. Ozanne received a Bachelor of Science degree from DePaul University.
Mr. Ozanne brings financial and management
expertise to our Board of Directors acquired through his experience as a chief financial officer and as an operating executive.
He also possesses valuable director experience from having served on the boards of directors of numerous companies, including in
the roles of chairman and lead independent director.
Information Concerning Executive Officers
Set forth below is background information
relating to our executive officers:
Name
|
|
Age
|
|
Position
|
Bradley L. Hansen
|
|
54
|
|
Chief Executive Officer and President
|
Frederick Vaske
|
|
49
|
|
Chief Administrative Officer and Secretary
|
Daniel A. Nordloh
|
|
50
|
|
Executive Vice President of Global Business Development
|
Kevin A. Dennis
|
|
54
|
|
Vice President of Engineering and Product Development
|
Frederick D. Whisman
|
|
50
|
|
Vice President of Sales
|
Dilek Wagner
|
|
47
|
|
Vice President of Finance
|
Bradley L. Hansen
is discussed above
under
Information Concerning Directors and Nominees for Director
.
Frederick Vaske
has served
as Chief Administrative Officer and Secretary of the Company since September 2016. Mr. Vaske joined the Company in December
2015 as Vice President, Structured Finance where he brought 25 years of experience in project and asset finance, valuation
and consulting. He has held senior finance positions in the solar industry for the last 10 years, and led the closing of over
$2.5 billion in debt and equity transactions in the utility and commercial solar photovoltaic industries. Prior to joining
EnSync, from 2009 to 2015, Mr. Vaske served as Vice President of project finance for Recurrent Energy, Hanwha Q CELLS USA and
Scatec Solar USA. From 2007 to 2009, Mr. Vaske also served as Director, Structured Finance for SunPower where he negotiated
solar Power Purchase Agreements with commercial customers, and led the company’s first financings of those contracts.
Mr. Vaske holds an MA in Economics from Washington University in St. Louis and a BA in Mathematics and Economics from
Claremont McKenna College.
Daniel A. Nordloh
joined the Company
as Vice President of Sales, Marketing and Business Development in April 2010 and was appointed Executive Vice President of Global
Business Development in November 2011. From August 2007 to April 2010 Mr. Nordloh served as Principle of Synapse Junction, LLC
a boutique advisory practice founded to assist early stage and established companies with effective growth planning and execution
initiatives. In his role at Synapse, Mr. Nordloh served in numerous leadership roles, including interim President and CEO of a
technology company on behalf of a private equity group. From August 2005 to August 2007 Mr. Nordloh served as President and CEO
of Naviant, Inc. (formerly MTM International), a consulting and technology firm. Mr. Nordloh presently serves on the Board of Directors
of Anhui Meineng Energy, our China joint venture company, and the Board of Directors of Standard Imaging Inc. Mr. Nordloh previously
served as President of the Board of the not-for-profit Family Support & Resource Center of Dane County, WI. He earned an MBA
from the University of Wisconsin-Milwaukee and a BS degree in Behavioral Sciences from Eastern Kentucky University.
Kevin A. Dennis
joined the Company
as Vice President of Marketing and Sales in January 2008 and was appointed Vice President of Engineering and Product Development
in 2010. Mr. Dennis has extensive expertise in the utility and renewable energy markets having held various engineering, sales
and senior management roles with ABB (NYSE:ABB), a power and automation technologies company, most recently as Director, Advanced
Power Electronics – North America. He also spent four years as both the sales and engineering manager for Omnion Power Engineering
Corporation, a manufacturer of power electronics systems for advanced energy systems. His early career also includes five years
as a design engineer with American Electric Power Service Corporation (AEP). He holds a Bachelor of Science degree in Electrical
Engineering from Michigan Technological University, is a registered professional engineer in the State of California and is a member
of the IEEE (Power Electronics Group). He participated as an industry representative in the working group for the development of
Underwriters Laboratory standard, UL 741, for utility grid connected power converters. He also participates in various renewable
energy and energy storage organizations.
Frederick D. Whisman
joined EnSync
as the Vice President of Sales in October 2015. From 2001 through 2014, Mr. Whisman has served as the founder and President of
Sol Patch, LLC, a regional solar power project developer in the commercial and industrial (C&I) market segment. Prior to Sol
Patch, Mr. Whisman served as Director of Commercial Accounts and in various sales management positions serving the C&I market
for SunPower Corporation and PowerLight Corporation. Prior to his service at PowerLight, Mr. Whisman held various sales and business
development roles in the electric vehicle, telecommunications and internet services industries.
Dilek Wagner
is the Company’s
Vice President of Finance. Ms. Wagner joined the Company in August 2011 as a Financial Reporting Analyst
and was promoted to Director of Financial Reporting in January 2013 before being promoted to Vice President of Finance and Secretary
in February 2014. Prior to joining the Company, Ms. Wagner worked as a tax consultant and auditor at the public accounting
firms of Ernst & Young LLP and Deloitte & Touche LLP. Ms. Wagner holds a Bachelor of Arts in Economics and a
Master of Science in Management from the University of Wisconsin-Milwaukee.
Corporate
Governance Principles and Board Matters
Board
Independence
The Board of Directors has determined that
each of James H. Ozanne, Richard A. Abdoo, Manfred E. Birnbaum, Paul F. Koeppe and Theodore Stern is an independent director within
the meaning of the director independence standards of the NYSE MKT (“NYSE MKT”). Furthermore, the Board of Directors
has determined that all of the members of the Audit Committee, Compensation Committee and Nominating/Governance Committee are independent
within the meaning of the director independence standards of NYSE MKT and the rules of the SEC applicable to each such committee.
Board
Leadership Structure
The Board of Directors has an independent
chairman, meaning that the positions of chairman of the Board of Directors and Chief Executive Officer are not held by a single
individual. The Board of Directors believes that having an independent chairman ensures that management is subject to independent
and objective oversight and the independent directors have an active voice in the governance of the Company.
Executive
Sessions of Independent Directors
Executive sessions of our independent directors
are generally held following each regularly scheduled in-person meeting of the Board of Directors. Executive sessions do not include
any non-independent directors and are led by the chairman of the Board of Directors, who is independent. The independent directors
of the Board of Directors met in executive session 6 times in fiscal 2016.
Policies
Regarding Director Nominations
Director
Qualifications
The Nominating/Governance Committee is
responsible for identifying the appropriate qualifications, skills and characteristics desired of members of the Board of Directors
in the context of the needs of the business and the current composition and needs of the Board of Directors.
Director candidates are considered based
upon a variety of criteria, including demonstrated business and professional skills and experiences relevant to our business and
strategic direction, concern for long-term shareholder interests, personal integrity and sound business judgment. The Board of
Directors seeks men and women from diverse professional backgrounds who combine a broad spectrum of relevant industry and strategic
experience and expertise that, in concert, offer us and our shareholders diversity of opinion and insight in the areas most important
to us and our corporate mission. In addition, nominees for director are selected to have complementary, rather than overlapping,
skill sets. However, the Nominating/Governance Committee does not have a formal policy concerning the diversity of the Board of
Directors. All candidates for director nominee must have time available to devote to the activities of the Board of Directors.
The Nominating/Governance Committee also considers the independence of candidates for director nominee, including the appearance
of any conflict in serving as a director. Candidates for director nominees who do not meet all of these criteria may still be considered
for nomination to the Board of Directors, if the Nominating/Governance Committee believes that the candidate will make an exceptional
contribution to us and our shareholders.
Process
for Identifying and Evaluating Director Nominees
The Board of Directors
is responsible for selecting its own members. The Board of Directors delegates the selection process to the Nominating/Governance
Committee, with the expectation that other members of the Board of Directors, and of management, may be requested to take part
in the process as appropriate. Generally, the Nominating/Governance Committee identifies candidates for director nominees in consultation
with management, through the recommendations submitted by other directors or shareholders or through such other methods as the
Nominating/Governance Committee deems appropriate. Once candidates have been identified, the Nominating/Governance Committee confirms
that the candidates meet the qualifications for director nominees established by the Nominating/Governance Committee. The Nominating/Governance
Committee may gather information about the candidates through interviews, detailed questionnaires, comprehensive background checks,
or any other means that the Nominating/Governance Committee deems to be helpful in the evaluation process. The Nominating/Governance
Committee then meets as a group to discuss and evaluate the qualities and skills of each candidate, both on an individual basis
and taking into account the overall composition and needs of the Board of Directors. Based on the results of the evaluation process,
the Nominating/Governance Committee recommends candidates for the Board of Directors’ approval as director nominees for election
to the Board of Directors.
Policy
for Recommendation of Director Nominees by Shareholders
The policy of the Nominating/Governance
Committee is to consider properly submitted shareholder recommendations for director candidates in accordance with our Policies
Regarding Recommendation of Director Candidates. Under our policy, recommendations for director candidates other than those made
by the Board of Directors or the Nominating/Governance Committee must be made pursuant to timely notice in proper written form
to the secretary of EnSync. To be timely, a shareholder’s recommendation of a candidate for election to the board at an annual
meeting of shareholders, together with the written consent of such person to serve as a director, must be received by the secretary
of EnSync not more than 120 days before the date our proxy statement was released to shareholders in connection with the previous
year’s annual meeting. To be in proper written form, the notice must contain certain information concerning the nominee and
the shareholder submitting the nomination and include:
|
·
|
the name and address of the shareholder submitting the recommendation, the beneficial owner, if any, on whose behalf the recommendation
is made and the director candidate;
|
|
·
|
the class and number of shares of our stock that are owned beneficially and of record by the shareholder and, if applicable,
the beneficial owner, including the holding period for such shares as of the date of the recommendation;
|
|
·
|
full biographical information concerning the director candidate, including a statement about the director’s qualifications;
|
|
·
|
all other information regarding each director candidate proposed by such shareholder as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission;
|
|
·
|
description of all arrangements or understandings among the shareholder and the candidate and any other person or persons pursuant
to which the recommendation is being made;
|
|
·
|
description of all relationships between the candidate and any of our competitors, customers, suppliers, labor unions or other
persons with special interests regarding us; and
|
|
·
|
a written consent of the candidate to be named in our proxy statement and stand for election if nominated by the Board of Directors
and to serve if elected by the shareholders.
|
Recommendations must be sent to the Chairman
of the Nominating/Governance Committee c/o the Secretary, EnSync, Inc., N93 W14475 Whittaker Way, Menomonee Falls, Wisconsin 53051.
Once the Nominating/Governance Committee receives a recommendation for a director candidate, such candidate will be evaluated in
the same manner as other candidates and a recommendation with respect to such candidate will be delivered to the Board of Directors.
The submission of a recommendation by a shareholder in compliance with these procedures will not guarantee the selection of the
shareholder’s candidate or the inclusion of the candidate in the proxy statement for the annual meeting. A shareholder wishing
to formally nominate a candidate (as opposed to recommending a candidate for nomination by the Board as described above) must do
so by following the procedures set forth in our Amended and Restated By-laws (“Bylaws”).
Policy
Governing Director Attendance at Annual Meetings of Shareholders
Our policy is to schedule a regular meeting
of the Board of Directors on the same date as our annual meeting of shareholders and, accordingly, directors are encouraged to
be present at such shareholder meetings. All of our then-current board members attended the 2015 annual meeting of shareholders.
Code
of Ethics
Our Board of Directors adopted a Code of
Business Conduct. The Code of Business Conduct, in accordance with Section 406 of the Sarbanes Oxley Act of 2002 and Item 406 of
Regulation S-K, constitutes our Code of Ethics. The Code of Business Conduct codifies the business and ethical principles that
govern our business.
The Code of Business Conduct is designed,
among other things, to deter wrongdoing and to promote:
|
·
|
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and
professional relationships;
|
|
·
|
Compliance with applicable governmental laws, rules and regulations;
|
|
·
|
The prompt internal reporting violations of the ethics code to an appropriate person or persons identified in the code of ethics;
and
|
|
·
|
Accountability for adherence to the Code.
|
Our Code of Business Conduct has historically
been posted and is available on our website at
www.ensync.com
. Additionally, this Code of Business Conduct is provided to
all directors, officers and all other personnel upon joining the Company, and thereafter from time-to-time to any person, upon
request, and without charge. A copy may also be obtained, free of charge, from us upon a request directed to EnSync, Inc., N93
W14475 Whittaker Way, Menomonee Falls, Wisconsin 53051, attention: Investor Relations. We intend to disclose any amendments to
or waivers of a provision of the code of ethics by posting such information on our website available at
www.ensync.com
or
in our public filings with the SEC.
For more corporate governance information,
you are invited to access the Corporate Governance section of our website available at
www.ensync.com
.
The Board of Directors and Its Committees
Board
of Directors
Our Bylaws state that the number of directors
constituting the entire Board of Directors shall be determined by resolution of the Board and that the Board has the authority
to increase the number of directors, fill any vacancies on the Board and to decrease the number of directors to eliminate any vacancies.
The number of directors currently fixed by our Board of Directors is eight.
The Board of Directors has standing audit,
compensation, and nominating/governance committees. The Board of Directors held 6 meetings during fiscal 2016. Each director attended
at least 75% of the full board meetings and meetings of committees on which he served during fiscal 2016. The Board of Directors
and each standing committee retains the authority to engage its own advisors and consultants. Each standing committee has a charter
that has been approved by the Board of Directors. A copy of each committee charter is available at
www.ensync.com
. Each
committee reviews the appropriateness of its charter annually or at such other intervals as each committee determines.
The following table sets forth the current
members of each standing committee of the Board:
Audit:
|
James H. Ozanne (Chairman)
|
|
Richard A. Abdoo
|
|
Manfred E. Birnbaum
|
|
Paul F. Koeppe
|
|
Theodore Stern
|
|
|
Compensation:
|
Manfred E. Birnbaum (Chairman)
|
|
Richard A. Abdoo
|
|
Paul F. Koeppe
|
|
James H. Ozanne
|
|
Theodore Stern
|
|
|
Nominating/Governance:
|
Richard A. Abdoo (Chairman)
|
|
Manfred E. Birnbaum
|
|
Paul F. Koeppe
|
|
James H. Ozanne
|
|
Theodore Stern
|
Committees
The Audit Committee (1) reviews, monitors
and reports to the Board of Directors on the adequacy of the Company’s financial reporting process and system of internal
controls over financial reporting, (2) has the ultimate authority to select, evaluate and replace the independent auditor and is
the ultimate authority to which the independent auditors are accountable, (3) provides the audit committee report for inclusion
in our proxy statement for our annual meeting of shareholders and (4) establishes procedures for the receipt, retention and treatment
of complaints relating to accounting, internal accounting controls or auditing matters and the receipt of confidential, anonymous
submissions by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee is required at
all times to be composed exclusively of directors who, in the opinion of our Board of Directors, are free from any relationship
that would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial
statements and generally accepted accounting principles. We believe that all the members of the Audit Committee are independent
directors as required by the listing requirements for the NYSE MKT. Our Board of Directors has determined that Mr. Ozanne qualifies
as an “audit committee financial expert” as defined under Item 407(d) of Regulation S-K. The Audit Committee met 6
times during fiscal 2016.
The Compensation Committee (1) discharges
the responsibilities of the Board of Directors relating to the compensation of our directors and executive officers, including
approving individual executive officer compensation, (2) review and recommend to the Board of Directors compensation plans, policies
and programs, (3) administers and implements the Company’s incentive compensation plans and equity-based plans, and (4) provides
the compensation committee report for inclusion in our proxy statement for our annual meeting of shareholders. The Compensation
Committee met 6 times during fiscal 2016.
The Nominating/Governance
Committee (1) recommends to the Board of Directors persons to serve as members of the Board of Directors and as members of and
chairpersons for the committees of the Board of Directors, (2) considers the recommendation of candidates to serve as directors
submitted the shareholders of the Company, (3) assists the Board of Directors in evaluating the performance of the Board of Directors
and the Board committees, (4) advises the Board of Directors regarding the appropriate board leadership structure for the Company,
(5) reviews and makes recommendations to the Board of Directors on corporate governance and (6) reviews the size and composition
of the Board of Directors and recommends to the Board of Directors any changes it deems advisable. The composition of the Board
of Directors should encompass a broad range of skills, expertise, industry knowledge and diversity of opinion. The Nominating/Governance
Committee met twice during fiscal 2016.
Shareholder
Communications with the Board
Shareholders wishing to communicate
with members of the Board of Directors may direct correspondence to such individuals c/o Frederick Vaske, Secretary,
N93 W14475 Whittaker Way, Menomonee Falls, Wisconsin 53051.
All communications received in accordance
with these procedures will be reviewed by the Secretary of the Company and forwarded to the appropriate director or directors unless
such communications are considered, in the reasonable judgment of the Secretary, to be improper for submission to the intended
recipient. Examples of shareholder communications that would be considered improper for submission include, without limitation,
communications that:
|
·
|
do not relate to the business or affairs of the Corporation or the functioning or constitution of the Board of Directors or
any of its committees;
|
|
·
|
relate to routine or insignificant matters that do not warrant the attention of the Board of Directors;
|
|
·
|
are advertisements or other commercial solicitations;
|
|
·
|
are frivolous or offensive; or
|
|
·
|
are otherwise not appropriate for delivery to directors.
|
Role
of the Board of Directors in Risk Oversight
The Board of Directors administers its
risk oversight function directly and through the Audit Committee. The Board of Directors and the Audit Committee regularly discuss
with management the Company’s major risk exposures, their potential financial impact on the Company, and the steps taken
to monitor and control those risks.
Audit Committee Report
The Audit Committee of the Company has:
|
·
|
reviewed and discussed the audited financial statements for the fiscal year ended June 30, 2016 with management;
|
|
·
|
discussed with Baker Tilly Virchow Krause, LLP, our independent auditors (“Baker Tilly”), the matters required
to be discussed by the Auditing Standard No. 16, “Communications with Audit Committees,” as adopted by the Public Company
Accounting Oversight Board (United States);
|
|
·
|
received the written disclosures and the letter from Baker Tilly required by Independent Standards Board Standard No. 1,
Independence
Discussions with Audit Committees
; and
|
|
·
|
discussed with Baker Tilly the auditors’ independence.
|
Based on these reviews and discussions,
the Audit Committee recommended to the Board of Directors that that the audited financial statements be included in the annual
report on Form 10-K for the fiscal year ended June 30, 2016.
Respectfully submitted by the Audit Committee.
THE AUDIT COMMITTEE:
James H. Ozanne, Chairman
Richard A. Abdoo
Manfred E. Birnbaum
Paul F. Koeppe
Theodore Stern
EXECUTIVE AND DIRECTOR COMPENSATION
Our compensation
philosophy is to offer our executive officers compensation and benefits that are competitive and meet our goals of attracting,
retaining and motivating highly skilled management, which is necessary to achieve our financial and strategic objectives and create
long-term value for our shareholders. We believe the levels of compensation we provide should be competitive, reasonable and appropriate
for our business needs and circumstances. The principal elements of our executive compensation program have to date included base
salary, and long-term equity compensation in the form of restricted stock or stock options. We believe successful long term Company
performance is more critical to enhancing shareholder value than short term results. For this reason and to conserve cash and better
align the interests of management and our shareholders, we emphasize long-term performance-based equity compensation over base
annual salaries.
Summary Compensation Table For 2016
The following table represents summary
information regarding the compensation of each of Bradley L. Hansen, our President and Chief Executive Officer, Daniel A. Nordloh,
our Executive Vice President of Global Business Development, Kevin A. Dennis, our Vice President of Engineering and Product Development,
and Eric C. Apfelbach, our former Chief Executive Officer (the “named executive officers”), for fiscal 2016 and fiscal
2015.
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Stock
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Option
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All Other
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Current
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Salary
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Awards
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Awards
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)(1)
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($)(2)
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($)(3)
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($)
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Bradley L. Hansen
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2016
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297,885
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750,000
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-
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52,241
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1,100,126
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President and Chief Executive Officer
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2015
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245,000
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608,400
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-
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58,877
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912,277
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Daniel A. Nordloh
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2016
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212,019
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-
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284,284
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14,453
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510,756
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Executive Vice President
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2015
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190,115
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-
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85,221
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17,754
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293,090
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Kevin A. Dennis
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2016
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212,019
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-
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284,284
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7,769
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504,072
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Vice President of Engineering &
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2015
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197,500
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-
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40,189
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7,900
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245,589
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Product Development
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Eric C. Apfelbach
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2016
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13,301
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-
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44,381
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127,955
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185,637
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Former Chief Executive Officer
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2015
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300,000
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-
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-
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34,400
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334,400
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(1)
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The amounts shown in this column indicate the full grant date fair value of restricted stock unit awards (“RSUs”)
computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718
(“FASB ASC Topic 718”), excluding the effect of the forfeitures. For additional information regarding the assumptions
made in calculating these amounts, see the Notes to our consolidated financial statements included in our Annual Report on Form
10-K. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that will be recognized
by the named executive officers.
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(2)
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The amounts shown in this column indicate the full grant date fair value of option awards computed in accordance with FASB
ASC Topic 718. Generally, the full grant date fair value is the amount that we would expense in our financial statements over the
award’s vesting schedule. For additional information regarding the assumptions made in calculating these amounts, see the
Notes to our consolidated financial statements included in our Annual Report on Form 10-K. These amounts reflect our accounting
expense for these awards and do not correspond to the actual value that will be recognized by the named executive officers.
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(3)
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The amounts set forth in this column consisted of (i) disability insurance reimbursement, (ii) health insurance payments, (iii)
matching contributions to our 401(k) Plan, (iv) car allowance and commuting expense reimbursement, (v) apartment lease reimbursement
and (vi) severance payments as follows:
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Matching
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Disability
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Health
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Contribution
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Commuting
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Apartment
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Insurance
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Insurance
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to 401(k)
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Expense
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Lease
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Severance
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Year
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($)
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($)
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Plan
($)
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Reimburse
ment
($)
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Reimburse
ment
($)
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($)
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Total
($)
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Bradley Hansen
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2016
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-
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-
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-
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20,501
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31,740
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-
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52,241
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2015
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-
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-
|
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-
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28,057
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30,820
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-
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58,877
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Daniel A. Nordloh
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2016
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-
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-
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8,481
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5,972
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|
-
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-
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14,453
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2015
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-
|
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|
-
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7,605
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10,149
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-
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-
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17,754
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Kevin A. Dennis
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2016
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-
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-
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7,769
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-
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-
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-
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7,769
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2015
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-
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-
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7,900
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-
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-
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-
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7,900
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Eric C. Apfelbach
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2016
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845
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496
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-
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1,614
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-
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125,000
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127,955
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2015
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6,768
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3,641
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7,392
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16,599
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-
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-
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34,400
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Outstanding Equity Awards at June 30, 2016
The following table presents information
about unexercised options that were held by the named executive officers as of June 30, 2016.
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Options
Awards
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Stock
Awards
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Name
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Number
of
Securities
Underlying
Unexercised
Options (#)
Exercisable
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Number
of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
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Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
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Option
Exercise
Price ($)
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Option
Expiration
Date
|
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Number
of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
|
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Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(1)
|
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|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights that
Have Not
Vested (#)
|
|
|
Equity
Incentive
Plan
Awards:
Market
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)(1)
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Bradley L. Hansen
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240,000
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120,000
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(2)
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-
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1.72
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07/03/20
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750,000
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(3)
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277,500
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750,000
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277,500
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Daniel A. Nordloh
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-
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360,000
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(4)
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-
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0.37
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06/28/24
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-
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360,000
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(5)
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-
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0.76
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08/11/23
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48,000
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-
|
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72,000
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1.02
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09/16/22
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6,000
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-
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-
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0.78
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11/05/21
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4,000
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-
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-
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1.90
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09/06/20
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|
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|
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|
|
|
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|
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|
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8,000
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|
|
|
-
|
|
|
|
-
|
|
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|
3.80
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|
01/11/20
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4.55
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|
08/29/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.75
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|
04/29/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin A. Dennis
|
|
|
-
|
|
|
|
360,000
|
(4)
|
|
|
-
|
|
|
|
0.37
|
|
|
|
06/28/24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
360,000
|
(5)
|
|
|
-
|
|
|
|
0.76
|
|
|
|
08/11/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
0.48
|
|
|
|
12/11/22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.78
|
|
|
|
11/05/21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
18,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1.90
|
|
|
|
09/06/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3.80
|
|
|
|
01/11/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.40
|
|
|
|
02/03/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5.65
|
|
|
|
11/24/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Eric C. Apfelbach
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,000
|
(6)
|
|
|
13,320
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
50,000
|
(7)
|
|
|
-
|
|
|
|
0.85
|
|
|
|
07/13/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4.35
|
|
|
|
08/09/19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2.45
|
|
|
|
06/30/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.65
|
|
|
|
01/07/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The market value of shares of restricted stock units is based on the closing price of our common stock on June 30, 2016 ($0.37).
|
|
(2)
|
Represents the unvested portion of an option grant that vests on July 3, 2016.
|
|
(3)
|
Represents the unvested portion of a restricted stock unit award that vests in three equal annual installments beginning on
November 17, 2016.
|
|
(4)
|
Represents the unvested portion of an option grant which vests in three equal annual installments beginning on June 28, 2017.
|
|
(5)
|
Represents the unvested portion of an option grant which vests in three equal annual installments beginning on August 11, 2016.
|
|
(6)
|
Represents the unvested portion of a restricted stock unit award that vests on September 30, 2016.
|
|
(7)
|
Represents the unvested portion of an option grant that vests in two equal annual installments beginning on June 30, 2017.
|
Employment Agreements
On May 19, 2014, Bradley L. Hansen entered
into an employment agreement with us as our President and Chief Operating Officer and as a member of our Board of Directors which
provides for a minimum base salary of $245,000.
Mr. Hansen’s employment agreement
was amended on July 13, 2015 in connection with his appointment as Chief Executive Officer to increase his annual salary to $300,000
per year and extend the initial term until June 30, 2019.
If we terminate Mr. Hansen’s employment
agreement for any reason other than for Cause or Disability (each as defined in the employment agreement) or Mr. Hansen terminates
his employment for Good Reason (as defined in the employment agreement), or he dies, we must pay him a severance payment in an
amount equal to the greater of (i) six months of his annual base salary as then in effect and (ii) payment of his base salary as
then in effect for the remainder of the Term (as defined in the employment agreement), and he is entitled to certain benefits under
COBRA. Additionally, if we terminate Mr. Hansen’s employment agreement for any reason other than for Cause (as defined in
the employment agreement) or Mr. Hansen terminates his employment for Good Reason or Disability (each as defined in the employment
agreement), or he dies, and such termination occurs before June 30, 2019, certain of the restricted stock units awarded to Mr.
Hansen on July 13, 2015 that are subject to performance-based vesting conditions will vest as follows: the number of restricted
stock units earned shall equal the product of (A) 750,000 and (B) a fraction, the numerator of which is the number of shares of
shares of Series C Convertible Preferred Stock of the Company that have become eligible for conversion prior to such termination,
and the denominator of which is 28,048. If his employment agreement is terminated for Disability, Mr. Hansen will be entitled to
a severance payment in an amount equal to six months of his annual base salary as then in effect. Furthermore, Mr. Hansen will
forfeit any options that have not vested at the time of termination for any reason, except that (i) upon a change of control, the
options shall become immediately exercisable and fully vested and (ii) upon termination without Cause or due to Disability or upon
resignation for Good Reason (as defined in the employment agreement), an additional 30,000 shares will become fully vested and
exercisable.
On September 30, 2014, Daniel A. Nordloh
entered into an amended and restated employment agreement with us to act as our Executive Vice President of Global Business Development
and pursuant to which he is being paid a salary of $215,000.
If we terminate Mr. Nordloh’s employment
agreement for any reason other than Cause or Disability (each as defined in the employment agreement) or Mr. Nordloh terminates
his employment for Good Reason (as defined in the employment agreement) or Mr. Nordloh dies, we must pay him a severance payment
in an amount equal to three months of his annual base salary as then in effect, and he is entitled to certain benefits under COBRA.
If we terminate Mr. Nordloh’s employment agreement for Disability, we must pay him a severance payment in an amount equal
to three months of his base salary as then in effect, and he is entitled to certain benefits under COBRA.
On September 30, 2014, Kevin A. Dennis
entered into an amended and restated employment agreement to act as our Vice President of Engineering and Product Development and
pursuant to which he is being paid a salary of $215,000.
If we terminate Mr. Dennis’ employment
agreement for any reason other than Cause or Disability (each as defined in the employment agreement) or Mr. Dennis terminates
his employment for Good Reason (as defined in the employment agreement) or Mr. Dennis dies, we must pay him a severance payment
in an amount equal to six months of his annual base salary as then in effect, and he is entitled to certain benefits under COBRA.
If we terminate Mr. Dennis’ employment agreement for Disability, we must pay him a severance payment in an amount equal to
three months of his base salary as then in effect, and he is entitled to certain benefits under COBRA.
On September 30, 2014, Eric C. Apfelbach
entered into an amended and restated employment agreement with us to act as our Chief Executive Officer, which provided for a minimum
base salary of $250,000. On July 13, 2015, Mr. Apfelbach’s employment agreement was terminated and he was appointed Vice
Chairman. Upon his termination and pursuant to the terms of his employment agreement, Mr. Apfelbach was paid $125,000 in severance,
which was an amount equal to six months of his base salary then in effect. In connection with his appointment as Vice Chairman,
Mr. Apfelbach was granted a stock option grant covering 75,000 shares of common stock that vests in three equal annual installments
and he entered into a Professional Services Agreement with the Company pursuant to which he provides certain consulting services
to the Company and is paid at an hourly rate commensurate with the salary he was receiving under his employment agreement.
As a
condition of these employment agreements, Mr. Hansen, Mr. Nordloh, Mr. Dennis and Mr. Apfelbach each entered into a restrictive
covenant agreement with the Company. Each restrictive covenant agreement contains, among other terms, covenants prohibiting the
officer from competing with the Company during his employment and at any time during the 24 months following termination for any
reason and a requirement for him to keep all confidential information of the Company strictly confidential during his employment
and for a period of 24 months after termination of employment.
Director Compensation
2016 Compensation Policy for Non-Employee
Directors
On November 17, 2015, the Board of Directors
adopted the following compensation policy for members of the Board of Directors who are not officers or employees of the Company
or any subsidiary of the Company or affiliates of SPI Energy Co., Ltd. (“non-employee directors”):
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An annual equity retainer in the amount of $72,000, payable as follows. The annual equity retainer for a non-employee director
for a year will be awarded as of the date of the annual meeting of shareholders of the Company (the “Annual Meeting”)
in the form of restricted stock units (“RSUs”) under the Company’s 2012 Non-Employee Director Equity Compensation
Plan (or any successor plan thereto) (the “Non-Employee Director Stock Plan”). The RSUs will have the following terms
and conditions: (A) the number of RSUs is determined by dividing the dollar amount of the award by the closing price of the Company’s
common stock on the first business day preceding the Annual Meeting, rounded up to the next whole share; (B) 25% of the RSUs vest
on the date of grant, and the remaining RSUs vest 25% each on March 31, June 30 and September 30 following the Annual Meeting,
provided the non-employee director remains in continuous service with the Board through the applicable vesting date; (C) the RSUs
vest earlier in the event of a “Change in Control” of the Company (as defined in the Non-Employee Director Stock Plan);
(D) except in the case of Mr. Birnbaum’s and Mr. Stern’s RSUs, vested RSUs are payable upon the earlier of (x) the
date that is six months after the non-employee director “separates from service” with the Board (within the meaning
of Section 409A of the Internal Revenue Code) or (y) the date of a Change in Control (provided that the Change in Control is a
permissible “change in control” payment event within the meaning of Section 409A of the Internal Revenue Code); (E)
Mr. Birnbaum’s and Mr. Stern’s vested RSUs are payable on vesting; (F) vested RSUs are payable in the form of one share
of common stock of the Company for each vested RSU then payable; and (G) the RSUs will otherwise be subject to the terms of the
Non-Employee Director Stock Plan and will be evidenced by an appropriate RSU award agreement.
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In addition, an annual retainer in the amount of $24,000, payable in cash quarterly in arrears.
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In addition, an annual Chairman’s retainer in the following amounts, payable in cash quarterly in arrears: $50,000 for
the Chairman of the Board; $12,000 for the Chairman of the Audit Committee and for the Chairman of the Compensation Committee;
and $8,000 for the Chairman of the Nominating and Governance Committee.
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In addition, an annual committee membership fee in the amount of $6,000 for each committee of the Board on which the non-employee
director serves, payable in cash quarterly in arrears, provided the non-employee director remains in continuous service with the
Board through each applicable payment date.
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An employee of the Company who serves
as a director receives no additional compensation for such service.
Non-Employee Director Compensation in 2016
The following table provides compensation
information for the one-year period ended June 30, 2016 for each non-employee member of our Board of Directors.
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Fees Earned
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or Paid in
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Stock Awards
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Option Awards
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Name
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Cash ($)
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($)(1)(2)
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($)(1)(2)
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Total ($)
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Richard A. Abdoo
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35,000
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72,000
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-
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107,000
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Eric C. Apfelbach
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18,000
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72,000
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44,381
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134,381
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Manfred E. Birnbaum
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48,000
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72,000
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-
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120,000
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Paul F. Koeppe
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81,000
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72,000
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-
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153,000
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James H. Ozanne
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48,000
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72,000
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-
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120,000
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Theodore Stern
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36,000
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72,000
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-
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108,000
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(1)
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The amounts shown
in this column indicate the full grant date fair value of restricted stock unit or option
awards, respectively, awards computed in accordance with FASB ASC Topic 718. Generally,
the full grant date fair value is the amount that we would expense in our financial statements
over the award’s vesting schedule. For additional information regarding the assumptions
made in calculating these amounts, see the Notes to our consolidated financial statements
included in our Annual Report on Form 10-K. These amounts reflect our accounting expense
for these awards and do not correspond to the actual value that will be recognized by
the directors.
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(2)
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The aggregate
number of restricted stock unit awards and option awards outstanding on June 30, 2016
and held by each non-employee director was as follows:
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Name
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Number of
Securities
Underlying
Unexercised
Options
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Number of
Securities
Underlying
Restricted
Stock Unit
Awards
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Richard A. Abdoo
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15,000
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463,684
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Eric C. Apfelbach
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185,000
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144,000
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Manfred E. Birnbaum
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15,000
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157,105
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Paul F. Koeppe
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55,000
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502,097
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James H. Ozanne
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15,000
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410,552
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Theodore Stern
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15,000
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239,640
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EQUITY COMPENSATION PLAN INFORMATION
We maintain the following equity compensation
plan under which our equity securities are authorized for issuance to our employees and/or directors: the 2010 Omnibus Long-Term
Incentive Plan; and the 2012 Non-Employee Director Equity Compensation Plan. We also maintain the following three equity compensation
plans, which are frozen and under which no new grants will be made: the 2002 Stock Option Plan, the Employee Stock Option Scheme,
and the 2007 Equity Incentive Plan. Each of the foregoing equity compensation plans was approved by our shareholders. The following
table presents information about these plans as of June 30, 2016.
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Number of
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Number of securities
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securities to be
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remaining available for
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issued upon
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Weighted average
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future issuance under
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exercise of
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exercise price of
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equity compensation
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outstanding options,
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outstanding options,
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plans (excluding
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Plan Category
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warrants and rights
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warrants and rights
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securities outstanding)
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Equity compensation plans approved by security holders
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9,617,604
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(1)
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$
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0.86
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(2)
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1,769,154
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(3)
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Equity compensation plans not approved by security holders
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773,000
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(4)
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$
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2.93
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None
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(1)
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Includes 2,341,687
outstanding restricted stock units under plans approved by our security holders.
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(2)
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Does not reflect restricted stock units included in the first
column that do not have an exercise price.
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(3)
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Represents shares available for issuance under our 2010 Omnibus
Long-term Incentive Plan and 2012 Non-Employee Director Equity Compensation Plan.
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(4)
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Consists of inducement option grants awarded to Mr. Apfelbach
in connection with his hiring in January 2010, members of management of Tier Electronics
LLC in connection with its acquisition in January 2011, Anthony Siebert in connection
with his hiring in August 2012 and Mr. Hansen in connection with his hiring in May 2014.
In connection with his hiring in January 2010, we awarded Mr. Apfelbach an inducement
option grant to purchase 80,000 shares of common stock at an exercise price of $6.65
subject to certain time-based vesting requirements. In connection with our acquisition
of Tier Electronics LLC in January 2011 we issued inducement option grants to purchase
a total of 150,000 shares of common stock at an exercise price of $5.75 of which 33,000
remained outstanding at June 30, 2015. In connection with his hiring in August 2012,
we awarded Mr. Siebert an inducement option grant to purchase 30,000 shares of common
stock at an exercise price of $1.90 subject to certain time-based vesting requirements.
In connection with his appointment as President and Chief Operating Officer in May 2014,
we awarded Mr. Hansen an inducement option grant to purchase 360,000 shares of common
stock at an exercise price of $1.72 subject to certain time-based vesting requirements.
Also in connection with his appointment as President and Chief Operating Officer in May
2014, we awarded Mr. Hansen an inducement restricted stock unit award covering a total
of 360,000 shares of common stock subject to certain performance-based vesting requirements,
of which 270,000 of such restricted units were vested and earned in September 2015.
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PROPOSAL 2 – ADVISORY VOTE ON
EXECUTIVE COMPENSATION
The Proposal
We are providing our shareholders with
the opportunity to express their views on our named executive officers’ compensation by casting their vote on this Proposal
2. This non-binding, advisory vote is not intended to address any specific item of compensation, but rather the overall compensation
of our named executive officers as described in this proxy statement.
At our annual meeting of shareholders
for 2015, 96% of the votes cast on the non-binding, advisory vote to approve the compensation of our named executive officers
were voted in favor of the proposal. The compensation committee believes this affirms the shareholders’ support of our approach
to executive compensation.
Our executive compensation program, which
is described in detail in the “Executive and Director Compensation” section beginning on page 15, is intended to offer
our executive officers compensation and benefits that are competitive and meet our goals of attracting, retaining and motivating
highly skilled management, which is necessary to achieve our financial and strategic objectives and create long-term value for
our shareholders. We believe that our executive compensation program accomplishes these goals in a way that is consistent with
our purpose and core values and the long-term interests of the Company and its shareholders.
Although the vote on this Proposal 2 regarding
the compensation of our named executive officers is not binding, we value the opinions of our shareholders and will consider the
result of the vote when determining future executive compensation arrangements.
If this proposal is approved, our shareholders
will be approving the following resolution:
RESOLVED, that the compensation paid to
the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K in the Company’s proxy
statement for the 2016 Annual Meeting of Shareholders, is hereby approved.
Vote Required for Approval
The affirmative vote of a majority of
the total votes cast on the foregoing resolution by the holders of our common stock and series B convertible preferred stock,
voting together on a combined basis, is required to approve, on an advisory basis, such resolution. Abstentions and broker non-votes
will have no effect on the outcome of the proposal.
Board Recommendation
The Board recommends a vote “
FOR
”
this Proposal 2.
PROPOSAL 3—APPROVAL OF AMENDMENT
NO. 4 TO
ENSYNC, INC. 2010 OMNIBUS LONG-TERM INCENTIVE PLAN; AND APPROVAL OF SECTION 162(m) LIMITS AND CRITERIA
General
On August 26, 2010, our Board of Directors
originally adopted the 2010 Omnibus Long-Term Incentive Plan, as amended by that certain Amendment No. 1 approved by the Company’s
shareholders at their 2012 Annual Meeting of Shareholders on November 7, 2012, Amendment No. 2 approved by the Company’s
shareholders at their 2014 Annual Meeting of Shareholders on November 18, 2014 and Amendment No. 3 approved by the Company’s
shareholders at their 2015 Annual Meeting of Shareholders on November 17, 2015 (the “Omnibus Plan”). As of September
30, 2016, approximately 709,950 shares remained available for issuance under the Omnibus Plan. Our Board of Directors has determined
that this remaining amount is insufficient to meet the Company’s equity compensation requirements.
On
September 20, 2016, our Board
of Directors approved Amendment No. 4 of the Omnibus Plan, described in this proposal (the “Omnibus Plan Amendment”),
subject to shareholder approval. If approved by the shareholders, the Omnibus Plan Amendment will increase the number of shares
available for issuance under the Omnibus Plan by 4,000,000 shares.
We are also asking shareholders to approve
increased individual award limits, and to re-approve business criteria that can be used in establishing performance goals for
performance awards granted under the Omnibus Plan, in each case as described in this Proposal 3, for purposes of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the “Code”).
We are also asking shareholders to approve
individual annual award limits for non-employee directors under the Omnibus Plan, for purposes of sound corporate governance.
A copy of the Omnibus Plan Amendment is
attached as Appendix A to this Proxy Statement. The material terms of the Omnibus Plan, assuming the approval of the Omnibus Plan
Amendment, are summarized below under the heading “Material Features of the Omnibus Plan.” This summary of the Omnibus
Plan is not intended to be a complete description of the Omnibus Plan and is qualified in its entirety by the actual text of the
Omnibus Plan, which is attached as Appendix A to the Company’s proxy statement for our 2010 Annual Meeting of Shareholders,
filed with the SEC on September 24, 2010; Appendix A to the Company’s proxy statement for our 2012 Annual Meeting of Shareholders,
filed with the SEC on September 25, 2012; Appendix A to the Company’s proxy statement for our 2014 Annual Meeting of Shareholders,
filed with the SEC on October 9, 2014; and Appendix B to the Company’s proxy statement for our 2015 Annual Meeting of Shareholders,
filed with the SEC on October 7, 2015.
Reasons for the Amendment
The purpose of the Omnibus Plan Amendment
is to provide the Company with sufficient flexibility to continue to use the Omnibus Plan to further the Company’s compensation
philosophy and programs. Our Board of Directors believes that the interests of the Company and our shareholders will be advanced
if we can continue to offer our officers, non-employee directors, key employees, consultants and advisors the opportunity to acquire
or increase a direct ownership interest in the operations and future success of the Company. In addition, the ability to obtain
and retain new quality personnel by offering competitive compensation is of great importance to the success of the Company. However,
our Board of Directors has determined that the current number of shares authorized for issuance under the Omnibus Plan is insufficient
for the stated objectives of the Omnibus Plan. The Omnibus Plan Amendment will increase the number of shares available for issuance
under the Omnibus Plan by 4,000,000 shares.
Material Features of the Omnibus Plan
Administration
of the Plan
Our Board of Directors has such powers
and authorities related to the administration of the Omnibus Plan as are consistent with our corporate governance documents and
applicable law. Pursuant to its charter, the Omnibus Plan is administered by our Compensation Committee (the “Administrator”).
Type
of Awards
The following types of awards are available
for grant under the Omnibus Plan: incentive stock options (“ISOs”), nonqualified stock options (“NSOs”),
stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), cash- or stock-based
performance awards and other stock-based awards.
Number
of Authorized Shares
If shareholders approve the Omnibus Plan
Amendment, subject to adjustment (in connection with certain changes in capitalization), the total number of shares of our common
stock that will be reserved for issuance under the Omnibus Plan will be 10,787,710, all of which will be available for issuance
under ISOs.
If shareholders approve the Omnibus Plan
Amendment, subject to adjustment (in connection with certain changes in capitalization): the maximum number of stock options and
SARs in the aggregate that may be granted to any grantee in any 12-month period will be 6,000,000; and the maximum number of shares
with respect to stock-based performance awards (other than stock options and SARs) that are intended to qualify as “performance-based
compensation” under Code Section 162(m) (“Section 162(m)”) that may be granted to any grantee in any 12-month
period will be 9,000,000.
Shareholders are being asked to approve
the foregoing increased limits for purposes of Section 162(m) under this Proposal 3.
We currently do not anticipate issuing
awards in amounts that will cause us to use more than approximately one-third of the remaining available shares in any fiscal
year. As a result we anticipate that the number of shares reserved for awards under the Omnibus Plan will be sufficient to cover
our equity awards for at least fiscal 2017, 2018 and 2019.
Non-Employee
Director Award Limits
If shareholders approve the Omnibus Plan
Amendment, the maximum value of awards under the Omnibus Plan granted during any calendar year to any non-employee director, taken
together with any cash fees paid to the director during the calendar year and the value of awards granted to the director under
any other equity compensation plan of the Company or an affiliate during the calendar year, may not exceed the following in total
value (calculating the value of any equity compensation plan awards based on the grant date fair value for financial reporting
purposes): (i) $500,000 for the Chair of our Board of Directors and (ii) $350,000 for each non-employee director other than the
Chair, except that awards granted to directors upon their initial election to our Board of Directors or the board of directors
of an affiliate will not be counted towards these limits.
Share
Counting
Shares underlying any outstanding stock
options or other awards granted under our 2007 Equity Incentive Plan (formerly known as the ZBB Energy Corporation 2007 Equity
Incentive Plan) or any other predecessor equity compensation plan of the Company that are forfeited, terminated or cancelled for
any reason without issuance will again be available for the grant of new awards under the Omnibus Plan. If any award under the
Omnibus Plan expires, or is terminated, surrendered or forfeited, in whole or in part, or the shares are not delivered because
the award is settled in cash or used to satisfy the applicable tax withholding obligations, the unissued shares covered by such
award will again be available for the grant of awards under the Omnibus Plan. If shares issued pursuant to the Omnibus Plan are
repurchased by or are surrendered or forfeited to the Company at no more than cost, such shares will again be available for the
grant of awards under the Omnibus Plan. In addition, any substitute award will not be counted against the number of shares reserved
under the Omnibus Plan.
Eligibility
and Participation
Eligibility to participate in the Omnibus
Plan is limited to such employees, officers, non-employee directors, consultants and advisors of the Company, or of any affiliate,
as the Administrator may determine and designate from time to time. As of September 30, 2016, approximately 79 employees, 7 executive
officers, 7 non-employee directors and 2 consultants would have been eligible to receive awards under the Omnibus Plan.
New Plan Benefits
The benefits that will be awarded or paid
under the Omnibus Plan (as amended by the Omnibus Plan Amendment) cannot currently be determined. Awards granted under the Omnibus
Plan are within the discretion of our Compensation Committee, and the committee has not determined future awards or who might
receive them.
Stock
Options and SARs
Grants of Stock Options and SARs.
The
Administrator may award ISOs, NSOs and SARs to grantees under the Omnibus Plan. SARs may be awarded either in tandem with or as
a component of other awards or alone.
Exercise Price of Stock Options and
SARs.
The exercise price per share of a stock option will be at least 100% of the fair market value per share underlying the
award on the grant date. A SAR will confer on the grantee a right to receive, upon exercise, a payment of the excess of (1) the
fair market value of one share on the date of exercise over (2) the grant price of the SAR as determined by the Administrator.
The grant price will be fixed at the fair market value of a share on the grant date. SARs granted in tandem with an outstanding
stock option following the grant date of such option will have a grant price that is equal to the option’s exercise price,
except that the SAR’s grant price may not be less than the fair market value of a share on the grant date of the SAR.
Vesting of Stock Options and SARs.
The Administrator will determine the terms and conditions (including any performance requirements) under which a stock option
or SAR will become exercisable and will include such information in the award agreement.
Special Limitations on ISOs.
In
the case of a grant of a stock option intended to qualify as an ISO to a grantee that owns more than 10% of the total combined
voting power of all classes of our outstanding shares (a “10% Shareholder”), the exercise price of the stock option
will not be less than 110% of the fair market value of a share on the grant date. Additionally, a stock option will constitute
an ISO only (1) if the grantee is an employee of the Company or a subsidiary of the Company, (2) to the extent such
stock option is specifically designated as an ISO in the related award agreement, and (3) to the extent that the aggregate
fair market value (determined at the time the stock option is granted) of the shares with respect to which all ISOs held by such
grantee become exercisable for the first time during any calendar year (under the Omnibus Plan and all other plans of the grantee’s
employer and its affiliates) does not exceed $100,000.
Exercise of Stock Options and SARs.
An stock option may be exercised by the delivery to us of written notice of exercise and payment in full of the exercise price
(plus the amount of any taxes which we may be required to withhold). The Administrator has the discretion to determine the method
or methods by which a SAR may be exercised.
Expiration of Stock Options and SARs.
Stock options and SARs will expire at such times as the Administrator determines. However, no stock option may be exercised
more than 10 years from the grant date, or in the case of an ISO held by a 10% Shareholder, more than five years from the grant
date.
Restricted
Stock and RSUs
Restricted Stock.
At the time a
grant of restricted stock is made, the Administrator may establish the applicable “restricted period” and prescribe
restrictions in addition to or other than the expiration of the restricted period, including the satisfaction of corporate or
individual performance objectives. Unless the Administrator otherwise provides in an award agreement, holders of restricted stock
will have the right to vote such stock and the right to receive any dividends declared or paid with respect to such stock. The
Administrator may provide that any such dividends paid must be reinvested in shares, which may or may not be subject to the same
vesting conditions and restrictions applicable to such restricted stock. All distributions, if any, received by a grantee with
respect to restricted stock as a result of any stock split, stock dividend, combination of shares or other similar transaction
will be subject to the restrictions applicable to the original grant.
The grantee will be required, to the extent
required by applicable law, to purchase the restricted stock at a price equal to the greater of (1) the aggregate par value
of the shares represented by such restricted stock or (2) the price, if any, specified in the award agreement relating to
such restricted stock. If specified in the award agreement, the price may be deemed paid by services already rendered.
RSUs.
An RSU is a bookkeeping entry
representing the equivalent of shares awarded to a grantee. At the time a grant of RSUs is made, the Administrator may establish
the applicable “restricted period” and prescribe restrictions in addition to or other than the expiration of the restricted
period, including the satisfaction of corporate or individual performance objectives. RSUs will not confer shareholder rights
to grantees. The Administrator may provide that the holder of RSUs will be entitled to receive dividend equivalent rights, which
may be deemed reinvested in additional RSUs.
Cash-
and Stock-Based Performance Awards
Under the Omnibus Plan the Administrator
may grant performance awards under which the grantee’s ability to exercise or receive a grant or settlement of any award,
and the timing thereof, may be subject to such performance conditions as may be specified by the Administrator. The Administrator
may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions,
and may, subject to certain limitations in the case of a performance award intended to qualify as “performance-based compensation”
under Section 162(m), exercise its discretion to reduce the amounts payable under any award subject to performance conditions.
We intend that performance awards granted
to persons who are designated by the Administrator as likely to be “Covered Employees” within the meaning of Section 162(m)
will, if so designated by the Administrator, qualify as “performance-based compensation” within the meaning of Section 162(m).
The grant, exercise and/or settlement of such performance awards will be contingent upon achievement of pre-established performance
goals that will consist of one or more business criteria and a targeted level or levels of performance with respect to each of
such criterion. Performance goals will be objective and generally are intended to meet the requirements of Section 162(m).
However, we also believe that it is important to preserve flexibility in administering compensation programs in a manner designed
to promote varying corporate goals. Accordingly, we have not adopted a policy that all compensation must qualify as deductible
under Section 162(m). Amounts awarded or paid under any of our compensation programs, including the Omnibus Plan, may not qualify
as “performance-based compensation” that is excluded from the limitation on deductibility under Section 162(m).
Under the Omnibus Plan, the maximum amount
of each cash-based performance award intended to qualify as “performance-based compensation” under Section 162(m)
granted to a grantee in any 12-month period may not exceed $2,000,000.
Shareholders are being
asked to re-approve this $2,000,000 limit for purposes of Section 162(m) under this Proposal 3.
One or more of the following business
criteria for the Company will be used exclusively by the Administrator in establishing performance goals for such awards:
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revenue growth
or product revenue growth;
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operating income
(before or after taxes);
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pre- or after-tax
income (before or after allocation of corporate overhead and bonuses);
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net income
(before or after taxes);
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total shareholder
return;
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return on assets
or net assets;
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appreciation
in and/or maintenance of, share price;
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earnings (including
earnings before taxes, earnings before interest and taxes or earnings before interest,
taxes depreciation and amortization);
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economic value-added
models or equivalent metrics;
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comparisons
with various stock market indices;
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cash flows
or cash flows per share (before or after dividends);
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return on capital
(including return on total capital or return on invested capital);
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cash flow return
on investment;
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improvement
in or attainment of expense levels or working capital levels;
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gross margins
or cash margin;
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implementation,
completion or attainment of measurable objectives with respect to research, development,
products or projects and recruiting and maintaining personnel; and
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to the extent
permitted by applicable law, any other business criteria as determined by the Administrator.
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Shareholders are being asked to re-approve
the foregoing business criteria on which performance goals may be based for purposes of Section 162(m) in this Proposal 3.
Other
Stock-Based Awards
The Administrator may grant other stock-based
awards, consisting of stock units or other awards, valued in whole or in part by reference to, or otherwise based upon, our Common
Stock. The terms of such other stock-based awards will be set forth in the applicable award agreements.
Change
in Control.
Subject to the requirements and limitations
of Code Section 409A, the Administrator may provide for any one or more of the following in connection with a Change in Control
(as defined in the Omnibus Plan):
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The
Administrator may provide in any award agreement or, in the event of a Change in Control,
may take such actions as it deems appropriate, to provide for the acceleration of the
exercisability, vesting and/or settlement in connection with the Change in Control of
each or any outstanding award or portion thereof and shares acquired pursuant thereto
upon such conditions, including termination of the grantee’s service prior to,
upon or following the Change in Control, to such extent as the Administrator may determine
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In the event of
a Change in Control, the surviving, continuing, successor or purchasing corporation,
or other business entity or parent thereof (the “Acquiror”), may, without
the consent of any grantee, either assume or continue the Company’s rights and
obligations under each or any award or portion thereof outstanding immediately prior
to the Change in Control or substitute for each or any such outstanding award or portion
thereof a substantially equivalent award with respect to the Acquiror’s stock.
The Administrator may determine that an award denominated in shares is deemed assumed
if, following the Change in Control, the award confers the right to receive, subject
to the terms and conditions of the Omnibus Plan and the applicable award agreement, for
each share subject to the award immediately prior to the Change in Control, the consideration
to which a holder of a share on the date of the Change in Control was entitled, but if
such consideration is not solely common stock of the Acquiror, the Administrator may,
with the consent of the Acquiror, provide for the consideration to be received upon the
exercise or settlement of the award, for each share subject to the award, to consist
solely of common stock of the Acquiror equal in fair market value to the per share consideration
received by holders of stock pursuant to the Change in Control. If any portion of such
consideration may be received by holders of stock pursuant to the Change in Control on
a contingent or delayed basis, the Administrator may determine the fair market value
per share as of the time of the Change in Control on the basis of the Administrator’s
good faith estimate of the present value of the probable future payment of such consideration.
Any award or portion thereof that is neither assumed nor continued by the Acquiror in
connection with the Change in Control, nor exercised or settled as of the Change in Control,
will terminate and cease to be outstanding upon the Change in Control
.
|
|
·
|
The
Administrator may, without the consent of any grantee, determine that upon the occurrence
of a Change in Control each or any award or a portion thereof outstanding immediately
prior to the Change in Control and not previously exercised or settled will be canceled
in exchange for a payment with respect to each vested share (and each unvested share,
if so determined by the Administrator) subject to the canceled award in (i) cash, (ii)
stock of the Company or of a corporation or other business entity a party to the Change
in Control or (iii) other property that will be in an amount having a fair market value
equal to the fair market value of the consideration to be paid per share in the Change
in Control, reduced by the exercise or purchase price per share, if any, under the award.
If any portion of such consideration may be received by holders of stock pursuant to
the Change in Control on a contingent or delayed basis, the Administrator may determine
such fair market value per share as of the time of the Change in Control on the basis
of the Administrator’s good faith estimate of the present value of the probable
future payment of such consideration and, if such determination is made by the Administrator,
the amount of such payment (reduced by applicable withholding taxes, if any) will be
paid to grantees in respect of the vested portions of their canceled awards as soon as
practicable following the date of the Change in Control and in respect of the unvested
portions of their canceled awards in accordance with the vesting schedules applicable
to such awards
.
|
Deferral
Arrangements
The Administrator may permit or require
the deferral of any award payment into a deferred compensation arrangement
.
Nontransferability
of Awards
Generally, during the lifetime of a grantee,
only the grantee may exercise rights under the Omnibus Plan and no award will be assignable or transferable other than by will
or laws of descent and distribution. If authorized in the award agreement, a grantee may transfer, not for value, all or part
of an award (other than an ISO) to certain family members (including trusts and foundations for the benefit thereof). Neither
restricted stock nor RSUs may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the restricted
period or prior to the satisfaction of any other restrictions prescribed by the Administrator
.
Separation
from Service
The Administrator may provide in the applicable
award agreements for actions that will be taken upon a grantee’s separation from service from the Company, including but
not limited to, accelerated vesting or termination of awards
.
Tax
Withholding and Tax Offset Payments
We will have the right to deduct from
payments of any kind otherwise due to a grantee any federal, state or local taxes of any kind required by law to be withheld with
respect to the vesting of or other lapse of restrictions applicable to an award or upon the issuance of any shares upon the exercise
of a stock option or pursuant to an award
.
Term
of Plan
The authority to make grants under the
Omnibus Plan is scheduled to terminate on November 10, 2020
.
Amendment
and Termination
The
Administrator may, at any time and from time to time, amend, suspend or terminate the Omnibus Plan as to any shares as to which
awards have not been made. An amendment will be contingent on approval of our shareholders to the extent stated by our Administrator,
required by applicable law or required by applicable stock exchange listing requirements. No awards will be made after termination
of the Omnibus Plan. No amendment, suspension or termination of the Omnibus Plan may, without the consent of the grantee, impair
rights or obligations under any award previously awarded under the Omnibus Plan.
Clawback
Policy
If any of the Company’s financial
statements are required to be restated, the Company may recover all or a portion of any award made under the Omnibus Plan with
respect to any fiscal year of the Company the results of which are negatively affected by the restatement. The amount to be recovered
will be the amount by which the affected award exceeds the amount that would have been payable had the financial statements been
initially filed as restated. In no event will the amount to be recovered by the Company be less than the amount required to be
repaid or recovered as a matter of law.
Further, all awards, amounts or benefits
received or outstanding under the Omnibus Plan will be subject to clawback, cancellation, recoupment, rescission, payback, reduction
or other similar action in accordance with the terms of any Company clawback or similar policy or any applicable law related to
such actions, as may be in effect from time to time. A grantee’s acceptance of an award will be deemed to constitute the
grantee’s acknowledgement of and consent to the Company’s application, implementation and enforcement of any applicable
Company clawback or similar policy that may apply to the grantee, whether adopted prior to or following the grant date of the
award, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback or reduction of
compensation, and the grantee’s agreement that the Company may take such actions as may be necessary to effectuate any such
policy or applicable law, without further consideration or action.
Federal
Income Tax Consequences
The following is a summary of the general
federal income tax consequences to the Company and to U.S. taxpayers of awards granted under the Omnibus Plan. Tax consequences
for any particular individual or under state or non-U.S. tax laws may be different
.
NSOs and SARs.
No taxable income
is reportable when a NSO or SAR is granted. Upon exercise, generally, the grantee will have ordinary income equal to the fair
market value of the underlying shares on the exercise date minus the exercise price. Any gain or loss upon the disposition of
the shares received upon exercise will be capital gain or loss to the grantee (which can be short- or long-term gains or losses
depending on how long the shares are held before sale)
.
ISOs.
No taxable income is reportable
when an ISO is granted or exercised (except for grantees who are subject to the alternative minimum tax, who may be required to
recognize income in the year in which the ISO is exercised). If the grantee exercises the ISO and then sells the underlying shares
more than two years after the grant date and more than one year after the exercise date, the excess of the sale price over the
exercise price will be taxed as long-term capital gain or loss. If the grantee exercises the ISO and sells the shares before the
end of the two- or one-year holding periods, he or she generally will have ordinary income at the time of the sale equal to the
fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the ISO
.
Restricted Stock and RSUs.
A grantee
of restricted stock or RSUs will not have taxable income upon the grant unless, in the case of restricted stock, the grantee elects
to be taxed at that time. Instead, the grantee will have ordinary income at the time of vesting equal to the fair market value
on the vesting date of the shares (or cash) received minus any amount paid for the shares.
Cash- and Stock-Based Performance Awards
and Other Stock-Based Awards.
Typically, a grantee will not have taxable income upon the grant of cash or stock-based performance
awards or other stock-based awards. Subsequently, when the conditions and requirements for the grants have been satisfied and
the payment determined, any cash received and the fair market value of any shares received will constitute ordinary income to
the grantee.
Tax Effect for the Company.
We
generally will receive a tax deduction for any ordinary income recognized by a grantee in respect of an award under the Omnibus
Plan (for example, upon the exercise of a NSO). In the case of ISOs that meet the holding period requirements described above,
the grantee will not recognize ordinary income; therefore, we will not receive a deduction.
Because we are a public company, special
rules limit the deductibility of compensation paid to our CEO and to each of our next three most highly compensated executive
officers other than our CFO whose compensation is required to be reported annually in our proxy statement. Under Section 162(m),
the annual compensation paid to each of these executives may not be deductible to the extent that it exceeds $1 million.
The limitation on deductions does not apply, however, to qualified “performance-based compensation.” Certain awards
under the Omnibus Plan, including stock options, SARs and cash- and stock-based performance awards, may qualify as “performance-based
compensation” and, as such, would be exempt from the $1 million limitation on deductible compensation. We consider the impact
of Section 162(m) when developing and implementing our executive compensation plans. We also believe that it is important to preserve
flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Accordingly, we have
not adopted a policy that all compensation must qualify as deductible under Section 162(m). Amounts awarded or paid under any
of our compensation programs, including the Omnibus Plan, may not qualify as “performance-based compensation” that
is excluded from the limitation on deductibility under Section 162(m).
Vote Required for Approval
The affirmative vote of a majority of
the total votes cast on the foregoing resolution by the holders of our common stock and series B convertible preferred stock,
voting together on a combined basis, is required to approve the Omnibus Plan Amendment and to approve the increased individual
award limits and re-approve the business criteria that can be used in establishing performance goals for performance awards granted
under the Omnibus Plan for purposes of Section 162(m). Abstentions and broker non-votes will not be counted as voting and, therefore,
will have no impact on the approval of the proposal.
Board Recommendation
Our Board of Directors recommends that our shareholders vote
“FOR” approval of the Omnibus Plan Amendment and approval of the increased individual award limits and re-approval
of business criteria that can be used in establishing performance goals for performance awards granted under the Omnibus Plan
for purposes of Section 162(m).
PROPOSAL 4—APPROVAL OF AMENDMENT
NO. 3 TO
ENSYNC, INC. 2012 NON-EMPLOYEE DIRECTOR EQUITY COMPENSATION PLAN
General
On September 6, 2012, our Board of Directors
adopted the 2012 Non-Employee Director Equity Compensation Plan, as approved by the Company’s shareholders at their 2012
Annual Meeting of Shareholders on November 7, 2012, as amended by that certain Amendment No. 1 approved by the Company’s
shareholders at their 2014 Annual Meeting of Shareholders on November 18, 2014 and Amendment No. 2 approved by the Company’s
shareholders at their 2015 Annual Meeting of Shareholders on November 17, 2015 (the “Director Equity Plan). As of September
30, 2016, approximately 1,092,084 shares remained available for issuance under the Director Equity Plan. Our Board of Directors
has determined that this remaining amount is insufficient to meet the Company’s equity compensation requirements
.
On September 20, 2016, our Board of Directors
approved the amendment of the Director Equity Plan described in this proposal (the “Director Plan Amendment”), subject
to shareholder approval. If approved by our shareholders, the Director Plan Amendment will increase the number of shares available
for issuance under the Director Equity Plan by 1,200,000 shares.
We are also asking shareholders to approve
individual annual award limits for non-employee directors under the Director Equity Plan.
A copy of the Director Plan Amendment
is attached as Appendix B to this Proxy Statement. The material terms of the Director Equity Plan, assuming the approval of the
Director Plan Amendment, are summarized below under the heading “Material Features of the Director Equity Plan.” This
summary of the Director Equity Plan is not intended to be a complete description of the Director Equity Plan and is qualified
in its entirety by the actual text of the Director Equity Plan, which is attached as Appendix B to the Company’s proxy statement
for our 2012 Annual Meeting of Shareholders, filed with the SEC on September 25, 2012 and Appendix C to the Company’s proxy
statement for our 2015 Annual Meeting of Shareholders, filed with the SEC on October 7, 2015.
Reasons for the Amendment
The purpose of the Director Plan Amendment
is to provide the Company with sufficient flexibility to continue to use the Director Equity Plan to further the Company’s
compensation philosophy and programs. Our Board of Directors believes that the interests of the Company and our shareholders will
be advanced if we can continue to offer our non-employee directors restricted stock unit (“RSU”) awards and the other
types of awards as discussed below to help align the interests of our non-employee directors with those of our shareholders. However,
our Board of Directors has determined that the current number of shares authorized for issuance under the Director Equity Plan
is insufficient for the stated objectives of the plan. The Director Plan Amendment will increase the number of shares available
for issuance under the Director Equity Plan by 1,200,000 shares.
Material Features of the Director Equity Plan
Administration of the Plan.
Our
Board of Directors has such powers and authorities related to the administration of the Director Equity Plan as are consistent
with our corporate governance documents and applicable law. Our Board of Directors has the full power and authority to take all
actions and to make all determinations required or provided for under the Director Equity Plan, any award or any award agreement,
and has the full power and authority to take all such other actions and make all such other determinations not inconsistent with
the specific terms and provisions of the Director Equity Plan that the Board deems to be necessary or appropriate to the administration
of the plan.
Type of awards.
Any type of award
provided for in the Omnibus Plan is available for grant under the Director Equity Plan (except for ISOs). For information concerning
the types of awards that may be made under the Director Equity Plan, see the section entitled “Material Features of the
Omnibus Plan” under Proposal 3 above.
Number of Authorized Shares.
If
shareholders approve the Director Plan Amendment, subject to adjustment (in connection with certain changes in capitalization),
the total number of shares of our common stock that will be reserved for issuance under the Director Equity Plan will be 3,908,360.
We currently do not anticipate issuing
awards in amounts that will cause us to use more than approximately one third of the remaining available shares in any fiscal
year. As a result we anticipate that the number of shares reserved for awards under the Director Equity Plan will be sufficient
to cover our equity awards to our non-employee directors for the current fiscal year and the next one to two fiscal years thereafter.
Annual Award Limits
. If shareholders
approve the Director Plan Amendment, the maximum value of awards under the Director Equity Plan granted during any calendar year
to any director, taken together with any cash fees paid to the director during the calendar year and the value of awards granted
to the director under any other equity compensation plan of the Company or an affiliate during the calendar year, may not exceed
the following in total value (calculating the value of any equity compensation plan awards based on the grant date fair value
for financial reporting purposes): (i) $500,000 for the Chair of our Board of Directors and (ii) $350,000 for each non-employee
director other than the Chair, except that awards granted to directors upon their initial election to our Board of Directors or
the board of directors of an affiliate will not be counted towards these limits.
Share Counting.
If any award under
the Director Equity Plan expires, or is terminated, surrendered or forfeited, in whole or in part, or the shares are not delivered
because the award is settled in cash or used to satisfy the applicable tax withholding obligations, the unissued shares covered
by such award will again be available for the grant of awards under the Director Equity Plan. If shares issued pursuant to the
Director Equity Plan are repurchased by, or are surrendered or forfeited to the Company at no more than cost, such shares will
again be available for the grant of awards under the Director Equity Plan.
Eligibility and Participation.
Eligibility
to participate in the Director Equity Plan is limited to those members of our Board of Directors who are not current employees
of the Company or any of its subsidiaries. As of September 30, 2016, 6 directors were eligible to receive awards under the Director
Equity Plan.
New Plan Benefits.
We cannot currently
determine the total benefits or number of shares subject to awards that may be granted in the future under the Director Equity
Plan. However, as discussed above under “Non-employee Director Compensation” and in accordance with our Director Compensation
Policy, if the Director Plan Amendment is approved by the shareholders we anticipate that on the date of our 2016 annual meeting
our non-employee directors will receive RSUs as indicated in the following table:
|
New Plan Benefits
|
|
|
Dollar Value
|
|
|
|
Number of Units
|
|
$
|
432,000
|
|
|
|
490,495
|
(1)
|
|
(1)
|
Based
on an assumed price of our common stock equal to $0.8807 per share, which was the volume
weighted average closing price of our common stock for the 20-trading day period ending
October 3, 2016.
|
Federal Income Tax Consequences.
For
information concerning the federal income tax consequences associated with awards that may be made under the Director Equity Plan,
see the section entitled “Federal Income Tax Consequences” under Proposal 3 above.
Change in Control.
Subject to the
requirements and limitations of Section 409A if applicable, our Board of Directors may provide for any one or more of the following
in connection with a Change in Control (as defined in the Omnibus Plan):
|
·
|
Except
as may be provided otherwise in the applicable award agreement, upon a Change in Control,
all restrictions with respect to outstanding awards under the Director Equity Plan will
lapse and such awards will become vested and non-forfeitable.
|
|
·
|
In the event of
a Change in Control, the surviving, continuing, successor or purchasing corporation,
or other business entity or parent thereof (the “Acquiror”), may, without
the consent of any grantee, either assume or continue the Company’s rights and
obligations under each or any award or portion thereof outstanding immediately prior
to the Change in Control or substitute for each or any such outstanding award or portion
thereof a substantially equivalent award with respect to the Acquiror’s stock.
Our Board of Directors may determine that an award denominated in shares is deemed assumed
if, following the Change in Control, the award confers the right to receive, subject
to the terms and conditions of the Director Equity Plan and the applicable award agreement,
for each share subject to the award immediately prior to the Change in Control, the consideration
to which a holder of a share on the date of the Change in Control was entitled, but if
such consideration is not solely common stock of the Acquiror, our Board of Directors
may, with the consent of the Acquiror, provide for the consideration to be received upon
the exercise or settlement of the award, for each share subject to the award, to consist
solely of common stock of the Acquiror equal in fair market value to the per share consideration
received by holders of stock pursuant to the Change in Control. If any portion of such
consideration may be received by holders of stock pursuant to the Change in Control on
a contingent or delayed basis, our Board of Directors may determine the fair market value
per share as of the time of the Change in Control on the basis of the Board’s good
faith estimate of the present value of the probable future payment of such consideration.
Any award or portion thereof that is neither assumed nor continued by the Acquiror in
connection with the Change in Control, nor exercised or settled as of the Change in Control,
will terminate and cease to be outstanding upon the Change in Control
.
|
|
·
|
Our Board of Directors
may, without the consent of any grantee, determine that upon the occurrence of a Change
in Control each or any award or a portion thereof outstanding immediately prior to the
Change in Control and not previously exercised or settled will be canceled in exchange
for a payment with respect to each vested share (and each unvested share, if so determined
by the Board) subject to the canceled award in (i) cash, (ii) stock of the Company or
of a corporation or other business entity a party to the Change in Control or (iii) other
property that will be in an amount having a fair market value equal to the fair market
value of the consideration to be paid per share in the Change in Control, reduced by
the exercise or purchase price per share, if any, under the award. If any portion of
such consideration may be received by holders of stock pursuant to the Change in Control
on a contingent or delayed basis, our Board of Directors may determine such fair market
value per share as of the time of the Change in Control on the basis of the Board’s
good faith estimate of the present value of the probable future payment of such consideration
and, if such determination is made by the Board, the amount of such payment (reduced
by applicable withholding taxes, if any) will be paid to grantees in respect of the vested
portions of their canceled awards as soon as practicable following the date of the Change
in Control and in respect of the unvested portions of their canceled awards in accordance
with the vesting schedules applicable to such awards
.
|
Deferral Arrangements.
Our Board
of Directors may permit or require the deferral of any award payment into a deferred compensation arrangement
.
Nontransferability of Awards.
Generally,
during the lifetime of a grantee, only the grantee may exercise rights under the Director Equity Plan and no award will be assignable
or transferable other than by will or laws of descent and distribution. If authorized in the award agreement, a grantee may transfer,
not for value, all or part of an award to certain family members (including trusts and foundations for the benefit thereof). Neither
restricted stock nor RSUs may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the restricted
period or prior to the satisfaction of any other restrictions prescribed by our Board of Directors.
Separation from Service.
Our Board
of Directors may provide in the applicable award agreements for actions that will be taken upon a grantee’s separation from
service from the Company, including but not limited to, accelerated vesting or termination of awards.
Tax Withholding and Tax Offset Payments.
We will have the right to deduct from payments of any kind otherwise due to a grantee any federal, state or local taxes of
any kind required by law to be withheld with respect to the vesting of or other lapse of restrictions applicable to an award or
upon the issuance of any shares upon the exercise of a stock option or pursuant to an award.
Term of Plan.
The authority to
make grants under the Director Equity Plan is scheduled to terminate on November 7, 2022.
Vote Required for Approval
The affirmative vote of a majority of
the total votes cast on the foregoing resolution by the holders of our common stock and series B convertible preferred stock,
voting together on a combined basis, is required to approve the Director Plan Amendment. Abstentions and broker non-votes will
not be counted as voting and, therefore, will have no impact on the approval of the proposal
.
Board Recommendation
Our Board of Directors recommends that
our shareholders vote “
FOR
” approval of the Director Plan Amendment
.
PROPOSAL 5 —RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Proposal
The Audit Committee of the Board of Directors
has appointed Baker Tilly Virchow Krause, LLP (“Baker Tilly”) as our independent registered public accounting firm
for the fiscal year ending June 30, 2017. We are presenting this selection to our shareholders for ratification at the annual
meeting.
A representative of Baker Tilly is expected
to be present at the annual meeting. In addition to having the opportunity to make a statement, Baker Tilly’s representative
will be available to respond to any appropriate questions.
If the shareholders do not ratify the
appointment of Baker Tilly, the Audit Committee will take such action into account in reconsidering the appointment of our independent
registered public accounting firm for fiscal 2017.
Vote Required for Approval
The affirmative vote of a majority of
the total votes cast on this proposal by the holders of our common stock and series B convertible preferred stock, voting together
on a combined basis, shall constitute ratification of the selection of Baker Tilly as our independent registered public accounting
firm for fiscal 2017. Abstentions will not be counted as voting and, therefore, will have no impact on the approval of the proposal.
Broker non-votes are not expected not occur in connection with this proposal.
Board Recommendation
The Board of Directors recommends that
the shareholders vote “
FOR
” ratification of the appointment of Baker Tilly as our independent registered public
accounting firm for 2017.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The following table sets forth the aggregate
fees billed or expected to be billed by Baker Tilly for fiscal 2016 and fiscal 2015, for audit and non-audit services, including
“out-of-pocket” expenses incurred in rendering these services. The nature of the services provided for each category
is described in the following the tables.
Fee Category
|
|
2016
|
|
|
2015
|
|
Audit Fees (1)
|
|
|
155,500
|
|
|
|
149,500
|
|
Audit-Related Fees
|
|
|
-
|
|
|
|
-
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
All Other Fees
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
155,500
|
|
|
|
149,500
|
|
|
(1)
|
Audit fees include
fees for professional services and expenses associated with the audits of our consolidated
annual statements, reviews of our consolidated financial statements included in our Form
10-Qs, consents and assistance with and review of documents filed with the SEC.
|
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy
that requires all services to be provided by the Company’s independent public accounting firm, including audit services
and permitted non-audit services, to be pre-approved by the Audit Committee. The Audit Committee approved all audit and permitted
non-audit services provided by Baker Tilly during fiscal years 2015 and 2016.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Hoong Khoeng Cheong serves as a director
of the Company. Mr. Cheong is an affiliate of SPI Energy Co., Ltd. (formerly known as Solar Power, Inc.) (“SPI”).
In July 2015, we entered into a Securities Purchase Agreement with SPI, pursuant to which we sold to SPI for an aggregate purchase
price of $33,390,000 a total of (i) 8,000,000 shares of common stock and (ii) 28,048 shares of Series C Convertible Preferred
Stock which are convertible, subject to the completion of projects under our supply agreement with SPI (as described below), into
a total of up to 42,000,600 shares of common stock. SPI was also issued a warrant to purchase 50,000,000 shares of common stock
for an aggregate purchase price of $36,729,000. The Company also entered into a supply agreement with SPI pursuant to which the
Company agreed to sell and SPI agreed to purchase certain products and services offered by the Company from time to time, including
certain energy management system solutions for solar projects. To date, however, SPI has not made any such purchases under the
supply agreement, and there can be no assurance that SPI will fulfill its purchase obligations thereunder. In addition, the Company
also entered into a governance agreement with SPI, pursuant to which SPI is entitled to nominate one director to our Board of
Directors for so long as SPI holds 10,000 shares of Series C Convertible Preferred Stock or 25 million shares of Common Stock
or Common Stock equivalents.
James Koeppe, the son of Paul Koeppe, our
Chairman of the Board of Directors, is a Manager at the Company and previously served as a consultant to the Company. In fiscal
2016, for his services as an employee of, and previously as a consultant to, the Company, James Koeppe received total compensation
from the Company in the amount of $141,782, which includes an award of stock options with a grant date fair value of $16,607.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee
record holders may be participating in the practice of “householding.” This means that only one copy of our annual
report and proxy statement will be sent to shareholders who share the same last name and address. Householding is designed to
reduce duplicate mailings and save significant printing and postage costs.
If you receive a household mailing this
year and would like to receive additional copies of our annual report and/or proxy statement, please submit your request in writing
to: EnSync, Inc., N93 W14475 Whittaker Way, Menomonee Falls, Wisconsin 53051, Attention: Secretary or by calling the Company at
(262) 253-9800. Any shareholder who wants to receive separate copies of the proxy statement in the future, or who is currently
receiving multiple copies and would like to receive only one copy for his or her household, should contact his or her bank, broker,
or other nominee record holder.
SHAREHOLDER PROPOSALS
In accordance with our Bylaws, nominations,
other than by or at the direction of the Board of Directors, of candidates for election as directors at the 2017 Annual Meeting
of Shareholders must be received by us no earlier than June 17, 2017 and no later than August 16, 2017. Such nominations must
also satisfy the other requirements for shareholders nominations set forth in our bylaws.
To be considered for inclusion in the
proxy statement solicited by the Board of Directors, shareholder proposals for consideration at the 2017 Annual Meeting of Shareholders,
pursuant to Rule 14a-8 promulgated under the Exchange Act by the SEC, must be received by us at our principal executive offices
by June 5, 2017. Such proposals must also satisfy the procedures set forth in Rule 14a-8 under the Exchange Act. Our Bylaws require
shareholders who wish to make a proposal at the next annual meeting of our shareholders—other than one that will be included
in our proxy statement—to notify us no later than August 16, 2017. Such proposals must also satisfy the other requirements
for shareholders proposals set forth in our Bylaws.
Such nominations or proposals must be
submitted to EnSync, Inc., N93 W14475 Whittaker Way, Menomonee Falls, Wisconsin 53051, Attention: Secretary. To avoid disputes
as to the date of receipt, it is suggested that any shareholder proposal be submitted by certified mail, return receipt requested.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange
Act of 1934 requires our officers and directors, and persons who beneficially own more than 10% of our outstanding common stock,
to file initial reports of ownership with respect to our equity securities and reports of changes in such ownership with the SEC.
Such persons are required by SEC rules to furnish us with all copies of Section 16(a) forms they file.
Based solely on our review of the copies
of such forms received by us, we believe that during the year ended June 30, 2016, all filing requirements were timely satisfied
except for Mr. Apfelbach who filed a late Form 4 on September 9, 2016.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will
be borne by us, and in addition to soliciting shareholders by mail, our directors, officers and other employees may, without receiving
additional compensation, solicit proxies personally or by telephone. Solicitation by our directors, officers and other employees
may also be made of some of our shareholders in person or by mail, telephone or telegraph following the original solicitation.
We may request banks, brokers and other custodians, nominees and fiduciaries to forward proxy soliciting materials to the owners
of our stock held in their names and, if so, will reimburse such banks, brokers and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket costs incurred in connection with the distribution of such proxy materials. We may also retain
an independent proxy solicitation firm to assist in the solicitation of proxies.
OTHER BUSINESS
The Board of Directors knows of
no business that will be presented for consideration at the annual meeting other than those items stated above. If any other business
should come before the annual meeting, votes may be cast pursuant to proxies in respect to any such business in the best judgment
of the person or persons acting under the proxies.
Appendix A
Amendment No. 4 of
the
EnSync, Inc. 2010
Omnibus Long-Term Incentive Plan
This Amendment No. 4 (“Amendment”),
dated September 20, 2016, of the 2010 Omnibus Long-Term Incentive Plan (the “Existing Plan”; as amended hereby, the
“Plan”), of EnSync, Inc., a Wisconsin corporation (the “Company”), is made and adopted by the Company,
subject to approval of the shareholders of the Company.
Statement of Purpose
The Existing Plan was originally approved
by the Company’s Board of Directors (the “Board”) on August 26, 2010, and by its shareholders on November 10,
2010, and became effective on such date. The Existing Plan was previously amended pursuant to that certain Amendment No. 1, effective
upon shareholder approval on November 7, 2012, that certain Amendment No. 2, effective upon shareholder approval on September
17, 2014, and that certain Amendment No. 3, effective upon shareholder approval on September 17, 2015. The Board may amend the
Existing Plan at any time, pursuant to and subject to Section 5.2 of the Existing Plan, contingent on approval by the shareholders
of the Company, if shareholder approval is required by applicable securities exchange rules or applicable law. The Board has determined
that it is advisable and in the best interest of the Company to amend the Existing Plan to increase the number of shares of the
Company’s common stock, par value $0.01, authorized for issuance under the Existing Plan by 4,000,000 shares, and to make
the other changes to the Existing Plan described in this Amendment.
NOW, THEREFORE, the Existing Plan is hereby
amended as follows, subject to approval by the shareholders of the Company:
1.
Capitalized
Terms
. All capitalized terms used and not defined herein shall have the meanings given thereto in the Existing Plan.
2.
Amendment
of Section 3.3 of Existing Plan
. The following paragraph is hereby added to Section 3.3 of the Existing Plan:
“Without limitation of the immediately
preceding paragraph, all awards, amounts or benefits received or outstanding under the Plan shall be subject to clawback, cancellation,
recoupment, rescission, payback, reduction or other similar action in accordance with the terms of any Company clawback or similar
policy or any applicable law related to such actions, as may be in effect from time to time. A Grantee’s acceptance of an
Award shall be deemed to constitute the Grantee’s acknowledgement of and consent to the Company’s application, implementation
and enforcement of any applicable Company clawback or similar policy that may apply to the Grantee, whether adopted prior to or
following the Grant Date of the Award, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission,
payback or reduction of compensation, and the Grantee’s agreement that the Company may take such actions as may be necessary
to effectuate any such policy or applicable law, without further consideration or action.”
3.
Amendment
of Section 4.1 of Existing Plan
. Section 4.1
of the Existing Plan is hereby deleted in its entirety and replaced with
the following:
“
4.1. Authorized
Number of Shares
4.1.1. Shares
Available for Issuance
Subject to adjustment under Section
15, the aggregate number of shares of Common Stock that may be issued pursuant to the Plan is the sum of (i) 7,950,000 plus (ii)
effective upon September 20, 2016 (subject to shareholder approval), 4,000,000 shares. All of the shares of Common Stock available
for issuance under the Plan shall be available for issuance as Incentive Stock Options. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares, treasury shares or shares purchased on the open market or otherwise, all
as determined by the Company from time to time.
4.1.2. Section
162(m) Limits
Subject to adjustment under Section
15, the maximum number of Options and SARs in the aggregate that may be granted to any one Grantee in any twelve (12)-month period
shall be 6,000,000. Subject to adjustment under Section 15, the maximum number of shares with respect to stock-based Performance
Awards (other than Options and SARs) that are intended to qualify as “performance-based compensation” under Code Section
162(m) that may be granted to any one Grantee in any twelve (12)-month period shall be 9,000,000.
4.1.3. Non-Employee
Director Award Limits
The maximum value of Awards granted
during any calendar year to any non-employee director, taken together with any cash fees paid to such non-employee director during
the calendar year and the value of awards granted to the non-employee director under any other equity compensation plan of the
Company or an Affiliate during the calendar year (including the EnSync, Inc. 2012 Non-Employee Director Equity Compensation Plan),
shall not exceed the following in total value (calculating the value of any Awards or other equity compensation plan awards based
on the grant date fair value for financial reporting purposes): (i) $500,000 for the Chair of the Board and (ii) $350,000
for each non-employee director other than the Chair of the Board; provided, however, that awards granted to non-employee directors
upon their initial election to the Board or the board of directors of an Affiliate shall not be counted towards the limit under
this
Section 4.1.3
.”
4.
Reference
to and Effect on the Plan
. The Plan, as amended hereby, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed.
5.
Governing
Law
. This Amendment shall be governed by and construed in accordance with the laws of the State of Wisconsin.
* * *
Effective this 20
th
day of
September 2016.
Appendix B
Amendment No. 3 of
the
EnSync, Inc. 2012
Non-Employee Director Equity Compensation Plan
This Amendment No. 3 (“Amendment”),
dated September 20, 2016, of the 2012 Non-Employee Director Equity Compensation Plan (the “Existing Plan”; as amended
hereby, the “Plan”), of EnSync, Inc., a Wisconsin corporation (the “Company”), is made and adopted by
the Company, subject to approval of the shareholders of the Company.
Statement of Purpose
The Existing Plan was originally approved
by the Company’s Board of Directors on September 6, 2012, and by its shareholders on November 7, 2012, and became effective
on such date. The Existing Plan was previously amended pursuant to that certain Amendment No. 1, effective upon shareholder approval
on September 17, 2014, and pursuant to that certain Amendment No. 2, effective upon shareholder approval on September 17, 2015.
The Board may amend the Existing Plan at any time, pursuant to and subject to Section 5.2 of the Existing Plan, contingent on
approval by the shareholders of the Company, if shareholder approval is required by applicable securities exchange rules or applicable
law. The Board has determined that it is advisable and in the best interest of the Company to amend the Existing Plan to increase
the number of shares of the Company’s common stock, par value $0.01, authorized for issuance under the Existing Plan by
1,200,000 shares, and to make the other changes to the Existing Plan described in this Amendment.
NOW, THEREFORE, the Existing Plan is hereby
amended as follows, subject to approval by the shareholders of the Company:
1.
Capitalized
Terms
. All capitalized terms used and not defined herein shall have the meanings given thereto in the Existing Plan.
2.
Amendment
of Section 4.1 of Existing Plan
. Section 4.1 of the Existing Plan is hereby deleted in its entirety and replaced with the
following:
“
4.1. Authorized
Number of Shares
4.1.1. Shares
Available for Issuance
Subject to adjustment under Section
9, the aggregate number of shares of Common Stock that may be issued pursuant to the Plan is the sum of (i) 2,200,000 shares plus
(ii) effective upon September 20, 2016 (subject to shareholder approval), 1,200,000 shares.
4.1.2. Annual
Award Limits
The maximum value of Awards granted
during any calendar year to any Grantee, taken together with any cash fees paid to such Grantee during the calendar year and the
value of awards granted to the Grantee under any other equity compensation plan of the Company or an Affiliate during the calendar
year (including the EnSync, Inc. 2010 Omnibus Long-Term Incentive Plan), shall not exceed the following in total value (calculating
the value of any Awards or other equity compensation plan awards based on the grant date fair value for financial reporting purposes):
(i) $500,000 for the Chair of the Board and (ii) $350,000 for each Grantee other than the Chair of the Board; provided, however,
that awards granted to Grantees upon their initial election to the Board or the board of directors of an affiliate shall not be
counted towards the limit under this
Section 4.1.2
.”
3.
Amendment
of Section 9.2.1.1 of Existing Plan
. Section 9.2.1.1 of the Existing Plan is hereby deleted in its entirety and replaced with
the following:
“
9.2.1.1 Accelerated
Vesting.
Except as may be provided otherwise in the applicable Award Agreement, upon a Change in Control, all restrictions
with respect to outstanding Awards shall lapse and such Awards shall become vested and non-forfeitable.”
4.
Reference
to and Effect on the Plan
. The Plan, as amended hereby, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed.
5.
Governing
Law
. This Amendment shall be governed by and construed in accordance with the laws of the State of Wisconsin.
* * *
Effective this 20
th
day of
September 2016.
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