|
|
*
|
Less than
one percent.
|
|
|
(1)
|
Based on
4,880,819 shares outstanding as of March 28, 2011.
|
|
|
(2)
|
We have
relied upon the information supplied by Austin W. Marxe and David M.
Greenhouse in a Schedule 13D/A it filed with the Securities and Exchange
Commission (SEC) on May 10, 2010. The reported shares are held in
discretionary accounts over which Messrs. Marxe and Greenhouse share sole
voting and investment power.
|
|
|
(3)
|
We have
relied upon the information supplied by Rutabaga Capital Management in a
Schedule 13G/A it filed with the SEC on April 18, 2011.
|
|
|
(4)
|
We have
relied upon the information supplied by Nicusa Capital Partners L.P. in a
Schedule 13G/A it filed with the SEC on February 15, 2011.
|
|
|
(5)
|
We have
relied upon the information supplied by FMR LLC in a Schedule 13G it filed
with the SEC on February 14, 2011.
|
|
|
(6)
|
We have
relied upon the information supplied by Mackenzie Financial Corp. in a
Schedule 13G it filed with the SEC on February 22, 2011.
|
|
|
(7)
|
Includes
shares issuable pursuant to options exercisable as of or within 60 days after
March 28, 2011: for Mr. Aubrey, 51,000 shares; for Mr. Smith, 23,750 shares;
for Mr. Bracke, 16,000 shares; for Mr. Eleftheriou, 42,000 shares; for Dr.
Michalopoulos, 52,000 shares; for Mr. Murdakes, 16,000 shares; for Mr.
Wehrwein, 30,000 shares; and for all directors and executive officers as a
group, 230,750 shares.
|
|
|
(8)
|
Includes
294,298 shares held by Transatlantic Emporium & Technology Exchange LLC,
a company controlled by Dr. Michalopoulos.
|
Table of Contents
PROP
OSAL 1 -
ELECTION OF DIRECTORS
The
business and affairs of Image Sensing Systems, Inc. are managed under the
direction of our Board of Directors, which presently is comprised of seven
members. Each of our directors is elected until the next annual meeting of
shareholders and until the directors successor has been elected and qualifies
to serve as a director. All of the nominees presently are members of the Board
of Directors.
The
Board of Directors recommends that you vote FOR election of the seven nominated
directors. Proxies will be voted FOR the election of the seven nominees unless
otherwise specified
.
If
for any reason any nominee shall be unavailable for election to the Board of
Directors, the named proxies will vote for such other candidate or candidates
as may be nominated by the Board of Directors. The Board of Directors has no
reason to believe that any of the nominees will be unable to serve.
The
nominees for election to our Board of Directors provided the following
information about themselves as of April 15, 2011.
Kenneth R. Aubrey
,
age 62, was appointed as President in January 2007 and as Chief Executive
Officer in May 2007. He was elected to the Board of Directors at our annual
meeting of shareholders held in May 2007. From 1995 to 2006, Mr. Aubrey held
various positions with Siemens AG, most recently as a business unit president
of Siemens ITS Division, Industrial Solutions & Services Group. He
concurrently managed Strategic Projects for the ITS Division. Prior to this,
Mr. Aubrey served as a vice president of Strategic Projects for Siemens
Information and Communication Networks Group.
Mr. Aubrey is
qualified to serve on our Board due to his experiences at high technology
companies, including management and technical roles. He also has desirable
experience from living and working in Europe and Asia.
James W. Bracke
, age
63, has been a director since 2009. Mr. Bracke has been the Managing Director
of Green Gas LLC, a medical waste-to-energy company, since January 2009. He has
been the President of Boulder Creek Consulting, LLC, a business and technology
consulting firm, since 2004. From 2004 to 2006, he was Vice President of EPIEN
Medical, Inc., a privately-held medical device company. Mr. Bracke is also a
director of HickoryTech Corporation, a publicly-held company. Mr. Bracke is a
member of the Audit Committee and the Nominating and Corporate Governance
Committee.
Mr. Bracke is
qualified to serve on our Board due to his management, technical and public
company experiences, most significantly his 20 years as President and Chief
Executive Officer of Lifecore Biomedical, Inc., a publicly-held medical device
manufacturer, from 1983 to 2004.
Michael C. Doyle
,
age 68, was named a director in April 2011. Mr. Doyle has been the Chairman and
Chief Executive Officer of Econolite Group, Inc., a traffic control equipment
manufacturer and distributor and parent company to Econolite Control Products,
Inc. since 1978. Prior to this, he was a partner in the public accounting firm
Alexander Grant & Company (a predecessor to Grant Thornton LLP). He has
also been a partner in the law firm of Stone & Doyle since 1978. Mr. Doyle
was also Chairman of ITS America for the 2007-2008 term.
Mr. Doyle is
qualified to serve on our Board due to his extensive knowledge of the traffic
control and intelligent traffic systems markets. He also has a 20 year
association with our company through Econolite Control Products, Inc.s
distribution agreement. Additionally, he has gained desirable management, legal
and financial expertise over his career.
Michael G. Eleftheriou
,
age 66, has been a director since 2002. Mr. Eleftheriou has been the President
of Applied Business & Consulting LLC, a business consulting practice, since
September 2009. He also serves as President of Business Development and M&A
at NJK Holding Corp., an investment firm, and, since August 2010, he has been
7
Table of Contents
Chairman of
the Board of iCelero LLC, a semiconductor and software technology company
focused on the optimization of mobile devices data traffic. In 2008 and 2009,
he was President and Chief Operating Officer of Zomax, Inc., a producer of
software digital media, which was acquired in 2009 by Bertlesmans Arvato
Digital Services. Between 2005 and 2008, he was an executive advisor for the Comvest
Group, an investment fund, and he served as President and Chief Executive
Officer of Catalyst International Inc., a developer of supply chain execution
software and services. Catalyst was acquired by CDC Software, a China.com
company, in Sept 2007. He is chair of the Compensation and Stock Option
Committee and a member of the Audit Committee.
Mr.
Eleftheriou is qualified to serve on our Board due to his experience in senior
executive management and in operational, sales and technology positions with
the companies identified above and with Control Data Corporation, where he
served in a variety of roles, domestically and internationally, from 1968 to
2001, at which point he was the President of Control Data Systems Integration
Services, and he exited the company following its acquisition by British
Telecoms. He also has desirable international and global operations experience.
Panos G. Michalopoulos
,
age 62, is our founder and has been a director since 1984. Dr. Michalopoulos
was a professor in the Department of Civil Engineering at the University of
Minnesota from 1997 to 2009. Dr. Michalopoulos is chair of the Nominating and
Corporate Governance Committee and a member of the Compensation and Stock
Option Committee.
Dr.
Michalopoulos is qualified to serve on our Board due to his long association
with our company and understanding of our business and technology, including
being the Chairman of the Board from our inception in 1984 through 1999 and
serving as Chief Scientific Advisor from 1995 through 2000. He also has more
than 40 years of research, teaching and consulting experience in traffic
engineering operations surveillance and control, and has worked as a traffic
engineer. In addition, Dr. Michalopoulos has significant associations with various
professional organizations that represent the end users of our products.
James Murdakes
, age
78, has been a director since 1994. Mr. Murdakes was elected as Chairman of the
Board in February 2002 and was Chief Executive Officer from April 2002 until
May 2007. He was also President from April 2002 until January 2007. He was
retired from full-time employment beginning in July 2007. Mr. Murdakes is also
a director of Comtrol Corporation, a private corporation providing data
communications products.
Mr. Murdakes
is qualified to serve on our Board due to his long association with our company
and understanding of our business. Additionally, he has experiences in senior
management and marketing positions with numerous companies, most significantly
Control Data Corporation.
Sven A. Wehrwein
,
age 60, has been a director since 2006. Mr. Wehrwein has been an independent
financial consultant to emerging companies since 1999. Mr. Wehrwein is also a
director of SPS Commerce, Inc., Synovis Life Technologies, Inc., Uroplasty,
Inc., and Vital Images, Inc., all of which are publicly-held companies. He also
served on the board of directors of Compellent Technologies, Inc. from 2007
until its acquisition by Dell Inc. in February 2011. Mr. Wehrwein also served as
a director of six mutual funds in the Van Wagoner group in 2005 and 2006. Mr.
Wehrwein is chair of the Audit Committee and is a member of the Nominating and
Corporate Governance Committee and Compensation and Stock Option Committee.
Mr. Wehrwein
is qualified to serve on our Board due to his over 30 years of experience in
investment banking and financial leadership positions which brings capabilities
in financial understanding, strategic planning and auditing expertise. He has
been the chair of audit committees for us and other companies for several
years, gaining broad exposure to audit issues and collaborating with
independent auditors.
In
addition to Mr. Aubrey, the other executive officers of Image Sensing Systems,
Inc. and their biographical information are as follows:
8
Table of Contents
Daniel W. Skites
,
age 44, was appointed as Vice President of Sales and Marketing in November
2010. From August 2007 through October 2010, Mr. Skites held sales and business
development senior management positions at Global Traffic Technologies, LLC, a
privately-held traffic products company that was formed by 3M Companys
divestiture of certain of its traffic assets. Prior to this, he was a Business
Development Manager for 3M Company, a publicly-held conglomerate, within its
traffic division.
Gregory R. L.
Smith
, age 44, was appointed as Chief Financial Officer and Treasurer in
January 2007. From 2002 through 2006, Mr. Smith was Chief Financial Officer of
MQSoftware, Inc., a privately-held software developer. He has prior experience
as a vice president for Digital River, Inc., a publicly-held e-commerce
outsourcing provider, and as a certified public accountant with Ernst &
Young LLP.
9
Table of Contents
CORP
ORATE
GOVERNANCE
Our
Board of Directors and management are dedicated to exemplary corporate
governance. In 2004, we adopted a Code of Ethics and Business Conduct. This
Code is a statement of our high standards for ethical behavior and legal compliance,
and it governs the manner in which we conduct our business. A copy of our Code
of Ethics and Business Conduct can be found on our website at
www.imagesensing.com by clicking on Investor Relations and then on Corporate
Code of Ethics and Business Conduct.
Bo
ard
Composition and Meetings
Our
Board of Directors has determined that five of our seven directors are
independent directors as defined under the applicable rules of the SEC and
NASDAQ. The five independent directors are James W. Bracke, Michael G.
Eleftheriou, James Murdakes, Panos G. Michalopoulos and Sven A. Wehrwein. Each
of the Committees of the Board is composed of only independent directors. In
making the independence determinations, we reviewed all of our directors relationships
with us based primarily on a review of the responses of the directors to
questions regarding employment, business, familial, compensation and other
relationships with us and our management.
We
believe our Board of Directors, taken as a whole, possesses an appropriate
combination of skills and experiences. The majority of our Board members have
experience in operating and advising high-growth technology-based businesses.
Individually, our directors have varied experiences in small and large
publicly-held companies, in the operational areas of engineering, sales,
marketing and finance and in academic and applied settings within the traffic
industry.
The
Board of Directors held nine meetings during 2010 in addition to Board Committee
meetings. Each director attended at least 75% of the total meetings of the
Board and Board Committees on which the director served during 2010.
Bo
ard Leadership
Structure
We
separate the roles of Chief Executive Officer and Chairman of the Board of
Directors. The Company believes that such a separation benefits the Company by
enhancing the opportunities for checks and balances between the Companys
strategies and its objectives and ensuring that a wider selection of
alternative measures are considered. Our current Chairman, James Murdakes, has
served in that role since February 2002, and our current Chief Executive
Officer, Kenneth R. Aubrey, has served in that role since May 2007.
Ri
sk Oversight
The
Board of Directors, in conjunction with management, has identified and
prioritized various enterprise risks, and each prioritized risk is assigned to
a Board Committee or the full Board for oversight. For example, financial risks
are overseen by the Audit Committee; compensation risks are overseen by the
Compensation and Stock Option Committee; Chief Executive Officer succession
planning is overseen by the Governance and Nominating Committee; and strategic,
legal and compliance risks are typically overseen by the full Board. Management
regularly reports on each such risk to the relevant Committee or the Board, and
material risks identified by a relevant Committee are then presented to the
full Board. Additional review or reporting on enterprise risks is conducted as
needed or as requested by the Board or Committee. Coordination of managements
review of risks is performed by the Chief Financial Officer, who reports to the
Chief Executive Officer.
10
Table of Contents
B
oard Committees
Our
Board of Directors conducts its business through meetings of the Board and the
following three Committees: Audit Committee, Compensation and Stock Option
Committee, and Nominating and Corporate Governance Committee. Each of these
Committees has adopted and operates under a written charter. Copies of the charters
are posted on our website at www.imagesensingsytems.com. The current membership
of the Committees is described below.
|
|
|
|
|
Audit Committee
|
|
Compensation and
Stock Option Committee
|
|
Nominating and Corporate
Governance Committee
|
Sven A.
Wehrwein (Chair)
|
|
Michael G.
Eleftheriou (Chair)
|
|
Panos G.
Michalopoulos (Chair)
|
James W.
Bracke
|
|
Panos G.
Michalopoulos
|
|
James W.
Bracke
|
Michael G.
Eleftheriou
|
|
Sven A.
Wehrwein
|
|
Sven A.
Wehrwein
|
Audit
Committee
The
Audit Committee is responsible for the selection and compensation of the
independent registered public accounting firm, and it reviews with the
independent registered public accounting firm the scope of the annual audit,
matters of internal control and procedure and the adequacy thereof, the audit
results and reports and other general matters relating to our accounts,
records, controls and financial reporting. The Audit Committee members meet the
requirements for financial literacy under the applicable rules and regulations
of the SEC and NASDAQ. Our Board of Directors has identified James W. Bracke,
Michael G. Eleftheriou and Sven A. Wehrwein to be audit committee financial
experts as defined in the applicable rules of the SEC. Each member of our Audit
Committee possesses the financial qualifications required of audit committee
members set forth in the rules and regulations of NASDAQ and under the
Securities Exchange Act of 1934. During 2010, the Audit Committee held seven
meetings.
Compensation
and Stock Option Committee
The
Compensation and Stock Option Committee reviews and recommends to the Board of
Directors the compensation guidelines and stock option grants for executive
officers and other key personnel. During 2010, the Compensation and Stock
Option Committee held five meetings. The Committees primary responsibilities
include:
|
|
|
|
|
annually
reviewing and approving corporate goals and objectives relevant to the
compensation of the Companys named executive officers, including its Chief
Executive Officer and Chief Financial Officer, evaluating their performances
in light of those goals and objectives, and subsequently determining their
incentive compensation levels based on this evaluation and other factors
deemed relevant and appropriate by the Committee;
|
|
|
|
|
|
annually
reviewing and determining for our named executive officers, including our
Chief Executive Officer and Chief Financial Officer, their annual base salary
level, their annual incentive opportunity levels, employment agreements,
severance arrangements and change of control agreements/provisions, and
special or supplemental benefits, if any; and
|
|
|
|
|
|
reviewing
and making recommendations to the Board of Directors with respect to
compensation programs and policies, including incentive compensation plans
and equity-based plans.
|
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee recommends new director nominees
to the Board and recommends policy guidelines on corporate governance issues.
During 2010, the Nominating and Corporate Governance Committee held two
meetings.
11
Table of Contents
Com
pensation
Committee Interlocks and Insider Participation
No
executive officer serves as a member of the board of directors or compensation
committee of any entity that has any of its executive officers serving as a
member of our Board of Directors or Compensation Committee.
Exec
utive
Sessions of the Board
At
least twice annually, our independent directors meet in executive session without
any director who does not meet the independence requirements of the listing
standards of NASDAQ being present. During 2010, our independent directors met
more than two times in executive session.
Boar
d Nomination
Process
The
Nominating and Corporate Governance Committee determines the required selection
criteria and qualifications of director nominees based upon our needs at the
time nominees are considered. Directors should possess the highest personal and
professional ethics, integrity and values and be committed to representing the
long-term interests of our shareholders. In evaluating a candidate for
nomination as a director of Image Sensing Systems, Inc., the Nominating and
Corporate Governance Committee considers criteria including business and
financial expertise; where the director resides; experience as a director of a
public company; diversity of background and experience on the Board; and
general criteria such as ethical standards, independent thought, practical
wisdom and mature judgment. The Nominating and Corporate Governance Committee
will consider these criteria for nominees identified by the Nominating and
Corporate Governance Committee, by shareholders, or through some other source.
The Nominating and Corporate Governance Committee does not have a policy that
specifically addresses diversity in its nominating process.
The
Nominating and Corporate Governance Committee will consider qualified
candidates for possible nomination that are submitted by our shareholders.
Shareholders wishing to make such a submission may do so by sending the
following information to the Nominating and Corporate Governance Committee, c/o
Corporate Secretary, at the address indicated on the Notice of Annual Meeting
of Shareholders: (1) name of the candidate and a brief biographical sketch and
resume; (2) contact information for the candidate and a document evidencing the
candidates willingness to serve as a director if elected; and (3) a signed
statement as to the submitting shareholders current status as a shareholder
and the number of shares currently held.
The Nominating and Corporate
Governance Committee conducts a process of making a preliminary assessment of
each proposed nominee based upon the resume and biographical information, an indication
of the individuals willingness to serve and other background information. This
information is evaluated against the criteria set forth above and our specific
needs at that time. Based upon a preliminary assessment of the candidate(s),
those who appear best suited to meet our needs may be invited to participate in
a series of interviews, which are used as a further means of evaluating
potential candidates. On the basis of information learned during this process,
the Nominating and Corporate Governance Committee determines which nominee(s)
to recommend to the Board to submit for election at the next annual meeting.
The Nominating and Corporate Governance Committee uses the same process for
evaluating all nominees, regardless of the original source of the nomination.
No
candidates for director nominations were submitted by any shareholder in
connection with the 2010 annual meeting.
Poli
cy Regarding
Attendance at Annual Meetings
We
encourage, but do not require, our Board members to attend the annual meeting
of shareholders. Last year, all of our directors attended the annual
shareholders meeting.
N
on-Employee
Director Compensation
During
2010, each of our non-employee directors received a $12,000 annual retainer,
$1,000 for each regular Board meeting attended, $750 for each Committee meeting
attended and $500 for each special Board meeting attended. The Chairman of the
Board received an additional $5,000 annual retainer. The Committee chairs
received the following additional annual retainers: Audit Committee - $4,000;
Compensation and Stock Option Committee - $3,000; and Nominating and
Corporation Governance Committee - $3,000. Special Committees
12
Table of Contents
formed by the
Board received $750 for each special Committee meeting attended, with the Chair
receiving an additional $750 for each special Committee meeting attended. We
have kept the director compensation program the same for 2011.
In
connection with their initial appointment or election to the Board, non-employee
directors are granted a non-incentive stock option to purchase shares of our
common stock, the number of which is negotiated with each director, at an
exercise price equal to the closing price on the most recent business day
before the grant date. The option shares become exercisable in three equal
installments on each of the first, second and third anniversary of the date of
grant. Additionally, annual option awards of 4,000 shares are granted to
non-employee directors who have not received an initial option grant within the
previous year. All of these grants are made under our 2005 Stock Incentive
Plan.
The
following table provides information regarding the compensation earned by the
members of the Board of Directors in 2010, other than Mr. Aubrey, who receives
no compensation for being a director, and Mr. Doyle, who did not become a
director until April 2011:
Director Compensation 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or
Paid in Cash
(1)
($)
|
|
Option
Awards
(2)
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
James
Murdakes
|
|
$
|
22,087
|
|
$
|
7,560
|
|
|
|
|
$
|
29,647
|
|
James W.
Bracke
|
|
$
|
23,750
|
|
$
|
7,560
|
|
|
|
|
$
|
31,310
|
|
Michael G.
Eleftheriou
|
|
$
|
30,500
|
|
$
|
7,560
|
|
|
|
|
$
|
38,060
|
|
Panos G.
Michalopoulos
|
|
$
|
25,500
|
|
$
|
7,560
|
|
|
|
|
$
|
33,060
|
|
Sven A. Wehrwein
|
|
$
|
32,746
|
|
$
|
7,560
|
|
|
|
|
$
|
40,306
|
|
|
|
(1)
|
Consists of
fees earned for and paid in 2010, and fees earned for 2010 to be paid in
2011.
|
|
|
(2)
|
Represents
the grant date fair value of option awards during the year determined
pursuant to Financial Accounting Standards Board Accounting Standard
Codification Topic 718,
Compensation
Stock Compensation
(ASC Topic 718). Refer to Note 14 Equity and
Stock Options in our Annual Report on Form 10-K for the year ended December
31, 2010 for a discussion of the assumptions used in calculating the grant
date fair value. There can be no assurance that the amounts reflected in the
table will ever be realized. At December 31, 2010, the aggregate number of
shares subject to option awards outstanding and held by each non-employee
director was as follows: Mr. Murdakes16,000; Mr. Bracke22,000; Mr.
Eleftheriou42,000; Dr. Michalopoulos52,000; and Mr. Wehrwein30,000.
|
EXEC
UTIVE
COMPENSATION
Com
pensation
Discussion and Analysis
Overview
This
compensation discussion describes the material elements of compensation awarded
to, earned by or paid to each of our named executive officers. During 2010, our
named executive officers were Kenneth R. Aubrey, our President and Chief
Executive Officer; Gregory R. L. Smith, our Chief Financial Officer; and Dan
Manor, the Managing Director of ISS Image Sensing Systems Canada Ltd. Mr. Manor
retired from the Company in December 2010. The Board has determined that Mr.
Daniel W. Skites, our Vice President of Sales and Marketing who began
employment in November 2010, is a reporting person under Section 16(a) of the
Securities and Exchange Act of 1934.
13
Table of Contents
Objectives of the Compensation Program
The
Compensation and Stock Option Committee sets the compensation programs for
Messrs. Aubrey and Smith. The independent members of our Board approves their
compensation. Mr. Dan Manor was compensated as provided under his employment
agreement, which was approved by our Board of Directors in connection with our
purchase of the EIS assets in December 2007.
The
primary objective of our various compensation programs is to attract, motivate
and retain key executives and align their compensation with our overall
performance. Our Compensation and Stock Option Committee believes that
incentive, performance-based compensation can be a key factor in motivating
executive performance to maximize shareholder value and align executive
performance with our corporate objectives and shareholder interests. To this
end, the Committee has established a compensation philosophy that includes the
following considerations:
|
|
|
|
|
an emphasis
on performance-based compensation that differentiates compensation results
based upon varying elements of company and individual performance;
|
|
|
|
|
|
a
recognition of both quantitative and qualitative performance objectives based
upon an executive officers responsibilities; and
|
|
|
|
|
|
a mix of
short-term cash and long-term equity-based compensation.
|
The
Committee believes it is important, when making its compensation-related
decisions, to be informed as to current practices of similarly situated
companies, but the Committee does not rely on any specific comparator group in
making compensation decisions. The Committee does not engage in benchmarking
compensation against comparator groups, and it has not established targeted
percentile rankings with respect to total compensation or the specific elements
of compensation for the Companys named executive officers. Members of our
Board of Directors and members of the Committee are experienced in compensation
matters and leverage such experience in addressing compensation matters and
practices.
Design
of the Compensation Program for the Chief Executive and Chief Financial
Officers
The
Committee has designed the compensation program for the Chief Executive Officer
and Chief Financial Officer to achieve the objectives described above, to
ensure market competitiveness and to assure satisfaction of our objective of
providing total executive pay that achieves an appropriate balance of variable
pay-for-performance and at-risk compensation. The compensation program will
reward the officer based upon corporate performance as well as the performance
of that officer.
The
compensation program includes consideration for the following elements: base
salary, annual cash incentives, stock option grants and other benefits. We
characterize the annual cash incentives and the stock options that are granted
to our named executive officers as performance-based compensation. Our
executive compensation policy provides that a significant portion of the total
compensation payable to our named executive officers will be in the form of
performance-based compensation. Although we do not have a target for each
element of compensation relative to total compensation, the following table
shows actual bonus payment amounts relative to total compensation paid for 2010
and 2009 to Messrs. Aubrey and Smith.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive
Officer
|
|
Year
|
|
Actual Total
Compensation
|
|
Actual
Bonus Paid
|
|
Actual Bonus Paid as %
of Total Compensation
|
|
Kenneth R.
Aubrey
|
|
|
2010
|
|
$
|
506,000
|
|
$
|
76,000
|
|
|
15.0%
|
|
|
|
|
2009
|
|
$
|
404,175
|
|
$
|
49,000
|
|
|
12.1%
|
|
Gregory R.
L. Smith
|
|
|
2010
|
|
$
|
279,000
|
|
$
|
39,000
|
|
|
14.0%
|
|
|
|
|
2009
|
|
$
|
244,260
|
|
$
|
24,000
|
|
|
9.8%
|
|
14
Table of Contents
The
elements of our compensation program are described below:
Base
Salaries.
Base salary is an important element of
executive compensation because it provides executives with a fixed level of
regular periodic income. In determining base salaries for our named executive
officers, the Committee considers historic individual and corporate
performance, level of responsibility and market and competitive data. The
Committee establishes base salaries at a level such that a significant portion
of the total compensation that a named executive officer can earn is
performance-based cash incentives and equity awards.
Annual
Cash Incentive.
As part of our executive compensation
program, our executive officers may receive annual cash incentive awards
pursuant to our annual cash bonus program. Targeted bonus amounts are designed
to provide competitive incentive pay and reflect our pay-for-performance
philosophy. For 2010, Messrs. Aubrey and Smith received bonuses of $76,000 and
$39,000, respectively, which amounts represent approximately 70% and 72% of
each executive officers maximum potential bonus. The Committee historically
has reviewed target bonus amounts annually.
Performance
objectives intended to focus attention on achieving key goals are established
at the beginning of each fiscal year. The primary quantitative objective is
achievement of revenue and net income targets set forth in our annual operating
plan established by the Board of Directors. Specifically, these include metrics
such as revenue and net profit (after tax) and international operations revenue
and operating profit. Additionally, each named executive officers performance
is judged on success in achieving certain strategic and operational
initiatives. In evaluating an executives performance, the Committee may
consider other factors in awarding bonuses and may, in its discretion, award as
a discretionary bonus a portion of any bonus amount that is not earned based
upon achievement of the financial metrics described above. The Committee
reviews the individual incentive components of Messrs. Aubreys and Smiths
employment agreements, described below, and evaluates the objective portions
relative to our performance. The Committee also evaluates the subjective,
individual performance goals in determining the total amount of bonus to be
awarded, and has the ability to exercise discretion with respect to this
portion. For Messrs. Aubrey and Smith, up to one-third of the bonus calculation
may be associated with strategic and operational initiatives and, as such, is
considered to be discretionary.
Stock
Option Grants.
Our executive officers also may receive
equity-based incentive compensation under our 2005 Stock Incentive Plan. Grants
under the 2005 Stock Incentive Plan are designed to align a significant portion
of the executive compensation package with the long-term interests of our
shareholders. All stock options granted by the Committee in 2010 to executive
officers vest 25% on each anniversary of the grant date, beginning on the first
anniversary date of the date of grant. This vesting schedule is intended to
require long-term focus on performance for the executive to realize value from
the exercise of stock options. In addition, stock options are generally granted
with an exercise price equal to the closing sale price of the stock the day
before the grant, and they provide no cash benefit if the price of the stock
does not exceed the grant price during the options term. Therefore, for any
value to be derived from an option grant, our performance needs to result in
increased stock price performance and shareholder value over a multi-year
period.
Individual
equity awards historically have been recommended by the Committee based on an
officers current performance, potential for future contribution and
responsibility and market competitiveness. Messrs. Aubrey and Smith received
option grants in 2010 of 30,000 and 10,000 shares, respectively.
Retirement
Plans.
We generally expect executives to plan for and
fund their own retirement. We maintain a 401(k) plan that permits eligible
employees, including our named executive officers, to defer a limited portion
of salary and bonus into any of several investment alternatives. We make
matching contributions equal to 50% of the first 6% of compensation deferred by
employees subject to a maximum annual match of $5,000 and maximums established
under the Internal Revenue Code of 1986. We may also make discretionary
contributions to the 401(k) plan as profit sharing. Payments made to named
executive officers for matching contributions and profit sharing are included
in the Summary Compensation Table below. We do not maintain defined benefit
retirement or senior executive retirement plans or provide post-retirement
medical benefits for our executive officers.
15
Table of Contents
Other
Benefits and Perquisites
. Our executive compensation
program also includes other benefits and perquisites. The named executive
officers participate in company-sponsored group benefit plans such as health,
life and disability insurance plans available to all employees. In addition,
executive officers may upon joining the company receive assistance in
relocating. For more detailed information regarding benefits and perquisites
provided to our executive officers, see the Summary Compensation Table included
elsewhere in this proxy statement.
2011
Compensation Program
. For 2011, the Compensation and
Stock Option Committee set base salaries of $260,000 and $180,000 for Messrs.
Aubrey and Smith, respectively. The annual cash incentive tiers for Messrs.
Aubrey and Smith for threshold/target/superior performance are
$40,000/$80,000/$120,000 and $20,000/$40,000/$60,000, respectively. The annual
cash incentive program components are similar in nature to previous years. The
Committee determines stock option grants, if any, after the year has concluded
and does not have a predetermined formula for making such awards.
Named
Executive Officers Role in Compensation Decisions
The
Committee recommends to the Board of Directors the actual and targeted
compensation of our named executive officers. The Board, with the
non-independent members abstaining, approves the compensation of our executive
officers. The Committee determines its recommendations regarding each named
executive officers compensation plan based on major goals and objectives
established by the Board of Directors. The Committee also receives input from
our Chief Executive Officer regarding an executive officers leadership
capabilities, past performance and potential for future contributions when
making its recommendations on actual and targeted compensation amounts for
named executive officers.
Other
Considerations
Although
the Committee considers tax and accounting issues in connection with its
compensation decisions, those have not become material factors in the
Committees compensation decisions to date.
16
Table of Contents
C
ompensation and
Stock Option Committee Report on Executive Compensation
Notwithstanding
anything to the contrary set forth in any of our previous or future filings
under the Securities Act of 1933 or the Securities Exchange Act of 1934 that
might incorporate future filings by reference, including this proxy statement,
in whole or in part, the following report of the Compensation and Stock Option
Committee shall not be deemed to be incorporated by reference into any such
filings and shall not otherwise be deemed filed under such acts.
We
have reviewed and discussed the foregoing Compensation Discussion and Analysis
with management. Based on our review and discussion with management, we have
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this proxy statement and in our Annual Report on Form
10-K for the year ended December 31, 2010.
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By the
Compensation and Stock Option Committee
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Michael G.
Eleftheriou,
Chair
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Panos G.
Michalopoulos
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Sven A.
Wehrwein
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S
ummary
Compensation Table 2010 and 2009
The
following table sets forth information about compensation awarded to, earned by
or paid to our named executive officers during 2010 and 2009.
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Name and Principal Position
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Year
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Salary
($)
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Option
Awards
(1)
($)
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Non-Equity
Incentive
Plan
Compensation
(2)
($)
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All Other
Compensation
(3)
($)
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Total
($)
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Kenneth R. Aubrey
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2010
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$
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245,000
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$
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180,000
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$
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76,000
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$
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5,000
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$
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506,000
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Chief Executive Officer and President
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2009
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$
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225,000
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$
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126,500
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$
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49,000
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$
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3,675
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$
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404,175
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Dan Manor
(4)
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2010
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$
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190,304
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$
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|
$
|
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$
|
|
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$
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190,304
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Former Managing Director, ISS
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2009
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$
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176,058
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$
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$
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$
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$
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176,058
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Image Sensing Systems
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Canada Ltd.
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|
|
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Gregory R. L. Smith
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2010
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$
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175,000
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$
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60,000
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$
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39,000
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$
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5,000
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$
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279,000
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Chief Financial Officer
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2009
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$
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154,000
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$
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61,260
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$
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24,000
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$
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5,000
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$
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244,260
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(1)
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Consists of
the grant date fair value of option awards during each year determined
pursuant to ASC Topic 718, including, for 2009, the incremental fair value of
options exchanged as part of the shareholder approved option exchange
program. Refer to Note 14 Equity and Stock Options in our Annual Report
on Form 10-K for the year ended December 31, 2010 for a discussion of the
assumptions used in calculating the grant date fair value. There can be no
assurance that the amounts reflected in the table will ever be realized.
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(2)
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Consists of
awards made for 2010 and 2009 pursuant to the incentive plan component of
each named executive officers employment agreement.
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(3)
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Consists of
a company match paid into the 401(k) plan account of the officer.
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(4)
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Mr. Manor
retired from the Company in December 2010.
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17
Table of Contents
G
rants of
Plan-Based Awards 2010
In the
following table, we have provided information regarding non-equity incentive
plan awards and regarding stock option awards made to our named executive
officers in 2010 under our 2005 Stock Incentive Plan.
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All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
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Exercise
or Base
Price of
Option
Awards
($/Sh)
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Grant Date
Fair Value
of Stock
and Option
Awards
(2)
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Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
(1)
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Name
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Grant
Date
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Threshold($)
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Target($)
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Maximum($)
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Kenneth R. Aubrey
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3/8/10
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$
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36,000
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$
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72,000
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$
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108,000
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30,000
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(3)
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$
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12.75
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$
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180,000
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Dan Manor
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Gregory R. L. Smith
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3/8/10
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$
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18,000
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$
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36,000
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$
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54,000
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10,000
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(3)
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$
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12.75
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$
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60,000
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(1)
|
Represents
the range of awards under the incentive component for 2010 of each of the
named executive officers employment agreement. The amounts in these columns
reflect the minimum payment level if an award is achieved, the target payment
level and the maximum payment level under each plan if superior performance
is attained. Amounts actually paid for 2010 are set forth in the Non-Equity
Incentive Plan Compensation column of the Summary Compensation Table 2010
and 2009 above.
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(2)
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Represents
the grant date fair value determined pursuant to ASC Topic 718. Generally,
the grant date fair value is the amount expensed in our financial statements
over the vesting schedule of the stock options. In the case of the exchanged
options, the fair value is the incremental fair value resulting from the
exchange.
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(3)
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Consists of
stock options. The options vest in annual installments of 25% for four years
on each anniversary date of the date of grant, beginning on the first
anniversary date of the date of grant.
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O
utstanding
Equity Awards at Fiscal Year-End 2010
In
February 1995, we adopted the 1995 Long-Term Incentive and Stock Option Plan,
and in April 2005, we adopted the 2005 Stock Incentive Plan, which provide for
the granting of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock awards and performance awards to our
officers, directors, employees, consultants and independent contractors. The
1995 plan expired in February 2005, although its expiration did not affect the
options then outstanding under the plan. Only incentive stock options and
non-qualified stock options have been granted to date under the 1995 plan and
the 2005 plan. Options granted to employees under the plans generally vest over
three to five years based on service and have a contractual term of six to ten
years. As of December 31, 2010, there were options outstanding under the plans
to purchase 463,433 shares with a weighted average exercise price per share of
$9.11.
18
Table of Contents
In
the following table, we have provided information regarding outstanding stock
option awards held at December 31, 2010 by the named executive officers.
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Option Awards
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Number of
Securities
Underlying
Unexercised
Options
(#)
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|
Number of
Securities
Underlying
Unexercised
Options
(#)
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Option
Exercise
Price
($)
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Option
Expiration
Date
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Name
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Exercisable
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Unexercisable
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Kenneth R.
Aubrey
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12,500
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37,500
(1
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)
|
$
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9.22
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6/22/2015
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9,000
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|
9,000
(2
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)
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$
|
12.37
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3/27/2014
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5,000
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15,000
(3
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)
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$
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8.89
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6/5/2015
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|
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30,000
(4
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)
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$
|
12.75
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|
3/8/2016
|
|
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Dan Manor
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gregory R.
L. Smith
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5,500
|
|
|
18,000
(1
|
)
|
$
|
9.22
|
|
|
6/22/2015
|
|
|
|
|
4,500
|
|
|
4,500
(2
|
)
|
$
|
12.37
|
|
|
3/27/2014
|
|
|
|
|
2,500
|
|
|
7,500
(3
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)
|
$
|
8.89
|
|
|
6/5/2015
|
|
|
|
|
|
|
|
10,000
(4
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)
|
$
|
12.75
|
|
|
3/8/2016
|
|
|
|
|
|
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|
(1)
|
Options were
part of the shareholder-approved stock option exchange program and vest in
annual installments of 25% for four years beginning on January 1, 2010.
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|
|
(2)
|
Options vest
in annual installments of 25% for four years beginning on March 27, 2009.
|
|
|
|
(3)
|
Options vest
in annual installments of 25% for four years beginning on June 5, 2010.
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|
|
|
(4)
|
Options vest
in annual installments of 25% for four years beginning on March 8, 2011.
|
O
ption Exercises
and Stock Vested 2010
On
May 10, 2010, Mr. Gregory R. L. Smith exercised an option to purchase 500
shares of our common stock at an exercise price of $9.22 per share when the
market price of our common stock was $12.86 per share, realizing an aggregate
dollar amount of $1,820. There were no other stock options exercised by the
named executive officers in 2010. We currently do not have programs involving
direct or restricted stock grants.
S
tock Options
Under
the terms of our stock incentive plans, if a participants employment with us
terminates by reason of the participants death or disability, then, to the
extent a stock option held by the participant is vested as of the date of death
or disability, the stock option may be exercised by the participant, the legal
representative of the participants estate, the legatee of the participant
under the will of the participant, or the distributee of the participants
estate, whichever is applicable, for a period of one year from the date of
death or disability or until the expiration of the stated term of the stock
option, whichever period is shorter. Any options that are not vested as of the
date of death or termination due to disability will immediately lapse and be of
no further force or effect.
If
a participants employment with us terminates for any reason other than death
or disability or other than for cause, then, to the extent any stock option
held by the participant is vested as of the date of termination, the stock
option may be exercised for a period of 90 days from the date of termination or
until the expiration of the stated term of the stock option, whichever period
is shorter. Any options that are not vested as of the date of termination will
immediately lapse and be of no further force or effect. Upon the termination of
the participants employment by us
19
Table of Contents
for cause, any
and all unexercised stock options granted to the participant will immediately
lapse and be of no further force or effect.
In
the event of a change in control of our company, all stock options held by
executive officers then outstanding and not fully vested will become fully
vested and exercisable in accordance with their terms. For purposes of the
stock option plans under which there are outstanding and not fully vested stock
options, a change in control means the happening of one of the following:
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a public
announcement that any entity has acquired or has the right to acquire
beneficial ownership of 51% or more of the then outstanding shares of common
stock of our company;
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|
|
|
the
commencement of or public announcement of an intention to make a tender or
exchange offer for 51% or more of the then outstanding shares of the common
stock of our company;
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|
|
|
a sale of
all or substantially all of the assets of our company; or
|
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|
the Board of
Directors, in its sole discretion, determines that there has been a
sufficient change in the stock ownership of our company to constitute a
change in control.
|
E
mployment Agreements
Kenneth
R. Aubrey
On
December 12, 2006, we entered into an employment agreement with Kenneth R.
Aubrey providing that Mr. Aubrey served at will as our President from January
15, 2007 through May 31, 2007, at which point Mr. Aubrey assumed the additional
duties of Chief Executive Officer. Under the agreement, Mr. Aubrey initially
was paid an annualized salary of $175,000 through May 31, 2007 and then an
annualized salary of $200,000, subject to adjustment by our Compensation and
Stock Option Committee in its sole and absolute discretion. In 2011, his salary
was adjusted to $260,000 annually. He receives insurance and other benefits in
accordance with our standard employee programs. As provided in our agreement
with Mr. Aubrey, upon commencing employment, we granted Mr. Aubrey an option to
purchase 50,000 shares. In addition, Mr. Aubrey received three weeks vacation
per year on an accrual basis and a relocation allowance not to exceed $15,000,
and he is eligible for any bonus awarded for achieving corporate financial and
strategic objectives as set forth by our Compensation and Stock Option
Committee. If Mr. Aubreys employment is terminated by us without cause, our
agreement with Mr. Aubrey provides that Mr. Aubrey will be entitled to receive
severance pay equal to 12 months salary. We may terminate our agreement with
Mr. Aubrey without paying severance to Mr. Aubrey for cause, which is defined
to include his conviction of, or pleading guilty or no contest to, any felony,
his breach of fiduciary duty involving personal profit, his willful failure or
refusal to perform his duties, or his committing fraud or embezzlement or any
other act of dishonesty against us. Additionally, the agreement provides for
non-equity incentive pay, as more fully described in the Grants of Plan-Based
Awards-2010 section of this proxy statement.
Dan
Manor
On
December 6, 2007, we entered into an employment agreement with Dan Manor
providing that Mr. Manor would serve for three years as the Managing Director
of ISS Image Sensing Systems Canada Ltd. Under the agreement, Mr. Manor
initially was paid an annualized salary of CDN$200,000, and he received
insurance and other benefits in accordance with our standard employee programs.
In addition, Mr. Manor received three weeks vacation per year on an accrual
basis. Mr. Manor retired from the Company, and his employment agreement
terminated, in December 2010.
20
Table of Contents
Daniel
W. Skites
On
October 21, 2010, we entered into an employment agreement with Daniel W. Skites
providing that Mr. Skites will serve at will as our Vice President of Sales and
Marketing beginning no later than November 16, 2010. Under the agreement, Mr.
Skites is paid an annualized salary of $172,000, subject to future adjustment
by management in its sole and absolute discretion. He receives insurance and
other benefits in accordance with our standard employee programs. Under our
agreement with Mr. Skites, upon commencing employment, Mr. Skites was granted an
option to purchase 15,000 shares and received a $22,500 signing bonus. In
addition, Mr. Skites receives three weeks vacation per year on an accrual
basis and is eligible for bonuses as determined by management. If Mr. Skites
employment is terminated within 18 months of a change in control, our agreement
with Mr. Skites provides that he will be entitled to receive severance pay
equal to 12 months salary. Except in the case of a change in control, we may
terminate our agreement with Mr. Skites without paying severance.
Gregory
R. L. Smith
On
December 8, 2006, we entered into an employment agreement with Gregory R. L.
Smith providing that Mr. Smith will serve at will as our Chief Financial
Officer beginning on or about January 15, 2007. Under the agreement, Mr. Smith
initially was paid an annualized salary of $140,000, subject to adjustment by
our Compensation and Stock Option Committee in its sole and absolute
discretion. In 2011, his salary was adjusted to $180,000 annually. He receives
insurance and other benefits in accordance with our standard employee programs.
Under our agreement with Mr. Smith, upon commencing employment, Mr. Smith was
granted an option to purchase 25,000 shares. In addition, Mr. Smith receives
three weeks vacation per year on an accrual basis and is eligible for any
bonus awarded for achieving corporate financial and strategic objectives as set
forth by our Compensation and Stock Option Committee. If Mr. Smiths employment
is terminated by us without cause, our agreement with Mr. Smith provides that
he will be entitled to receive severance pay equal to six months salary. We
may terminate our agreement with Mr. Smith without paying severance to Mr.
Smith for cause, which is defined to include his conviction of, or pleading
guilty or no contest to, any felony, his breach of fiduciary duty involving
personal profit, his willful failure or refusal to perform his duties, or his
committing fraud or embezzlement or any other act of dishonesty against us.
Additionally, the agreement provides for non-equity incentive pay, as more
fully described in the Grants of Plan-Based Awards-2010 section of this proxy
statement.
P
otential
Payments upon Termination of Employment or Change in Control
The
table below reflects the amount of compensation to each of the named executive
officers other than Dan Manor, who was not entitled to payments upon the
termination of his employment, upon termination of employment under the
specified circumstances. The amounts shown assume that the termination was
effective as of December 31, 2010, include amounts earned through that time and
are estimates of the amounts which would be paid out to the executives upon
their termination. The actual amounts to be paid out can be determined only at
the time of actual separation from our company. Additionally, under each
executives respective employment agreement, and if the executive voluntarily
terminates his employment, we may award, subject to our discretion, a pro-rata
portion of the incentive pay such executive would have received had he remained
employed by us.
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|
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|
|
|
Name
|
|
Cash Severance
Payment
|
|
Accrued
Vacation
Pay
|
|
Total
|
|
Kenneth R. Aubrey
|
|
|
|
|
|
|
|
|
|
|
Retirement or resignation
|
|
$
|
|
|
$
|
10,601
|
|
$
|
10,601
|
|
Termination without cause
|
|
|
245,000
|
|
|
10,601
|
|
|
255,601
|
|
Termination for cause
|
|
|
|
|
|
10,601
|
|
|
10,601
|
|
Death
|
|
|
|
|
|
10,601
|
|
|
10,601
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory R.
L. Smith
|
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Retirement or resignation
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$
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$
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12,340
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$
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12,340
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Termination without cause
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87,500
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12,340
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99,840
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Termination for cause
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12,340
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12,340
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Death
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12,340
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12,340
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21
Table of Contents
Other
Post-Employment Payments
We
generally do not provide pension arrangements or post-retirement health
coverage for executive officers or other employees. We do not provide any
nonqualified defined contribution or other deferred compensation plans.
R
ELATED PERSON
TRANSACTIONS AND POLICY
R
elated Person
Transactions
Under
the asset purchase agreement for our EIS asset purchase in December 2007, the
sellers of the EIS assets, consisting of Dan Manor and EIS (which is now known
as Mendon Faydan, Inc. and is controlled by Mr. Manor), had an earn-out
arrangement over approximately three years. The earn-out was based on earnings
from sales of the RTMS line of products that we bought from EIS, less related
cost of revenue and operating expenses, depreciation and amortization, and it
was calculated annually. The earn-out is complete as of December 31, 2010.
Based on the 2008, 2009 and 2010 results for RTMS, Mr. Manor and Mendon Faydan,
Inc. were entitled to receive $1.2 million. $1.5 million and $1.7 million in
earn-out payments, respectively, each of which we paid to them in March of the
following year. The EIS asset purchase agreement was approved by our Board of
Directors.
Michael
C. Doyle was appointed to the Companys Board of Directors on April 5, 2011.
Mr. Doyle is the Chairman of the Board and Chief Executive Officer and owns,
directly or indirectly, substantially all of the equity interest of Econolite
Group, Inc., a traffic control equipment manufacturer and distributor and the
parent company to Econolite Control Products, Inc. (Econolite). The Company
has granted to Econolite the exclusive right to manufacture, market and
distribute the Companys Autoscope® system in North America, Latin and the
Caribbean under the Manufacturing, Distributing and Technology License
Agreement dated June 11, 1991 by and between the Company and Econolite, as
amended (the Econolite Agreement), which expires in 2028. Under the Econolite
Agreement, Econolite pays the Company a royalty on the revenue derived from its
sales of the Companys Autoscope system. During the year ended December 31,
2010, Econolite paid $12.5 million in royalties to the Company, which
represented 40% of the Companys 2010 revenue. The Econolite Agreement was
negotiated and entered into before Mr. Doyle was appointed to the Companys
Board.
R
elated Person
Transaction Policy
The
Companys Code of Ethics and Business Conduct (the Code) requires that the
Companys Board or Audit Committee approve activities that could involve a
conflict of interest if undertaken by an associate, which consists of the
Companys directors, officers, employees and consultants. These transactions
include owning a substantial interest in any competing business or in any
outside distributor or customer that does or seeks to do business with the
Company; providing services to any outside concern that does business with the
Company or competes with the Company; representing the Company in any business
transaction with a person or organization in which associates or their
immediate family have a personal interest or may derive a benefit; or taking
advantage of any business opportunity which may belong to the Company. In
considering these transactions under the Code, the Board or the Audit Committee
would consider and evaluate information regarding the transaction, including
the dollar amounts involved in the transaction. The Board and the Audit
Committee did not consider and evaluate the transactions described above
involving Mr. Manor and Mr. Doyle under the Code because the Company entered
into these transactions before Mr. Manor or Mr. Doyle became an associate of
the Company.
22
Table of Contents
AUD
IT COMMITTEE
REPORT
Notwithstanding anything to the contrary set
forth in any of our previous or future filings under the Securities Act of 1933
or the Securities Exchange Act of 1934 that might incorporate future filings by
reference, including this proxy statement, in whole or in part, the following
report of the Audit Committee shall not be deemed to be incorporated by
reference into any such filings and shall not otherwise be deemed filed under
such acts.
Audit Committee Report
In
2010, the Audit Committee of the Board of Directors was composed of the
following non-employee directors: Sven A. Wehrwein (Chair), James W. Bracke and
Michael G. Eleftheriou. The members of the Audit Committee in 2010 were and now
are independent for purposes of the listing standards of The NASDAQ Capital
Market and the rules of the Securities and Exchange Commission. Our Board of
Directors identified Messrs. Wehrwein, Bracke and Eleftheriou as audit
committee financial experts under the rules of the Securities and Exchange
Commission. The Audit Committee operates under a written charter adopted by the
Board of Directors.
The
Audit Committee oversees Image Sensing Systems, Inc.s financial reporting
process on behalf of the Board of Directors and selects our independent
registered public accounting firm. Management has the primary responsibility
for the financial reporting process, including our system of internal controls.
Our independent registered public accounting firm is responsible for performing
an independent audit of our consolidated financial statements in accordance
with auditing standards generally accepted in the United States and issuing a
report on our financial statements. The Audit Committee discusses with our
independent registered public accounting firm the overall scope and plans for
its audits and meets with our independent registered public accounting firm,
with and without management present, to discuss the results of its
examinations, its evaluations of our internal controls, and the overall quality
of our financial reporting.
In
fulfilling our oversight responsibilities, the Audit Committee has met and held
discussions with management and our independent registered public accounting
firm. The Audit Committee reviewed and discussed the financial statements with
management and our independent registered public accounting firm, including a
discussion of the application of accounting principles generally accepted in
the United States, the reasonableness of significant judgments, and the clarity
of disclosures in the financial statements. The Audit Committee also has
discussed with our independent registered public accounting firm the firms
independence from management, including whether the provision of non-audit
services is compatible with maintaining the firms independence, and matters
required to be discussed by the Statement on Auditing Standards No. 61, as
amended (AICPA,
Professional Standards,
Vol.1. AU section 380), as adopted by the Public Company Accounting Oversight
Board in Rule 3200T. The Audit Committee received the written disclosures and
the letter from the independent accountant required by applicable requirements
of the Public Company Accounting Oversight Board regarding the independent
accountants communications with the Audit Committee concerning independence,
and has discussed with the independent accountant the independent accounts
independence.
Based
on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in Image Sensing Systems, Inc.s
Annual Report on Form 10-K for the fiscal year ended December 31, 2010 filed
with the Securities and Exchange Commission. The Committee has selected Grant
Thornton LLP as our independent registered public accounting firm for the
fiscal year ending December 31, 2011.
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By the Audit
Committee
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Sven A.
Wehrwein,
Chair
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Michael G.
Eleftheriou
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James W.
Bracke
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23
Table of Contents
PAY
MENT OF FEES
TO OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Au
dit Fees
Audit
fees, including aggregate fees for the audit of our annual financial
statements, reviews of our quarterly financial statements and reviews of
filings with the Securities and Exchange Commission, were $222,447 and $135,624
for fiscal 2010 and 2009, respectively. The 2010 fees included services
performed in conjunction with our common stock offering and our acquisition of
CitySync Limited.
Aud
it-Related
Fees
There
were no audit-related fees for fiscal 2010 and 2009.
Ta
x Fees
Tax
fees for tax consulting and tax return preparation were $-0- and $40,723 for
fiscal 2010 and 2009, respectively.
Al
l Other Fees
We
paid no other fees to our independent registered public accounting firm in 2010
or 2009.
Po
licy on Audit
Committee Pre-Approval of Audit and Permissible Non-Audit Services Provided by
Our Independent Registered Public Accounting Firm
The
Audit Committee is responsible for appointing, setting compensation for and
overseeing the work of our independent registered public accounting firm. The
Audit Committee has established a policy for pre-approving the services
provided by our independent registered public accounting firm in accordance
with the auditor independence rules of the Securities and Exchange Commission.
This policy requires the review and pre-approval by the Audit Committee of all
audit and permissible non-audit services provided by our independent registered
public accounting firm and an annual review of the financial plan for audit
fees.
To
ensure that auditor independence is maintained, the Audit Committee annually
pre-approves the audit services to be provided by our independent registered
public accounting firm and the related estimated fees for such services, as
well as the nature and extent of specific types of audit-related, tax and other
non-audit services to be provided by our independent registered public
accounting firm during the year.
As
the need arises, other specific permitted services are pre-approved on a
case-by-case basis during the year. A request for pre-approval of services on a
case-by-case basis must be submitted by our Chief Financial Officer, providing
information as to the nature of the particular service to be provided,
estimated related fees and managements assessment of the impact of the service
on the auditors independence. The Audit Committee has delegated to its Chair
pre-approval authority between meetings of the Audit Committee. Any
pre-approvals made by the Chair must be reported to the Audit Committee. The
Audit Committee will not delegate to management the pre-approval of services to
be performed by our independent registered public accounting firm.
All
of the services provided by our independent registered public accounting firm
in fiscal 2010 and 2009 were approved by the Audit Committee under its
pre-approval policies.
24
Table of Contents
PROPO
SAL 2 -
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, 2010. The Audit Committee has appointed Grant Thornton LLP
as our independent registered public accounting firm for the year ending
December 31, 2011.
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, 2011 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 2011 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, 2011.
Proxies will be voted FOR ratifying this appointment unless otherwise
specified.
SHAREH
OLDER
PROPOSALS FOR THE 2012 ANNUAL MEETING
Any
proposal by a shareholder to be included in our proxy statement for the 2012
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 19, 2011. 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 14, 2012.
ANNU
AL REPORT TO
SHAREHOLDERS
We
are including with this proxy statement our Annual Report to Shareholders for
the year ended December 31, 2010, 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 2010 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.
OTHE
R MATTERS
We know of no
matters other than those that are described in this proxy statement to come
before the 2011 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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James
Murdakes
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Chairman of the Board
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Dated: April
28, 2011
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25
Table of Contents
IMAGE SENSING SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, May 25, 2011
3:30 p.m. Central Time
Embassy Suites
175 E. 10th St.
St. Paul, Minnesota 55101
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▼
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FOLD
AND DETACH HERE AND READ THE REVERSE SIDE
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▼
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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 28, 2011, 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 25, 2011 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
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▼
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FOLD
AND DETACH HERE AND READ THE REVERSE SIDE
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▼
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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 the ratification of the appointment of Grant Thornton LLP
as our independent registered public accounting firm for the 2011 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.
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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2.
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To ratify the appointment of Grant Thornton LLP as
the independent registered public accounting firm of the company for 2011.
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FOR
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AGAINST
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ABSTAIN
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o
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o
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o
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o
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o
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01 Kenneth R. Aubrey
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05 Panos G. Michalopoulos
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02 James W. Bracke
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06 James Murdakes
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03 Michael C. Doyle
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07 Sven A. Wehrwein
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04 Michael G. Eleftheriou
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(Instructions: To withhold authority
to vote for any indicated nominee,
strike a line through that nominees name
in the list above.)
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COMPANY ID:
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PROXY NUMBER:
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ACCOUNT NUMBER:
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Signature
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Signature
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Date
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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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