|
|
|
|
|
*
|
Less than one percent.
|
|
|
(1)
|
Based on 4,912,619 shares outstanding as of March 21, 2012.
|
|
|
(2)
|
We have relied upon the information supplied by Austin W. Marxe and
David M. Greenhouse in a Form 4 filed with the Securities and Exchange
Commission (SEC) on January 4, 2012. 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 February 10, 2012.
|
|
|
(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 23, 2012.
|
|
|
(5)
|
We have relied upon the information supplied by Mackenzie Financial
Corp. in a Schedule 13G it filed with the SEC on February 14, 2012.
|
|
|
(6)
|
We have relied upon the information supplied by FMR LLC in a Schedule
13G it filed with the SEC on February 14, 2012.
|
|
|
(7)
|
Includes shares issuable pursuant to options exercisable as of or
within 60 days after March 21, 2012: for Mr. Aubrey, 85,500 shares; for Mr.
Smith, 38,500 shares; for Mr. Skites, 3,750 shares; for Mr. Bracke, 26,000
shares; for Mr. Doyle, 6,000 shares; for Mr. Eleftheriou, 32,000 shares; for
Dr. Michalopoulos, 42,000 shares; for Mr. Murdakes, 16,000 shares; for Mr.
Tufto, 0 shares; for Mr. Wehrwein, 34,000 shares; and for all directors and
executive officers as a group, 283,750 shares.
|
|
|
(8)
|
Includes 304,298 shares held by Transatlantic Emporium &
Technology Exchange LLC, a company controlled by Dr. Michalopoulos.
|
Table of Contents
P
ROPOSAL 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 five nominated directors. Proxies will be voted FOR
the election of the five 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 16, 2012.
Kenneth R. Aubrey,
age 63, was appointed as President in January 2007 and as Chief Executive
Officer in May 2007. He has been a director since 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
64, has been a director since 2009. Mr. Bracke was named Chairman of the Board
in September 2011. He is also a member of the Audit Committee and Nominating and Corporate
Governance Committee. 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 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 69, 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
is also the Chairman of the Board for Huntington Medical Research Institute.
Mr. Doyle was Chairman of Intelligent Transportation Society of 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 21 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.
7
Table of Contents
Panos G. Michalopoulos,
age 63, 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, and he has been Professor Emeritus from 2009 to
present. 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 42 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, numerous publications and professional/innovation awards.
Kris Tufto,
age 53,
has been a director since September 2011. Mr. Tufto is also a director of
Sajan, Inc., a publicly-held company. Since 2010, he has been the Chief Revenue
Officer of Code 42 Software, Inc., a provider of computer backup solutions.
From May 2008 to January 2010, he was President and Chief Executive Officer of
MarketingBridge, LLC, a company providing internet connectivity. From April
2005 until April 2008, he served as an executive with or consultant to several
early-stage technology companies. Mr. Tufto was President and Chief Executive
Officer of Jasc Software, Inc., a provider of digital imaging software based in
Eden Prairie, Minnesota, from March 1998 through March 2005. Jasc Software,
Inc. was acquired by Corel Corporation in 2004.
Mr. Tufto 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.
In addition to Mr. Aubrey, the other executive officers of Image
Sensing Systems, Inc. and their biographical information are as follows:
Daniel W. Skites,
age 45, 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 45, 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.
8
Table of Contents
C
ORPORATE
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.
B
oard
Composition and Meetings
Our Board of Directors has determined that five of our seven current
directors are independent directors as defined under the applicable rules of
the SEC and NASDAQ. The five independent directors are James W. Bracke, Kris B.
Tufto, Sven A. Wehrwein, James Murdakes and Panos G. Michalopoulos. 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 ten meetings during 2011 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
2011.
B
oard 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 W. Bracke, has
served in that role since September 2011. James Murdakes served in that role
from February 2002 to September 2011. Our current Chief Executive Officer,
Kenneth R. Aubrey, has served in that role since May 2007.
R
isk 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.
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
9
Table of Contents
posted on our website at www.imagesensingsytems.com. The current
membership of the Committees is described below.
|
|
|
|
|
Audit Committee
(1)
|
|
Compensation and
Stock Option Committee
(1)
|
|
Nominating and Corporate
Governance Committee
|
Sven A. Wehrwein (Chair)
(2)
|
|
Panos G. Michalopoulos
|
|
Panos G. Michalopoulos
(Chair)
|
Kris B. Tufto
|
|
Sven A. Wehrwein
(2)
|
|
James W. Bracke
|
James W. Bracke
|
|
|
|
Sven A. Wehrwein
(2)
|
|
|
|
|
|
|
|
(1)
|
Mr. Bracke was a member of the Audit Committee in 2011 through
September 2011 until Kris B. Tuftos appointment to the Audit Committee. Mr.
Bracke was appointed to the Audit Committee on April 11, 2012. Michael G.
Eleftheriou was a member of the Audit Committee and Chair of the Compensation
and Stock Option Committee throughout 2011 and until his resignation from the
Board on April 10, 2012.
|
|
|
(2)
|
Mr. Wehrwein chose not to stand for re-election to the Board for the
Companys 2012 annual meeting of shareholders.
|
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 current members of the Audit Committee
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 current
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 2011, 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 2011, 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 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 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.
|
10
Table of Contents
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 2011, the Nominating and Corporate Governance
Committee held four meetings.
C
ompensation
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.
E
xecutive
Sessions of the Board
At least twice annually, our independent directors meet in executive
session without any director being present who does not meet the independence
requirements of the listing standards of NASDAQ. During 2011, our independent
directors met two times in executive session.
B
oard 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 2012 annual meeting.
11
Table of Contents
P
olicy 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 2011, 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 $12,000 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. Any special Committees formed by
the Board received $750 for each special Committee meeting attended, with the
Chair receiving an additional $750 for each special Committee meeting attended.
We have kept the director compensation program the same for 2012.
In connection with their initial appointment or election to the Board,
non-employee directors are granted a non-incentive stock option to purchase
shares of our common stock, the number of which is negotiated with each
director, at an exercise price equal to the closing price on the most recent
business day before the grant date. The option shares become exercisable in
three equal installments on each of the first, second and third anniversary of
the date of grant. Additionally, annual awards of 4,000 option shares are
granted to non-employee directors who have not received an initial option grant
within the previous year. All of these grants are made under our 2005 Stock
Incentive Plan.
The following table provides information regarding the compensation
earned by the members of the Board of Directors in 2011, other than
Mr. Aubrey, who receives no compensation for being a director:
D
irector
Compensation 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or
Paid in Cash
(1)
($)
|
|
Stock Option
Awards
(2)
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
James Murdakes
(3)
|
|
|
$
|
21,836
|
|
|
|
$
|
11,320
|
|
|
|
|
|
|
$
|
33,156
|
|
|
James W. Bracke
|
|
|
$
|
29,750
|
|
|
|
$
|
11,320
|
|
|
|
|
|
|
$
|
41,070
|
|
|
Michael C. Doyle
|
|
|
$
|
14,000
|
|
|
|
$
|
68,200
|
|
|
|
|
|
|
$
|
82,200
|
|
|
Michael G. Eleftheriou
(3)
|
|
|
$
|
30,500
|
|
|
|
$
|
11,320
|
|
|
|
|
|
|
$
|
41,820
|
|
|
Kris B. Tufto
|
|
|
$
|
7,500
|
|
|
|
$
|
74,617
|
|
|
|
|
|
|
$
|
82,117
|
|
|
Panos G. Michalopoulos
|
|
|
$
|
29,750
|
|
|
|
$
|
11,320
|
|
|
|
|
|
|
$
|
41,070
|
|
|
Sven A. Wehrwein
(3)
|
|
|
$
|
35,996
|
|
|
|
$
|
11,320
|
|
|
|
|
|
|
$
|
47,316
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists of fees earned for and paid in 2011, and fees earned for
2011 to be paid in 2012.
|
|
|
|
(2)
|
Represents the grant date fair value of stock 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 13 - Shareholders Equity in our Annual
Report on Form 10-K for the year ended December 31, 2011 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, 2011, the aggregate number of shares subject to option awards
outstanding and held by each non-employee director was as follows:
Mr. Murdakes16,000; Mr. Bracke26,000; Mr. Doyle18,000;
Mr. Eleftheriou34,000; Mr. Tufto18,000;
Dr. Michalopoulos42,000; and Mr. Wehrwein34,000.
|
|
|
|
(3)
|
Mr. Murdakes and Mr. Wehrwein chose not to stand for re-election to
the Board for the Companys 2012 annual meeting of shareholders. Mr.
Eleftheriou resigned from the Board, effective April 10, 2012.
|
12
Table of Contents
Each director
is reimbursed by the Company for his actual out-of-pocket expenses, for
telephone, travel and miscellaneous items incurred on behalf of the Company.
13
Table of Contents
E
XECUTIVE
COMPENSATION
Compensation Discus
sion
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 2011, our named executive officers were Kenneth R. Aubrey, our
President and Chief Executive Officer, Gregory R. L. Smith, our Chief Financial
Officer, and Mr. Daniel W. Skites, our Vice President of Sales and Marketing
(the Named Executive Officers).
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
approve their compensation. Mr. Skites compensation program was set by Mr.
Aubrey, the Chief Executive Officer, in consultation with the Board.
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 and the Board believe it is important, when making their
compensation-related decisions, to be informed as to current practices of
similarly situated companies, but they do not rely on any specific comparator
group in making compensation decisions. The Committee and the Board do not
engage in benchmarking compensation against comparator groups, and they have
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 Named Executive Officers
The Committee and the Board have designed the compensation program for
the Named Executive Officers 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 Named Executive Officer based upon corporate performance as well as
the performance of that Named Executive Officer.
The compensation program for Messrs. Aubrey and Smith includes the
following elements: base salary, annual cash incentives, stock option grants
and other benefits. We characterize the annual cash incentives and the stock
options as performance-based compensation. Our executive compensation policy
for Messrs. Aubrey and Smith provides that a significant portion of the total
compensation payable to them will be in the form of performance-based
14
Table of Contents
compensation. We do not have a target for each element of
performance-based compensation relative to total compensation. 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 and the Board consider
historic individual and corporate performance, level of responsibility and
market and competitive data. The Committee establishes base salaries for
Messrs. Aubrey and Smith at a level such that a significant portion of the
total compensation that they can earn is performance-based cash incentives and
equity awards.
Annual Cash Incentive
.
As part of our executive compensation program, Messrs. Aubrey and Smith 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. The Committee historically has
reviewed and determined 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),
international operations revenue and operating profit. Additionally, the
performance of each of Messrs. Aubrey and Smith is judged on success in
achieving certain strategic and operational initiatives. In evaluating their
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 the Companys performance. The
Committee also evaluates 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 2011 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 2011 of 20,000 and 10,000 shares, respectively.
Mr. Skites did not receive any option grants in 2011.
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.
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
15
Table of Contents
disability insurance plans available to all employees. In addition,
Named Executive Officers may upon joining the Company receive assistance in
relocating. For more detailed information regarding benefits and perquisites
provided to our Named Executive Officers, see the Summary Compensation Table
included elsewhere in this proxy statement.
2012 Compensation Program
.
For 2012, the Compensation and Stock Option Committee has not yet set base
salaries or annual cash incentive tiers for Messrs. Aubrey and Smith. The
annual cash incentive program components for Messrs. Aubrey and Smith are
expected to be similar in amount and nature to the programs components adopted
in 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 Messrs. Aubrey and Smith. The Board, with the
non-independent members abstaining, approves the compensation of Messrs. Aubrey
and Smith. The Committee determines its recommendations regarding the
compensation plan for each of Mr. Aubrey and Mr. Smith based on major goals and
objectives established by the Board of Directors. The Committee also receives
input from our Chief Executive Officer regarding a Named 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 and the Board consider tax and accounting issues
in connection with their compensation decisions, those have not become material
factors in their compensation decisions to date.
Com
pensation 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, 2011.
|
|
|
By the
Compensation and Stock Option Committee
|
|
|
|
Panos G.
Michalopoulos
|
|
Sven A.
Wehrwein
|
16
Table of Contents
Summa
ry
Compensation Table - 2011 and 2010
The following table sets forth information about compensation awarded
to, earned by or paid to our Named Executive Officers during 2011 and 2010.
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|
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|
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
(1)
($)
|
|
Non-Equity
Incentive
Plan
Compensation
(2)
($)
|
|
All Other
Compensation
(3)
($)
|
|
Total
($)
|
|
Kenneth R. Aubrey
|
|
2011
|
|
$
|
260,000
|
|
$
|
|
|
$
|
94,200
|
|
$
|
|
|
$
|
5,000
|
|
$
|
359,200
|
|
Chief Executive Officer and President
|
|
2010
|
|
$
|
245,000
|
|
$
|
|
|
$
|
180,000
|
|
$
|
76,000
|
|
$
|
5,000
|
|
$
|
506,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory R. L. Smith
|
|
2011
|
|
$
|
180,000
|
|
$
|
|
|
$
|
47,100
|
|
$
|
8,750
|
|
$
|
5,000
|
|
$
|
240,850
|
|
Chief Financial Officer
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|
2010
|
|
$
|
175,000
|
|
$
|
|
|
$
|
60,000
|
|
$
|
39,000
|
|
$
|
5,000
|
|
$
|
279,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel W. Skites
|
|
2011
|
|
$
|
173,500
|
|
$
|
48,700
(4)
|
|
$
|
|
|
$
|
|
|
$
|
39,100
|
|
$
|
261,300
|
|
Vice President, Sales and Marketing
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|
2010
|
|
$
|
28,700
|
|
$
|
34,700
(5)
|
|
$
|
59,700
|
|
$
|
|
|
$
|
|
|
$
|
123,100
|
|
|
|
|
|
|
(1)
|
Consists of the grant date fair value of stock option awards during
each year determined pursuant to ASC Topic 718. Refer to Note 13 -
Shareholders Equity and Note 14 - Equity and Stock Options in our Annual
Reports on Form 10-K for the years ended December 31, 2011 and 2010,
respectively, 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)
|
For Mr. Aubrey and Mr. Smith, consists of awards made for 2011 and
2010 pursuant to the incentive plan component of their employment agreements.
As requested by Mr. Aubrey, the Compensation and Stock Option Committee made
no determination as to his potential bonus for 2011, and any funds that would
have been allocated to his bonus were made available for the general bonus
pool for distribution to non-executive employees.
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(3)
|
For Mr. Aubrey and Mr. Smith, consists of Company matches paid into
their 401(k) plan accounts. For Mr. Skites, consists of a $5,000 Company match
paid into his 401(k) plan account and $34,100 of perquisites and tax
reimbursements resulting from an overseas assignment.
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(4)
|
Consists of a guaranteed bonus.
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(5)
|
Consists of a $22,500 signing bonus and a $12,200 guaranteed bonus.
|
17
Table of Contents
G
rants of
Plan-Based Awards - 2011
In the following table, we have provided information regarding
non-equity incentive plan awards and regarding stock option awards under our
2005 Stock Incentive Plan made to Messrs. Aubrey and Smith for 2011. Under the
terms of his employment agreement, Mr. Skites did not participate in the
non-equity incentive plan for 2010 or 2011, he was not granted a stock option
award for 2011, and thus he is not included in the table.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
Estimated
Future Payouts Under Non-Equity Incentive Plan Awards
(1)
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
|
|
Exercise
or Base
Price of
Option
Awards
($/Sh)
|
|
Grant Date
Fair Value
of Stock
and Option
Awards
(2)
|
|
|
|
|
|
|
Threshold($)
|
|
Target($)
|
|
Maximum($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth R. Aubrey
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|
|
4/5/11
|
|
|
$
|
36,000
|
|
|
|
$
|
72,000
|
|
|
|
$
|
108,000
|
|
|
|
|
20,000
(3)
|
|
|
|
$
|
13.50
|
|
|
|
$
|
94,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory R. L. Smith
|
|
|
4/5/11
|
|
|
$
|
18,000
|
|
|
|
$
|
36,000
|
|
|
|
$
|
54,000
|
|
|
|
|
10,000
(3)
|
|
|
|
$
|
13.50
|
|
|
|
$
|
47,100
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the range of awards under the incentive component for 2011
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 2011 are set
forth in the Non-Equity Incentive Plan Compensation column of the Summary
Compensation Table - 2011 and 2010 above.
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(2)
|
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)
|
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.
|
O
utstanding
Equity Awards at Fiscal Year-End - 2011
In February 1995, we adopted the 1995 Long-Term Incentive and Stock
Option Plan (the 1995 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 1995 Plan.
Only incentive stock options and non-qualified stock options have been granted
to date under the 1995 Plan and the 2005 Stock Incentive Plan. Options granted
to employees under the 1995 Plan and the 2005 Stock Incentive Plan generally
vest over three to five years based on service and have a contractual term of
six to ten years. As of December 31, 2011, there were options outstanding under
the 1995 Plan and the 2005 Stock Incentive Plan to purchase 535,333 shares with
a weighted average exercise price per share of $9.58.
18
Table of Contents
In the following table, we have provided information regarding
outstanding stock option awards held at December 31, 2011 by the Named
Executive Officers.
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|
|
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|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
Option
Exercise Price
($)
|
|
Option
Expiration
Date
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
|
|
Kenneth R. Aubrey
|
|
|
25,000
|
|
|
25,000
|
(1)
|
$
|
9.22
|
|
|
6/22/2015
|
|
|
|
|
13,500
|
|
|
4,500
|
(2)
|
$
|
12.37
|
|
|
3/27/2014
|
|
|
|
|
10,000
|
|
|
10,000
|
(3)
|
$
|
8.89
|
|
|
6/5/2015
|
|
|
|
|
7,500
|
|
|
22,500
|
(4)
|
$
|
12.75
|
|
|
3/8/2016
|
|
|
|
|
|
|
|
20,000
|
(5)
|
$
|
13.50
|
|
|
4/5/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory R. L. Smith
|
|
|
11,500
|
|
|
12,000
|
(1)
|
$
|
9.22
|
|
|
6/22/2015
|
|
|
|
|
6,750
|
|
|
2,250
|
(2)
|
$
|
12.37
|
|
|
3/27/2014
|
|
|
|
|
4,000
|
|
|
5,500
|
(3)
|
$
|
8.89
|
|
|
6/5/2015
|
|
|
|
|
2,500
|
|
|
7,500
|
(4)
|
$
|
12.75
|
|
|
3/8/2016
|
|
|
|
|
|
|
|
10,000
|
(5)
|
$
|
13.50
|
|
|
4/5/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel W. Skites
|
|
|
3,750
|
|
|
11,250
|
(6)
|
$
|
11.19
|
|
|
11/5/2016
|
|
|
|
|
|
|
|
|
(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.
|
|
|
(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.
|
|
|
(4)
|
Options vest
in annual installments of 25% for four years beginning on March 8, 2011.
|
|
|
(5)
|
Options vest
in annual installments of 25% for four years beginning on April 5, 2012.
|
|
|
(6)
|
Options vest
in annual installments of 25% for four years beginning on November 5, 2011.
|
O
ption Exercises
and Stock Vested - 2011
On August 8, 2011, Mr. Gregory R. L. Smith exercised an option to
purchase 500 shares of our common stock at an exercise price of $8.89 per share
at no gain. There were no other stock options exercised by the Named Executive
Officers in 2011. 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
19
Table of Contents
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 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:
|
|
|
|
|
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;
|
|
|
|
|
|
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;
|
|
|
|
|
|
a sale of
all or substantially all of the assets of our Company; or
|
|
|
|
|
|
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-2011 section of this proxy statement.
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 adjustment by management in its sole and absolute discretion. In July 2011,
his annual salary was adjusted to $175,200. He receives insurance and other
20
Table of Contents
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 he received a $22,500 signing
bonus and a $12,200 guaranteed 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-2011 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 upon termination of employment under the specified
circumstances. The amounts shown assume that the termination was effective as
of December 31, 2011, 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
Named Executive Officers respective employment agreement, and if the Named Executive Officer voluntarily
terminates his employment, we may award, subject to our discretion, a pro-rata
portion of the incentive pay such Named Executive Officer would have received had he remained
employed by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Cash Severance
Payment
|
|
Accrued
Vacation
Pay
|
|
Total
|
|
Kenneth R. Aubrey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement or resignation
|
|
|
$
|
|
|
|
|
$
|
8,250
|
|
|
|
$
|
8,250
|
|
|
Termination without cause
|
|
|
|
260,000
|
|
|
|
|
8,250
|
|
|
|
|
268,250
|
|
|
Termination for cause
|
|
|
|
|
|
|
|
|
8,250
|
|
|
|
|
8,250
|
|
|
Death
|
|
|
|
|
|
|
|
|
8,250
|
|
|
|
|
8,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory R. L. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement or resignation
|
|
|
$
|
|
|
|
|
$
|
13,850
|
|
|
|
$
|
13,850
|
|
|
Termination without cause
|
|
|
|
90,000
|
|
|
|
|
13,850
|
|
|
|
|
103,850
|
|
|
Termination for cause
|
|
|
|
|
|
|
|
|
13,850
|
|
|
|
|
13,850
|
|
|
Death
|
|
|
|
|
|
|
|
|
13,850
|
|
|
|
|
13,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel W. Skites
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement or resignation
|
|
|
$
|
|
|
|
|
$
|
9,875
|
|
|
|
$
|
9,875
|
|
|
Termination without cause
|
|
|
|
|
|
|
|
|
9,875
|
|
|
|
|
9,875
|
|
|
Termination for cause
|
|
|
|
|
|
|
|
|
9,875
|
|
|
|
|
9,875
|
|
|
Death
|
|
|
|
|
|
|
|
|
9,875
|
|
|
|
|
9,875
|
|
|
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.
REL
ATED PERSON TRANSACTIONS AND POLICY
R
elated Person
Transactions
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 Original Econolite Agreement), which expires in
2028. In January 2011, we entered into an agreement granting to Econolite and
its affiliate, Econolite Canada, Inc., the exclusive right to distribute our
RTMS
®
products in Canada. In December 2011, we entered into a modification of
our agreement with Econolite (the Modified Econolite Agreement) to grant to
Econolite the exclusive right to manufacture and distribute our RTMS products
in the United States and Mexico. The terms of the Modified Econolite Agreement
relating to the manufacture and distribution of our RTMS products are
substantially the same as the terms in the Original Econolite Agreement for the
manufacture and distribution of our Autoscope system.
Under these agreements with Econolite, Econolite pays the Company a
royalty on the revenue derived from its sales of the Companys Autoscope system
and, beginning in 2012, the Companys RTMS products. During the year ended
December 31, 2011, Econolite paid $13.0 million in royalties to the Company,
which represented 43% of the Companys 2011 revenue. The Original Econolite
Agreement was negotiated and entered into prior to Mr. Doyles appointment
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 arising from the
Original Econolite Agreement described above involving Mr. Doyle under the
Code because the Company entered into these transactions before Mr. Doyle
became an associate of the Company. The Modified Econolite Agreement terms and
conditions were reviewed and approved by the Board and the Audit Committee in
accordance with the Code.
22
Table of Contents
A
UDIT 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.
A
udit Committee
Report
The Audit Committee of the Board of Directors is currently composed of
the following non-employee directors: Sven A. Wehrwein (Chair), James W. Bracke
and Kris B. Tufto. Mr. Tufto was elected to the Board of Directors in
September 2011 and appointed to serve on the Audit Committee. As part of this
appointment, James W. Bracke resigned from the Audit Committee. Michael G.
Eleftheriou was a member of the Audit Committee throughout 2011 and until his
resignation from the Board on April 10, 2012. Mr. Bracke was appointed to the
Audit Committee on April 11, 2012. The members of the Audit Committee in 2011
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, 2011
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, 2012.
|
|
|
By the Audit
Committee
|
|
|
|
Sven A. Wehrwein,
Chair
|
|
Michael G.
Eleftheriou
|
|
Kris B.
Tufto
|
23
Table of Contents
P
AYMENT OF FEES
TO OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
A
udit 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 $166,040 and
$222,447 for fiscal 2011 and 2010, respectively. The 2010 fees included
services performed in conjunction with our common stock offering and our acquisition
of CitySync Limited.
A
udit-Related
Fees
There were no audit-related fees for fiscal 2011 and 2010.
T
ax Fees
There were no tax-related fees for fiscal 2011 and 2010.
A
ll Other Fees
We paid no other fees to our independent registered public accounting firm
in 2011 or 2010.
P
olicy 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 2011 and 2010 were approved by the Audit Committee
under its pre-approval policies.
24
Table of Contents
P
ROPOSAL 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, 2011. The Audit Committee has appointed
Grant Thornton LLP as our independent registered public accounting firm for the
year ending December 31, 2012.
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, 2012 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 2012
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, 2012. Proxies will be voted FOR ratifying
this appointment unless otherwise specified.
S
HAREHOLDER
PROPOSALS FOR THE 2013 ANNUAL MEETING
Any proposal by a shareholder to be included in our proxy statement for
the 2013 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 18, 2012. 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 2, 2013.
A
NNUAL REPORT TO
SHAREHOLDERS
We are including with this proxy statement our Annual Report to
Shareholders for the year ended December 31, 2011, 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 2011 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 2012 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.
|
|
|
|
|
James W.
Bracke
|
|
Chairman of the Board
|
Dated: April
16, 2012
|
25
Table of Contents
IMAGE
SENSING SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
Friday, May 18, 2012
9:00 a.m. Central Time
Image Sensing Systems, Inc.
500 Spruce Tree Centre
1600 University Ave. W.
St. Paul, Minnesota 55104
|
6
FOLD AND DETACH HERE AND READ
THE REVERSE SIDE
6
|
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 16, 2012, 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 9:00 a.m. Central Time on Friday, May 18, 2012 at the Image Sensing
Systems, Inc., 500 Spruce Tree Centre, 1600 University Ave. W., 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.
26
Table of Contents
|
6
FOLD AND DETACH HERE AND READ
THE REVERSE SIDE
6
|
|
|
|
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 2012
fiscal year, and in the discretion of the named proxies on all other
matters.
|
Please
mark
your votes
like this
|
x
|
|
|
|
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|
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|
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|
|
1.
|
Election of directors:
|
|
FOR all nominees
listed below
(except as
specified below).
|
|
WITHHOLD
AUTHORITY
to vote for all
nominees listed below.
|
2.
|
To ratify the appointment of Grant Thornton LLP as
the independent registered public accounting firm of the company for 2012.
|
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FOR
o
|
AGAINST
o
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ABSTAIN
o
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o
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o
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01
|
Kenneth R. Aubrey
|
04
|
Panos G. Michalopoulos
|
02
|
James W. Bracke
|
05
|
Kris B. Tufto
|
03
|
Michael C. Doyle
|
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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 ____________________________________ Signature _____________________________________ Date
_____________________________________
|
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.
|
27
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