Table of Contents
Stock Options.
The holder of an option
will be entitled to purchase a number of shares of our common stock at a
specified exercise price during a specified time period, all as determined by
the Committee. The option exercise price may be payable either in cash or, at
the discretion of the Committee, in other securities or other property having a
fair market value on the exercise date equal to the exercise price.
Stock Appreciation Rights
. The holder of
an SAR is entitled to receive the excess of the fair market value (calculated
as of the exercise date or, in the Committees discretion, as of any time
during a specified period before or after the exercise date) of a specified
number of shares of our common stock over the grant price of the SAR. SARs vest
and become exercisable in accordance with a vesting schedule established by the
Committee.
Restricted Stock and Restricted Stock Units
.
The holder of restricted stock will own shares of our common stock subject to
restrictions imposed by the Committee (including, for example, restrictions on
the right to vote the restricted shares or to receive any dividends with
respect to the shares) for a specified time period determined by the Committee.
The holder of restricted stock units will have the right, subject to any
restrictions imposed by the Committee, to receive shares of our common stock,
or a cash payment equal to the fair market value of those shares, at some
future date determined by the Committee. If the participants employment or
service as a director terminates during the vesting period for any reason, the
restricted stock and restricted stock units will be forfeited, unless the
Committee determines that it would be in our best interest to waive the
remaining restrictions.
Performance
Awards.
Performance awards granted under the 2005 Plan are intended to qualify
as performance-based compensation within the meaning of Section 162(m) of the
Code. Performance awards give participants the right to receive payments in
cash, stock or property based solely upon the achievement of certain
performance goals during a specified performance period. The Committee must designate
all participants for each performance period, and establish performance goals
and target awards for each participant no later than 90 days after the
beginning of each performance period within the parameters of Section 162(m) of
the Code.
Performance
goals must be based solely on one or more of the following business criteria:
revenue, cash flow, earnings (including one or more of gross profit, earnings
before interest and taxes, earnings before interest, taxes, depreciation and
amortization and net earnings), earnings per share (basic or diluted), margins
(including one or more of gross, operating and net income margins), returns
(including one or more of return on assets, equity, investment, capital and
revenue and total stockholder return), stock price, economic value added,
working capital, market share, cost reductions, workforce satisfaction and
diversity goals, employee retention, customer satisfaction, completion of key
projects and strategic plan development and implementation.
The
measure of performance may be set by reference to an absolute standard or a
comparison to specified companies or groups of companies, or other external
measures, and may be applied at individual or organizational levels. The
aggregate dollar value of performance awards paid to any recipient in any
calendar year may not exceed $500,000.
Other Stock Grants
. The Committee may
grant unrestricted shares of our common stock, subject to terms and conditions
determined by the Committee and the 2005 Plan limitations.
Duration, Termination and Amendment
Unless
discontinued or terminated by the Board, the 2005 Plan will expire on May 17,
2015. No awards may be made after that date. However, any award granted under
the 2005 Plan prior to expiration may extend beyond the end of such period
through the awards normal expiration date.
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The
Board may amend, alter or discontinue the 2005 Plan at any time, although
shareholder approval must be obtained for any action that would increase the
number of shares of our common stock available, increase the award limits under
the 2005 Plan, permit repricing of options or SARs or prevent the grant of
options or SARs that would qualify under Section 162(m) of the Code.
Shareholder approval is also required for any action that would, absent such
approval, violate the rules and regulations of The NASDAQ Stock Market, Inc. or
any other securities exchange applicable to us.
Prohibition on Repricing Awards
Without
the approval of our shareholders, no option or SAR may be amended to reduce its
exercise or grant price, and no option or SAR may be canceled and replaced with
an option or SAR having a lower exercise price, except in connection with a
stock dividend or other distribution, including a stock split, merger or other
similar corporate transaction or event, in order to prevent dilution or
enlargement of the benefits, or potential benefits intended to be provided
under the 2005 Plan. We are seeking the approval of our shareholders for the
option exchange program that will result in the exchange of outstanding options
for new options with a lower exercise price as described in this proxy
statement.
Transferability of Awards
Unless
otherwise provided by the Committee, awards under the 2005 Plan may be
transferred only by will or by the laws of descent and distribution.
Federal Income Tax Consequences
Grant
of Options and SARs.
The
grant of a stock option or SAR is not expected to result in any taxable income
for the recipient.
Exercise
of Options and SARs.
Upon
exercising a non-qualified stock option, the optionee must recognize ordinary
income equal to the excess of the fair market value of the shares of our common
stock acquired on the date of exercise over the exercise price, and we will
generally be entitled at that time to an income tax deduction for the same
amount. The holder of an incentive stock option generally will have no taxable
income upon exercising the option (except that an alternative minimum tax
liability may arise), and we will not be entitled to an income tax deduction.
Upon exercising an SAR, the amount of any cash received and the fair market
value on the exercise date of any shares of our common stock received are
taxable to the recipient as ordinary income and generally deductible by us.
Disposition
of Shares Acquired Upon Exercise of Options and SARs.
The tax consequence upon a
disposition of shares acquired through the exercise of an option or SAR will
depend on how long the shares have been held and whether the shares were
acquired by exercising an incentive stock option or by exercising a
non-qualified stock option or SAR. Generally, there will be no tax consequence
to us in connection with the disposition of shares acquired under an option or
SAR, except that we may be entitled to an income tax deduction in the case of
the disposition of shares acquired under an incentive stock option before the
applicable incentive stock option holding periods set forth in the Code have
been satisfied.
Awards
Other than Options and SARs.
As
to other awards granted under the 2005 Plan that are payable either in cash or
shares of our common stock that are either transferable or not subject to
substantial risk of forfeiture, the holder of the award must recognize ordinary
income equal to (a) the amount of cash received or, as applicable, (b) the
excess of (i) the fair market value of the shares received (determined as of
the date of receipt) over (ii) the amount (if any) paid for the shares by the
holder of the award. We will generally be entitled at that time to an income
tax deduction for the same amount.
As
to an award that is payable in shares of our common stock that are restricted
from transfer and subject to substantial risk of forfeiture, unless a special
election is made by the holder of the award under the Code, the holder must
recognize ordinary income equal to the excess of (a) the fair market value of
the shares received (determined as of the first time the shares become
transferable or not subject to substantial risk of forfeiture, whichever occurs
earlier) over (b) the amount (if any) paid for the shares by the holder. We
will generally be entitled at that time to an income tax deduction for the same
amount.
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Income
Tax Deduction.
Subject
to the usual rules concerning reasonable compensation, and assuming that, as
expected, performance awards paid under the 2005 Plan are qualified
performance-based compensation within the meaning of Section 162(m) of the
Code, we will generally be entitled to a corresponding income tax deduction at
the time a participant recognizes ordinary income from awards made under the
2005 Plan.
Application
of Section 16 of the Securities Exchange Act of 1934.
Special rules may apply to
individuals subject to Section 16 of the Securities Exchange Act of 1934. In
particular, unless a special election is made pursuant to the Code, shares
received through the exercise of a stock option or SAR may be treated as
restricted as to transferability and subject to a substantial risk of
forfeiture for a period of up to six months after the date of exercise.
Accordingly, the amount of any ordinary income recognized and the amount of our
income tax deduction will be determined as of the end of that period.
Delivery
of Shares for Tax Obligation.
Under
the 2005 Plan, the Committee may permit participants receiving or exercising
awards, subject to the discretion of the Committee and upon such terms and
conditions as it may impose, to deliver shares of our common stock (either
shares received upon the receipt or exercise of the award or shares previously
owned by the holder of the option) to us to satisfy federal and state income
tax obligations.
Equity Compensation Plan Information
The
following table presents information as of December 31, 2008 for our equity
compensation plans.
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Plan
Category
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Number of
securities to
be issued
upon
exercise of
outstanding
options,
warrants
and rights
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Weighted
average
exercise
price of
outstanding
options,
warrants
and
rights
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Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
the first
column)
(2)
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Equity
compensation plans approved by security holders
(1)
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367,733
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$ 10.64
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165,500
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Equity
compensation plans not approved by security holders
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6,000
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$ 7.50
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Total
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373,733
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$ 10.59
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165,500
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(1)
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Consists of
shares underlying stock options under the Image Sensing Systems, Inc. 1995
Long-Term Incentive and Stock Option Plan and the 2005 Plan.
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(2)
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The 165,500
shares available for grant under the 2005 Plan may become the subject of
future awards in the form of stock options, stock appreciation rights,
restricted stock, performance awards or other stock-based awards.
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P
ROPOSAL 3 - RATIFICATION OF APPOINTMENT OF OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Grant
Thornton LLP audited our consolidated financial statements for the fiscal year
ended December 31, 2008. The Audit Committee has appointed Grant Thornton LLP as
our independent registered public accounting firm for the year ending December
31, 2009.
Although
we are not required to do so, we are submitting the appointment of Grant
Thornton LLP to serve as our independent registered public accounting firm for
the fiscal year ending December 31, 2009 for ratification in order to ascertain
the views of our shareholders on this appointment. If the appointment is not
ratified, the Audit Committee will reconsider its selection. A representative
of Grant Thornton LLP is expected to be present at the 2009 annual meeting. The
representative will have an opportunity to make a statement at the meeting and
will be available to respond to appropriate questions from shareholders.
The Board of Directors recommends that you vote FOR
ratification of the appointment of Grant Thornton LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2009.
Proxies will be voted FOR ratifying this appointment unless otherwise specified.
S
HAREHOLDER PROPOSALS FOR
THE 2010 ANNUAL MEETING
Any
proposal by a shareholder to be included in our proxy statement for the 2010
annual meeting must comply with the applicable rules and regulations of the
Securities and Exchange Commission and must be received at our principal
executive offices, 500 Spruce Tree Centre, 1600 University Avenue West, St.
Paul, Minnesota 55104, no later than December , 2009. Pursuant to the rules of
the Securities and Exchange Commission, proxies solicited by management for the
next annual meeting may grant management the authority to vote in its
discretion on any proposal submitted by a shareholder otherwise than through
inclusion in the proxy statement for the meeting, unless we have received
notice of the shareholder proposal at our principal executive offices on or
before March , 2010.
A
NNUAL REPORT TO
SHAREHOLDERS
We
are including with this proxy statement our Annual Report to Shareholders for
the year ended December 31, 2008, which incorporates our Annual Report on Form
10-K less certain exhibits. Shareholders may request a complete copy of our
Annual Report on Form 10-K for fiscal 2008 with exhibits, as filed with the
Securities and Exchange Commission, by writing to Image Sensing Systems, Inc.,
500 Spruce Tree Centre, 1600 University Avenue West, St. Paul, Minnesota 55104,
Attention: Chief Financial Officer.
O
THER MATTERS
We
know of no matters other than those that are described in this proxy statement
to come before the 2009 annual meeting of shareholders. However, if any other
matters are properly brought before the meeting, one or more persons named in
the enclosed proxy card or their substitutes will vote in accordance with their
best judgment on such matters.
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/s/ James
Murdakes
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James
Murdakes
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Chairman of the Board
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Dated: April , 2009
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IMAGE SENSING SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, May 20, 2009
3:30 p.m. Central Time
Embassy Suites
175 E. 10th St.
St. Paul, Minnesota 55101
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FOLD AND DETACH HERE AND READ THE REVERSE SIDE
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PROXY
IMAGE SENSING SYSTEMS, INC.
This proxy is solicited on behalf of the Board of Directors
The undersigned, having received the Notice of Annual Meeting and Proxy Statement dated April __, 2009, revoking any proxy previously given, hereby appoint(s) Kenneth R. Aubrey and Gregory R. L. Smith as proxies (each with the power to act alone and with the power of substitution and revocation) to represent the undersigned and to vote, as designated on the reverse side, all shares of common stock of Image Sensing Systems, Inc. which the undersigned is entitled to vote at the Annual Meeting of Shareholders to be held at 3:30 p.m. Central Time on Wednesday, May 20, 2009 at the Embassy Suites, 175 E. 10th St., St. Paul, Minnesota, and at any adjournment or postponement thereof.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
See reverse side for voting instructions.
Table of Contents
/
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
/
This proxy, when properly executed, will be voted as directed by the undersigned. If no direction is given, this proxy will be voted FOR all nominees for director, FOR approval of a stock option exchange program, FOR the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the 2009 fiscal year, and in the discretion of the named proxies on all other matters.
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Please mark
your votes
like this
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x
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1.
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Election of directors:
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FOR all nominees
listed below
(except as
specified below).
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WITHHOLD
AUTHORITY
to vote for
all
nominees listed below.
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(Instructions: To withhold authority to vote for any indicated nominee, strike a line through that nominees name in the list to the left)
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2.
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To approve a stock option exchange program.
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FOR
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AGAINST
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ABSTAIN
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01 Kenneth R. Aubrey
02 James W. Bracke
03 Michael G. Eleftheriou
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04 Panos G. Michalopoulos
05 James Murdakes
06 Sven A. Wehrwein
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3.
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To ratify the appointment of Grant Thornton LLP as the independent registered public accounting firm of the company for 2009.
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FOR
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AGAINST
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ABSTAIN
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COMPANY ID:
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PROXY NUMBER:
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ACCOUNT NUMBER:
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PLEASE DATE AND SIGN name(s) exactly as shown on this proxy card. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.
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