Table of Contents
Image Sensing Systems, Inc.
500 Spruce Tree Centre
1600 University Avenue West
St. Paul, Minnesota 55104
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 13, 2014
TO THE SHAREHOLDERS OF IMAGE SENSING SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Image
Sensing Systems, Inc. will be held at 9:00 a.m. Central Time on Tuesday, May
13, 2014, at Image Sensing Systems, Inc., 500 Spruce Tree Centre, 1600
University Ave. W., St. Paul, Minnesota, for the following purposes:
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1.
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To elect five directors to serve on our Board of Directors.
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2.
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To ratify the appointment of Grant Thornton LLP as our independent
registered public accounting firm for the 2014 fiscal year.
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3.
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To conduct an advisory vote on the compensation of our named
executive officers.
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4.
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To approve the Image Sensing Systems, Inc. 2014 Stock Option and
Incentive Plan.
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5.
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To transact such other business as may properly come before the
meeting.
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The Board of Directors has fixed the close of business on March 14,
2014 as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting.
We encourage you to take part in the affairs of our company either in
person or by executing and returning the enclosed proxy card as promptly as
possible. To ensure that your shares are represented, we request that you sign
and return your proxy card whether or not you plan to attend the meeting.
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BY ORDER OF
THE BOARD OF DIRECTORS,
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Dale E.
Parker
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Chief Operating Officer, Chief Financial
Officer,
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Treasurer and Secretary
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Dated: April
17, 2014
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Table of Contents
We urge you to mark, sign and date the
enclosed proxy and promptly mail it in the enclosed envelope,
which requires no postage if mailed in the United States.
IMPORTANT NOTICE REGARDING THE AVAILABILITY
OF PROXY MATERIALS
FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 13, 2014
This notice, the accompanying proxy statement and the Image Sensing
Systems, Inc. 2013 Annual Report to Shareholders, which includes the Image
Sensing Systems, Inc. Annual Report on Form 10-K for the year ended December
31, 2013, are available at http://www.imagesensingsystems.com.
Table of Contents
PROXY STATEMENT
TABLE OF CONTENTS
i
ii
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PROXY STATEMENT
2014 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 13, 2014
The Board of Directors of Image Sensing Systems, Inc. (the Company)
is soliciting proxies for use at our annual meeting of shareholders to be held
on May 13, 2014, and at any adjournment of the meeting. This proxy statement
and the enclosed proxy card are first being mailed or given to shareholders on
or about April 17, 2014.
QU
ESTIONS AND ANSWERS
ABOUT THE ANNUAL MEETING AND VOTING
What is the purpose
of
the meeting?
At our annual meeting, shareholders will act upon the matters described
in the Notice of Annual Meeting of Shareholders. These consist of the election
of directors, the ratification of the appointment of our independent registered
public accounting firm, the advisory vote on the compensation of our named
executive officers (the say-on-pay vote), and the Image Sensing Systems, Inc.
2014 Stock Option and Incentive Plan. Also, management will report on our
performance during the last fiscal year and respond to questions from
shareholders.
Wh
o is entitled to vote
at the meeting?
The Board of Directors has set March 14, 2014 as the record date for
the annual meeting. If you were a shareholder of record at the close of
business on March 14, 2014, you are entitled to notice of and to vote at the
annual meeting.
As of the record date, 4,978,558 shares of common stock, par value $.01
per share, were issued and outstanding and, therefore, eligible to vote at the
annual meeting.
Wh
at are my voting
rights?
Holders of our common stock are entitled to one vote per share.
Therefore, a total of 4,978,558 votes are entitled to be cast at the meeting.
There is no cumulative voting for directors.
Ho
w many shares must be
present to hold the meeting?
In accordance with our bylaws, shares equal to at least a majority of
the voting power of the outstanding shares of our common stock as of the record
date must be present at the meeting in order to hold the meeting and conduct
business. This is called a quorum. Shares are counted as present at the meeting
if:
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you are
present and vote them in person at the meeting; or
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you have
properly submitted a proxy by mail.
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Ho
w do I vote my
shares?
If you are a shareholder of record, you can give a proxy to be voted at
the meeting by completing, signing and mailing the enclosed proxy card. If you
properly execute, duly return and do not revoke your proxy, it will be voted in
the manner you specify.
Can I v
ote my shares in
person at the meeting?
If you are a shareholder of record, you may vote your shares in person
at the meeting by completing a ballot at the meeting. Even if you currently
plan to attend the meeting, we recommend that you also submit your proxy as
described above so that your vote will be counted if you later decide not to
attend the meeting.
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What vo
te is required
for the election of directors or for a proposal to be approved?
In accordance with Minnesota law, if a quorum is present, the nominees
for election as directors will be elected by a plurality of the votes cast at
the annual meeting. This means that because shareholders will be electing five
directors, the five nominees receiving the highest number of votes will be
elected. The affirmative vote of a majority of the shares of our common stock
present in person or by proxy and entitled to vote at the annual meeting is
required to approve Proposals 2, 3 and 4 (provided that a quorum is present at
the meeting).
How ar
e votes counted?
You may either vote FOR or WITHHOLD AUTHORITY to vote for each
nominee for the Board of Directors. You may vote FOR, AGAINST or ABSTAIN
on Proposals 2, 3 and 4.
If you submit your proxy but abstain from voting or withhold authority
to vote on one or more matters, your shares will be counted as present at the
meeting for the purpose of determining a quorum. Your shares also will be
counted as present at the meeting for the purpose of calculating the vote on
the particular matter with respect to which you abstained from voting or
withheld authority to vote.
If you withhold authority to vote for one or more of the directors,
this has no effect on the election of those directors. If you abstain from
voting on a proposal, your abstention has the same effect as a vote against
that proposal.
If you hold your shares in street name and do not provide voting
instructions to your broker, your shares will be considered to be broker
non-votes and will not be voted on any proposal on which your broker does not
have discretionary authority to vote. Shares that constitute broker non-votes
will be counted as present at the meeting for the purpose of determining a
quorum but will not be represented at the meeting for purposes of calculating
the vote with respect to such matter or matters. This effectively reduces the
number of shares needed to approve such matter or matters.
What is the dif
ference
between a shareholder of record and a shareholder who holds stock in street
name?
If you hold our shares directly in your name with our transfer agent,
Continental Stock Transfer and Trust Company, you are a shareholder of record
(also known as a registered shareholder). The Notice of Annual Meeting, Proxy
Statement, 2013 Annual Report to Shareholders, and proxy card have been sent
directly to you by us or our representative.
If you own your shares indirectly through a broker, bank, or other
financial institution, your shares are said to be held in street name.
Technically, the bank or broker is the shareholder of record with respect to
those shares. In this case, the Notice of Annual Meeting, Proxy Statement,
Annual Report to Shareholders, and a voting instruction form have been
forwarded to you by your broker, bank or other financial institution or its
designated representative. Through this process, your bank or broker collects
the voting instructions from all of their respective customers who hold our
shares and then submits those votes to us.
Because of a change in the rules of The NASDAQ Stock Market (NASDAQ)
effective in 2010, your broker will NOT be able to vote your shares with
respect to the election of directors unless you provide voting instructions to
it. We strongly encourage you to return your voting instruction form and
exercise your right to vote.
What is a b
roker
non-vote?
A broker non-vote occurs when a brokers or banks customer does not
provide the broker or bank with voting instructions on non-routine matters
for shares owned by the customer (sometimes referred to as the beneficial owner)
but held in the name of the broker or bank. For such matters, the broker or
bank cannot vote on behalf of the beneficial owner and reports the number of
such shares as non-votes. By contrast, if a proposal is considered routine,
the broker or bank, in its discretion, may vote any shares as to which it has
not received specific instructions from its customer. Each bank or broker has
its own policies that control whether or not it casts votes for routine
matters.
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Whether the proposal is non-routine or routine is governed by NASDAQ
rules. The election of directors (Proposal 1), the advisory vote on the
compensation of our named executive officers (Proposal 3), and the approval of
the Image Sensing Systems, Inc. 2014 Stock Option and Incentive Plan (Proposal
4) are considered non-routine by NASDAQ; the ratification of our independent
registered public accounting firm (Proposal 2) is considered routine.
What is the eff
ect of
not casting my vote?
Changes in NASDAQ regulations in 2010 eliminated the ability of your
bank or broker to vote your uninstructed shares in the election of directors on
a discretionary basis. Therefore, if you hold your shares in street name and
you do not instruct your bank or broker how to vote in the election of
directors (Proposal 1), the advisory vote on the compensation of our named
executive officers (Proposal 3), or the approval of the Image Sensing Systems,
Inc. 2014 Stock Option and Incentive Plan (Proposal 4), no votes will be cast
on your behalf. Before 2010, if you held your shares in street name and you did
not indicate how you wanted your shares voted in the election of directors,
your bank or broker was allowed to vote those shares on your behalf in the
election of directors as it felt appropriate.
Your bank or broker will, however, continue to have discretion to vote
any uninstructed shares on the ratification of the appointment of the Companys
independent registered public accounting firm (Proposal 2). If you are a
shareholder of record and you do not cast your vote, no votes will be cast on
your behalf on any proposals at the annual meeting.
How does the Board of Direc
tors
recommend that I vote?
The Board of Directors recommends a vote:
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FOR
all of the
nominees for director;
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FOR
the ratification of the appointment of Grant Thornton LLP as our independent
registered public accounting firm for the 2014 fiscal year;
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FOR
the adoption of the resolution approving the compensation of our named
executive officers on an advisory basis; and
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FOR
the approval
of the Image Sensing Systems, Inc. 2014 Stock Option and Incentive Plan.
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What if I do not sp
ecify how I want my shares
voted?
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If you submit a signed proxy card and do not specify how you want to
vote your shares, we will vote your shares:
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FOR
all of the
nominees for director;
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FOR
the ratification of the appointment of Grant Thornton LLP as our independent
registered public accounting firm for the 2014 fiscal year;
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FOR
the adoption of the resolution approving the compensation of our named
executive officers on an advisory basis;
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FOR
the approval of the Image Sensing Systems, Inc. 2014 Stock Option and
Incentive Plan; and
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in the discretion of the persons named in the proxy on any other
proposals that properly come before the meeting and as to which we did not
receive notice before March 16, 2014.
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Can I cha
nge my vote
after submitting my proxy or voting instructions?
Yes. You may revoke your proxy at any time before the proxy vote is
cast at the annual meeting in any of the following ways:
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by giving written notice of revocation to Dale E. Parker, our Chief
Operating Officer, Chief Financial Officer, Treasurer and Corporate
Secretary;
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by
submitting a later-dated proxy; or
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by voting in
person at the meeting.
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Who pa
ys for the cost
of proxy preparation and solicitation?
We pay for the cost of proxy preparation and solicitation.
We are soliciting proxies primarily by mail. In addition, some of our
officers, directors and regular employees may solicit the return of proxies by
telephone, facsimile or personally. These individuals will receive no
additional compensation for these services.
How can I co
mmunicate
with the Board of Directors?
Shareholders may communicate with our Board of Directors by sending a
letter addressed to the Board of Directors or specified individual directors
to:
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The Office
of the Corporate Secretary
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Image
Sensing Systems, Inc.
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500 Spruce
Tree Centre
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1600
University Avenue West
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St. Paul, MN
55104
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Our Corporate Secretary will deliver such letters to a director that
can address the matter, or to a specified director if so addressed.
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SECU
RITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 14, 2014 by (1) each
person or entity known by us to own beneficially more than five percent of our
common stock; (2) each director and nominee for election as a director of Image
Sensing Systems, Inc.; (3) each of our executive officers named in the Summary
Compensation Table below; and (4) all of our directors and executive officers
as a group.
Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange
Commission and includes voting power and investment power with respect to our
securities. Shares of our common stock issuable pursuant to stock options and
convertible securities that are exercisable or convertible as of or within 60
days after March 14, 2014 are deemed outstanding for computing the beneficial
ownership percentage of the person or member of a group holding the options but
are not deemed outstanding for computing the beneficial ownership percentage of
any other person. Except as indicated by footnote, the persons named in the
table below have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The address of each director
and executive officer named below is the same as that of Image Sensing Systems,
Inc.
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Name and
Address of Beneficial Owner
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Amount and Nature of
Beneficial Ownership
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Percent of Common
Stock Outstanding
(1)
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Five
Percent Shareholders
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Austin W. Marxe and David
M. Greenhouse
527 Madison Avenue, Suite 2600
New York, NY 10022
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1,109,646
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(2)
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22.3
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%
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Rutabaga Capital
Management
64 Broad Street
Boston, MA 02109
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497,344
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(3)
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10.0
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%
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Nicusa
Capital Partners L.P.
19 West 34
th
Street
New York, NY 10001
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470,660
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(4)
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9.5
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%
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John H. Lewis
300 Drakes Landing Road, Suite 172
Greenbrae, CA 94904
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481,927
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(5)
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9.7
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%
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FMR LLC
82 Devonshire Street
Boston, MA 02109
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365,685
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(6)
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7.3
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%
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Panos G. Michalopoulos
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343,479
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(7)
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6.9
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%
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Executive
Officers and Directors
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Kris B. Tufto
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30,800
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(8)
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*
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Dale E. Parker
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8,370
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(8)
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*
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James W. Bracke
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37,653
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(8)
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*
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Thomas G. Hudson
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3,729
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(8)
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*
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Paul F. Lidsky
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3,332
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(8)
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*
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All directors and
executive officers as a group (5 persons)
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83,884
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(8)
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1.7
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%
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(1)
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Based on 4,978,558 shares outstanding as of March 14, 2014.
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(2)
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We have relied upon the information supplied by Austin W. Marxe and
David M. Greenhouse in a Schedule 13D/A filed with the Securities and
Exchange Commission (SEC) on February 13, 2014. The reported shares are
held in discretionary accounts over which Messrs. Marxe and Greenhouse share
voting and investment power.
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(3)
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We have relied upon the information supplied by Rutabaga Capital
Management in a Schedule 13G/A it filed with the SEC on February 7, 2014.
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(4)
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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.
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(5)
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We have relied upon the information supplied by John H. Lewis in a
Schedule 13G/A he filed with the SEC on June 7, 2013.
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(6)
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We have relied upon the information supplied by FMR LLC in a Schedule
13G/A it filed with the SEC on February 14, 2012.
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(7)
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Includes 331,479 shares held by Transatlantic Emporium &
Technology Exchange LLC, a company controlled by Dr. Panos G.
Michalopoulos.
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(8)
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Includes shares issuable pursuant to options exercisable as of or
within 60 days after March 14, 2013: for Mr. Tufto, 27,000 shares; for
Mr. Parker, 6,000 shares; for Mr. Bracke, 30,000 shares; for
Mr. Hudson, 0 shares; for Mr. Lidsky, 0 shares; and for all
directors and executive officers as a group, 63,000 shares.
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SECTION 16(a) BE
NEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors and persons who beneficially own more than 10%
of our common stock to file initial reports of ownership and reports of changes
in ownership of our common stock with the Securities and Exchange Commission.
Executive officers, directors and beneficial owners of more than 10% of our
common stock are required by regulations of the Securities and Exchange
Commission to furnish us with copies of all Section 16(a) reports they file.
Based solely on a review of the copies of such forms furnished to us and
written representations from the executive officers and directors, we believe
that all of our executive officers, directors and beneficial owners of more
than 10% of our common stock complied with all Section 16(a) filing
requirements applicable to them for fiscal 2013. However, in January 2014, Mr.
Kris B. Tufto, our President and Chief Executive Officer and a Director, filed
one late report on Form 4 for one transaction, which was filed on the date
after it was due.
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PROPOSAL 1 - EL
ECTION
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
five 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 or until the directors earlier removal, death or
resignation. 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.
James
W. Bracke
, age
66, has been a director since 2009. Mr. Bracke was named Chairman of the
Board in September 2011. He is also chair of the Nominating and Corporate
Governance Committee and a member of the Compensation Committee and Audit
Committee. Mr. Bracke has been the President of National Green Gas LLC, a
medical waste processing company, since January 2009. He has been the President
of Boulder Creek Consulting, LLC, a business and technology consulting firm,
since 2004. 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.
Thomas G.
Hudson
, age 67, has
been a Director since April 2013. Mr. Hudson is chair of the Compensation
Committee and a member of the Audit Committee and Nominating and Corporate
Governance Committee. Since April 2011, Mr. Hudson has been Chief Executive
Officer and a director of Municipal Parking Services, Inc. (MPS), a
development-stage company that provides parking solutions to cities and
municipalities. From May 2008 until October 2010, he served as Chairman and
Chief Executive Officer of Muve, Inc., which produced and marketed a clip-on
device for weight loss that was based on intellectual property licensed from
Mayo Clinic, including software (SaaS) technology. Mr. Hudson has also been
Chief Executive Officer of Global Capacity Group, Inc. and Computer Network Technology
Corporation, or CNT. Since October 2007, he has served as a board member of XRS
Corporation. Earlier in his career, he served for over 25 years in a number of
management positions at IBM Corporation, including General Manager/Vice
President of services, product development, and sales and marketing. Mr. Hudson
previously served on the boards of directors of 20/20 Technologies, Inc., CNT,
McData Corp., Lawson Software, Inc. and Plato Software, Inc. when they were
publicly-held companies, and several private companies.
Mr.
Hudson is qualified to serve on our Board due to his management, technical and
public company experiences working in senior executive positions for both
public and private companies in a variety of industries.
Paul F.
Lidsky
, age 60, has
been a director since June 2013. Mr. Lidsky is Chair of the Audit Committee and
a member of the Compensation Committee and Nominating and Corporate Governance
Committee. Mr. Lidsky was elected as a director of Datalink Corporation in June
1998 and became its President and Chief Executive Officer in July 2009. Mr.
Lidsky was the President and Chief Executive Officer of Calabrio, Inc., from
October 2007 until July 2009. From December 2005 until September 2007, Mr.
Lidsky served as Chief Operating Officer for Spanlink Communications,
Inc. Between 2003 and 2004, Mr. Lidsky was President and Chief Executive
Officer of Computer
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Telephony Solutions. From 2002 to 2003, Mr. Lidsky was
President and Chief Executive Officer of VigiLanz Corporation. From 1997 until
2002, Mr. Lidsky was the President and Chief Executive Officer of OneLink
Communications, Inc. Between 1985 and 1997, Mr. Lidsky was employed by Norstan,
Inc., most recently as Executive Vice President of Strategy and Business
Development.
Mr.
Lidksy is qualified to serve on our Board due to his extensive experience
working in senior executive positions for both public and private companies in
a variety of industries as well as prior service on public company boards.
Kris
B. Tufto
, age
55, was appointed as President and as Chief Executive Officer in October 2012
and as interim President and Chief Executive Officer in August 2012 and has
been a director since September 2011. From February 2010 to March 2012, he was
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. From February 2010 until June 12, 2013, Mr. Tufto was a
director of Sajan, Inc., a publicly-held company.
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.
Dale E.
Parker
, age 62, was
appointed as Chief Operating Officer, Chief Financial Officer and Treasurer in
June 2013. Mr. Parker had been a director since August 2012. Mr. Parker has
also been a director of HickoryTech Corporation, a publicly-held company, since
2006 and served as Chair of HickoryTech Corporations Board of Directors from
January 2011 to May 2013. From 2011 to 2012, he served as interim Chief
Financial Officer (CFO) for Ener1, Inc., an energy storage technology company
that develops lithium-ion-powered storage solutions for application in the
electric utility, transportation and industrial electronics markets. Mr. Parker
worked as CFO of Neenah Enterprises, Inc., an independent foundry, in 2010.
From 2009 to 2010, Mr. Parker was the Vice President of Finance for Paper
Works, a producer of coated recycled paper board. Mr. Parker was CFO at Forest
Resources, LLC, a company focused on paper product production and conversion,
from 2007 to October 2008. Mr. Parker is a Certified Public Accountant.
Mr.
Parker is qualified to serve on our Board due to his extensive experience
working in senior executive positions for both public and private companies in
a variety of industries and his expertise with financial statement preparation
and SEC reporting.
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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 Company, then Investors,
then Investor Resources and then on Corporate Code of Ethics and Business
Conduct.
Board Composit
ion and
Meetings
Our Board of Directors has determined that three of our five current
directors and three of our five nominees are independent directors as defined
under the applicable rules of the SEC and NASDAQ. The three independent
directors of our current Board are James W. Bracke, Thomas G. Hudson and Paul
F. Lidsky. 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 seven meetings during 2013 in addition to
Board Committee meetings. Each director who was a director during 2013 attended
at least 95% of the total meetings held in 2013 of the Board and Board
Committees on which the director served during 2013.
Board Lead
ership
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. Our previous Chairman, James
Murdakes, served in that role from June 2007 to September 2011.
Risk Ov
ersight
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 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.
Board Com
mittees
Our Board of Directors conducts its business through meetings of the
Board and the following three Committees: Audit Committee, Compensation
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.
9
Table of Contents
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Audit Committee
(1)
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Compensation Committee
(2)
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Nominating and Corporate
Governance Committee
(3)
|
Paul F. Lidsky (Chair)
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|
Thomas G. Hudson (Chair)
|
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James W. Bracke (Chair)
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James W. Bracke
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James W. Bracke
|
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Thomas G. Hudson
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Thomas G. Hudson
|
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Paul F. Lidsky
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Paul F. Lidsky
|
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(1)
|
Mr. Parker was Chair of the Audit Committee from August 2012 until
June 21, 2013, when he was appointed as Chief Operating Officer, Chief
Financial Officer and Treasurer of the Company, at which time he stepped down
from the Audit Committee. Mr. Lidsky was appointed as Chair of the Audit
Committee on June 21, 2013.
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(2)
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Mr. Bracke served as Chair of the Compensation Committee until May
30, 2013. Mr. Hudson was appointed Chair of the Compensation Committee on May
30, 2013.
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(3)
|
Panos G. Michalopoulos served as Chair of the Nominating and
Corporate Governance Committee until May 30, 2013, when he chose not to stand
for re-election to the Companys Board of Directors at the Companys 2013
annual meeting of shareholders. Mr. Bracke was appointed Chair of the
Nominating and Corporate Governance Committee on May 30, 2013.
|
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. Each current member of our Audit
Committee possesses the financial qualifications required of audit committee
members under the rules and regulations of NASDAQ and the SEC. Our Board of
Directors has identified James W. Bracke, Thomas G. Hudson and Paul F. Lidsky
to be audit committee financial experts as defined in the applicable rules of
the SEC. During 2013, the Audit Committee held five meetings.
In
January 2013, the Audit Committee established the Special Subcommittee of the
Audit Committee to oversee the Companys internal investigation into alleged
violations of Polish law related to tenders in the City of Łodź,
Poland, as described in our Annual Report on Form 10-K for 2013 and 2012. The
Special Subcommittee is composed of members of the Audit Committee.
Compensation
Committee
The Compensation Committee reviews and recommends to the Board of
Directors the compensation guidelines and stock option grants for executive
officers and other key personnel. During 2013, the Compensation Committee held
three meetings. The Committees primary responsibilities include:
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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;
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annually reviewing and determining for our Chief Executive Officer
and Chief Financial Officer their annual base salary levels, their annual
incentive opportunity levels, employment agreements, severance arrangements
and change of control agreements/provisions, and special or supplemental
benefits, if any; and
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reviewing and making recommendations to the Board of Directors with
respect to compensation programs and policies, including incentive
compensation plans and equity-based plans.
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10
Table of Contents
Nominating and
Corporate Governance Committee
The Nominating and Corporate Governance Committee recommends director
nominees to the Board and recommends policy guidelines on corporate governance
issues. During 2013, the Nominating and Corporate Governance Committee held
three meetings.
Compen
sation Committee
Interlocks and Insider Participation
No executive officer of the Company 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 being present who does not meet the independence
requirements of the listing standards of NASDAQ. During 2013, our independent
directors met seven times in executive session.
Board No
mination 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
nominees resume and biographical information, an indication of the nominees
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 2014 annual meeting.
11
Table of Contents
Policy Rega
rding
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 then elected directors
attended the annual shareholders meeting.
Non-Emplo
yee Director
Compensation
During 2013, each of our non-employee directors received an annual $50,000
retainer, of which $25,000 is paid in cash and $25,000 is paid in the form of a
common stock award grant, with the per share value of the common stock based on
the closing price of the common stock on the grant date of the award.
The Chairman of the Board received an additional $22,500 annual cash retainer.
The Committee Chairs received the following additional annual cash retainers:
Audit Committee - $10,000; Compensation Committee - $7,000; and Nominating and
Corporation Governance Committee - $5,000. Members of the Committees received
the following additional annual cash retainers: Audit Committee - $6,000;
Compensation Committee - $5,000; and Nominating and Corporation Governance
Committee - $4,000. Any special Committees formed by the Board received $750
for each special Committee meeting attended, with the Chair receiving an
additional $750 for each special Committee meeting attended.
The following table provides information regarding the compensation
earned by the members of the Board of Directors in 2013. Mr. Parker
received compensation as a director until June 21, 2013:
Dire
ctor Compensation 2013
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|
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Name
|
|
Fees Earned or
Paid in Cash
(1)
($)
|
|
Stock
Awards
(2)
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
James W. Bracke
|
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$
|
64,127
|
|
$
|
24,983
|
|
|
|
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$
|
89,110
|
|
Thomas G. Hudson
|
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$
|
35,250
|
|
$
|
14,577
|
|
|
|
|
$
|
49,827
|
|
Paul F. Lidsky
|
|
$
|
25,000
|
|
$
|
12,493
|
|
|
|
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$
|
37,493
|
|
Panos G. Michalopoulos
(3)
|
|
$
|
14,920
|
|
$
|
10,405
|
|
|
|
|
$
|
25,325
|
|
|
|
|
|
|
(1)
|
Consists of
fees earned for and paid in 2013.
|
|
|
(2)
|
Represents the grant date fair value of stock 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 11 - Shareholders Equity in our Annual Report on
Form 10-K for the year ended December 31, 2013 for a discussion of the
assumptions used in calculating the grant date fair value.
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(3)
|
Mr. Michalopoulos chose not to stand for re-election to the
Board at the Companys 2013 annual meeting of shareholders held on May 30,
2013.
|
Each director is reimbursed by the Company for his actual out-of-pocket
expenses, including telephone, travel and miscellaneous items incurred on
behalf of the Company.
12
Table of Contents
EXECUTIVE
COMPENSATION
Compensatio
n
Discussion
Overview
This compensation discussion describes the material elements of
compensation awarded to, earned by or paid to each of our named executive
officers. During 2013, our named
executive officers consisted of Kris B. Tufto, our President and Chief
Executive Officer; Dale E. Parker, our Chief Operating Officer, Chief Financial
Officer and Treasurer; and Gregory R. L. Smith, our former Chief Financial
Officer (the Named Executive Officers).
Objectives of the
Compensation Program
The Compensation Committee sets the compensation programs for the Named
Executive Officers. The independent
members of our Board approve their compensation.
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 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:
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|
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an emphasis on performance-based compensation that differentiates
compensation results based upon varying elements of Company and individual
performance;
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a recognition of both quantitative and qualitative performance
objectives based upon an executive officers responsibilities; and
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a mix of short-term cash and long-term equity-based compensation.
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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. 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 a Named Executive Officer based
upon corporate performance as well as the performance of that Named Executive
Officer.
The compensation program for the Named Executive Officers 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 the Named Executive Officers provides that a
significant portion of the total compensation payable to them will be in the
form of performance-based 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
13
Table of Contents
competitive data. The
Committee establishes base salaries for the Named Executive Officers 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, the Named 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. 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. Tufto and Parker 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 the Named Executive Officers
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 the Named Executive Officers, 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 the Image Sensing Systems, Inc. 2005 Stock Incentive Plan (the 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 2013 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 on the trading day before the date of 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. The only equity award granted by the Company
in 2013 was an option to purchase 50,000 shares granted to Mr. Parker.
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 (the Code). We
may also make discretionary contributions to the 401(k) plan. Payments made to Named Executive Officers
for matching contributions 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 Named 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 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.
2014 Compensation Program
. For 2014, the Compensation Committee
recommended and the Board of Directors approved an incentive plan for Kris B.
Tufto, its President and Chief Executive Officer, and Dale E. Parker, its Chief Financial Officer. Under the plan, the participants would receive bonus
award payments equal to 50% of his base
14
Table of Contents
salary if the Companys actual revenue
and operating profit each exceeds the target revenue (the Target Revenue) for
the year ending December 31, 2014. If
the Companys actual revenue for 2014 is equal to or greater than 90% but less
than 100% of Target Revenue, the bonus payments would be determined on a pro
rata basis. Under this part of the incentive program, Mr. Tufto could receive a
bonus ranging from $135,000 to $150,000, and Mr. Parker could receive a bonus
ranging from $103,500 to $115,000. Each
of Mr. Tufto and Mr. Parker will receive an additional bonus payment equal to
50% of his base salary based on the achievement of other specified performance
targets, but only if the Companys actual revenue is equal to or greater than
90% of the Target Revenue. Under this
part of the incentive program, Mr. Tufto could receive a bonus payment ranging
from $49,500 to $150,000, and Mr. Parker could receive a bonus payment ranging
from $37,950 to $115.000.
In February 2014, the Compensation Committee also recommended and the
Board of Directors approved the grant of options to Mr. Tufto and Mr. Parker
under the 2005 Stock Incentive Plan.
Mr. Tufto received options to purchase a total of 50,000 shares of
common stock and Mr. Parker received options to purchase a total of 40,000
shares. Of these options, 50% of the
shares (25,000 shares for Mr. Tufto and 20,000 shares for Mr. Parker) will vest
if the Company achieves the Target Revenue.
However, if the Company achieves at least 90% but less than 100% of the
Target Revenue, the number of shares subject to the options that will vest will
be determined on a pro rata basis. If
the Company does not achieve at least 90% of the Target Revenue, none of these
options will vest. The remaining 50% of
the shares subject to the options will vest as to 25% of such shares on each of
the first, second, third and fourth anniversary dates of the date of grant, so
long as the officer is then an employee of the Company.
2013 Compensation Program.
For 2013, the Compensation Committee
recommended and the Board of Directors approved an incentive cash bonus plan
for 2013 covering six employees of the Company, including Kris B. Tufto, its
President and Chief Executive Officer, and Gregory R. L. Smith, its Chief
Financial Officer. The plan was revised
in July 2013 to include Dale E. Parker.
Under the plan, the participants would receive bonus award payments if
the Companys actual revenue and operating profit each exceeds the target
revenue (the 2013 Target Revenue) and target operating profit for the year
ending December 31, 2013. The amount of
the bonus pool would be equal to 3.5 percent of the difference between actual
revenue and the Target Revenue, assuming that the actual operating profit is
equal to at least approximately 6.3 percent of the actual revenue for 2013. Mr. Tufto was entitled to 22 percent and Mr.
Parker was entitled to 15 percent of the bonus pool. No amounts were paid for 2013 under this program. In addition, on April 12, 2013, the
Companys Compensation Committee recommended and the Board of Directors
approved the payment of a $20,000 retention bonus to Mr. Smith related to the
transition of the Companys Chief Executive Officer in August 2012, which is
included in the Summary Compensation Table included elsewhere in this proxy
statement.
Named Executive
Officers Role in Compensation Decisions
The Committee recommends to the Board of Directors the actual and
targeted compensation of Messrs. Tufto and Parker. The Board, with the non-independent members abstaining, approves
the compensation of Messrs. Tufto and Parker.
The Committee determines its recommendations regarding the compensation
plan for each of Mr. Tufto and Mr. Parker based on major goals and
objectives established by the Board of Directors. The Committee also receives input from our Chief Executive
Officer regarding another 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.
Compensation Commit
tee
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 Committee shall not be deemed to be incorporated by reference into
any such filings and shall not otherwise be deemed filed under such acts.
15
Table of Contents
We have reviewed and discussed the foregoing Compensation Discussion
with management. Based on our review
and discussion with management, we have recommended to the Board of Directors
that the Compensation Discussion be included in this proxy statement and in our
Annual Report on Form 10-K for the year ended December 31, 2013.
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By the
Compensation Committee
|
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|
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Thomas G.
Hudson,
Chair
|
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James W.
Bracke
|
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Paul F.
Lidsky
|
16
Table of Contents
Summary Co
mpensation
Table - 2013 and 2012
The following table sets forth information about compensation awarded
to, earned by or paid to our Named Executive Officers for 2013 and 2012.
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Name and Principal Position
|
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Year
|
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Salary
($)
|
|
Stock
Awards
(1)
($)
|
|
Option
Awards
(2)
$
|
|
Non-Equity
Incentive
Plan
Compensation
(3)
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
Kris B. Tufto
|
|
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2013
|
|
$
|
270,833
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|
$
|
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|
$
|
|
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$
|
50,000
|
|
$
|
5,000
(
|
4)
|
$
|
325,833
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Chief Executive Officer and President
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2012
|
|
$
|
101,500
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|
$
|
|
|
$
|
96,200
|
|
$
|
|
|
$
|
19,750
(
|
5)
|
$
|
217,450
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
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Dale E. Parker
|
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2013
|
|
$
|
121,817
|
|
$
|
12,490
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|
$
|
171,915
|
|
$
|
|
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$
|
63,436
(
|
6)
|
$
|
369,658
|
|
Chief Operating Officer, Chief Financial
Officer and Treasurer
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory R. L. Smith
|
|
|
2013
|
|
$
|
104,712
|
|
$
|
|
|
$
|
|
|
$
|
20,000
|
|
$
|
105,699
(
|
7)
|
$
|
230,411
|
|
Former Chief Financial Officer
|
|
|
2012
|
|
$
|
180,000
|
|
$
|
|
|
$
|
18,300
|
|
$
|
|
|
$
|
5,000
(
|
4)
|
$
|
203,300
|
|
|
|
|
|
|
(1)
|
Consists of the grant date fair value of a stock award granted to Mr.
Parker during his service in 2013 as a non-employee director determined
pursuant to ASC Topic 718. Refer to
Note 11 Shareholders Equity in our Annual Report on Form 10-K for the
year ended December 31, 2013 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)
|
Consists of the grant date fair value of stock option awards during
each year determined pursuant to ASC Topic 718. Refer to Note 11 Shareholders Equity in our Annual Report
on Form 10-K for the year ended December 31, 2013 and Note 12 -
Shareholders Equity in our Annual Report on Form 10-K for the year ended
December 31, 2012 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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(3)
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For Mr. Tufto, consists of an annual bonus payment based on
criteria established by the Board of Directors reported in October 2012. For Mr. Smith, consists of a one-time
discretionary retention bonus related to the transition of the Companys
Chief Executive Officer in August 2012 as described in Executive
Compensation Compensation Discussion Design of the Compensation Program
for the Named Executive Officers 2013 Compensation Program.
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(4)
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Consists of Company matches paid into Mr. Tuftos and Mr. Smiths
401(k) plan accounts.
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(5)
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Mr. Tufto became Interim President and Chief Executive Officer on
August 10, 2012 and was named President and Chief Executive Officer on
October 30, 2012. He earned $19,750
of non-employee director fees for director service prior to his employment,
which are included in the table as All Other Compensation.
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(6)
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Mr. Parker was named the Chief Operating Officer, Chief Financial
Officer and Treasurer on June 25, 2013.
For Mr. Parker, All Other Compensation for 2013 consists of $43,770
for his relocation costs as well as $19,666 of non-employee director fees for
director service prior to his employment.
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(7)
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Mr. Smith was our Chief Financial Officer in 2012 and 2013, serving
until his resignation on June 24, 2013. As provided under the terms of his
employment agreement, the Company agreed to pay Mr. Smith severance in an
amount equal to nine months of his $180,000 annual base salary effective at
the time of his termination of employment, payable ratably over nine months
from the date of his resignation. For Mr. Smith, All Other Compensation for
2013 consists of his severance payment in the amount of $93,346, a vacation
payout in the amount of $10,045, and a $2,308 Company match paid by the
Company into his 401(k) plan account in 2013.
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17
Table of Contents
Grants of Plan-Based Aw
ards - 2013
In the
following table, we have provided information regarding non-equity incentive
plan awards and stock option awards under our 2005 Stock Incentive Plan made to
Mr. Parker for 2013. Messrs. Tufto and
Smith are not included in the table because they did not receive any grants in
2013.
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Name
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Grant
Date
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|
Estimated Future Payouts Under Non-Equity
Incentive Plan Awards
(1)
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All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
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|
Exercise
or Base
Price of
Option
Awards
($/Sh)
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|
Grant
Date
Fair
Value
of Stock
and
Option
Awards
(2)
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Threshold($)
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Target($)
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Maximum($)
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Dale E. Parker
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6/26/13
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$
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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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50,000
(3)
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$
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6.63
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$
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171,915
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(1)
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Represents
the range of awards under the incentive component for 2013 of Mr. Parkers
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 2013 are set forth in the Non-Equity
Incentive Plan Compensation column of the Summary Compensation Table - 2013
and 2012 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.
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(3)
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Consists of
stock options granted under the 2005 Stock Incentive Plan. The options vest in annual installments of
25% of the shares subject to the options for four years on each anniversary
date of the date of grant, beginning on the first anniversary date of the
date of grant.
|
Outstandi
ng
Equity Awards at Fiscal Year-End - 2013
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, 2013, there were options
outstanding under the 1995 Plan and the 2005 Stock Incentive Plan to purchase a
total of 330,750 shares with a weighted average exercise price per share of
$6.73.
18
Table of Contents
In the
following table, we have provided information regarding outstanding stock
option awards held at December 31, 2013 by the Named Executive Officers.
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Option Awards
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Number of
Securities
Underlying
Unexercised
Options
(#)
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|
Number of
Securities
Underlying
Unexercised
Options
(#)
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|
Option
Exercise
Price
($)
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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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Kris B. Tufto
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12,000
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6,000
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(1)
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$
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6.58
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9/21/2021
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2,500
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2,500
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(2)
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$
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5.05
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9/10/2022
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12,500
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37,500
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(3)
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$
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4.77
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10/30/2022
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Dale E. Parker
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6,000
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12,000
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(4)
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$
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5.05
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8/10/2022
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50,000
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(5)
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$
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6.63
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6/26/2023
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(1)
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Options vest in annual installments of 33.3% for three years
beginning on September 21, 2012.
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(2)
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Options vest in annual installments of 50% for two years beginning on
September 10, 2013.
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(3)
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Options vest in annual installments of 25% for four years beginning
on October 30, 2013.
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(4)
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Options vest in annual installments of 33.3% for three years
beginning on August 10, 2013.
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(5)
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Options vest in annual installments of 25% for four years beginning
on June 26, 2014.
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Option E
xercises
and Stock Vested 2013
There were no stock options exercised by the Named Executive Officers
in 2013. We currently do not have
programs involving direct or restricted stock grants for Named Executive
Officers.
Stock
Options
Under the terms of our 1995 Plan and 2005 Stock Incentive Plan 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 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
19
Table of Contents
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.
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20
Table of Contents
Employment
Agreements
Kris B. Tufto
On September 10, 2012, Kris B. Tufto accepted the terms of his
employment as our interim President and Chief Executive Officer. The terms of his employment were set forth
in an offer letter. The offer letter
provided that Mr. Tufto would be a temporary employee, with the term of his
employment expiring on December 31, 2012, subject to the right of our Board of
Directors to terminate his employment at an earlier date at will. The offer letter also provided for an annual
base salary of $260,000 but no benefits.
In connection with Mr. Tuftos appointment as interim President and Chief
Executive Officer, we granted to him a 10-year non-incentive stock option to
purchase 5,000 shares of our common stock at an exercise price of $5.05 per
share, which was equal to the closing price of our common stock on September 7,
2012 as quoted on The NASDAQ Capital Market.
The option becomes exercisable in two equal installments on each of the
first and second anniversary dates of the date of grant.
On October 30, 2012, we entered into an employment agreement with Kris
B. Tufto providing that Mr. Tufto will serve as our President and Chief
Executive Officer effective on October 30, 2012. Under the employment
agreement, Mr. Tufto is paid a base salary of $260,000, and he is eligible to
receive a bonus of up to $50,000. In
December 2013, Mr. Tuftos salary was adjusted to $300,000 annually, effective
January 1, 2014. Mr. Tufto receives
insurance and other benefits in accordance with our standard employee
programs. Mr. Tuftos employment
agreement provides that if his employment is terminated by us without cause, he
would be entitled to 12 months of salary continuation. If we terminate his employment with cause,
which is defined to include his conviction of, or pleading guilty or not
contest to, a felony; his breach of fiduciary duty involving personal profit;
willful and material misconduct in the performance of his assigned duties; or
his illegal or unethical business practices, he would be entitled to no
severance. Mr. Tuftos employment
agreement contains confidentiality, noncompetition and invention assignment
provisions.
Dale E. Parker
On June 25, 2013, we entered into an employment agreement with Dale E.
Parker providing that Mr. Parker will serve as our Chief Operating Officer,
Chief Financial Officer and Treasurer effective June 25, 2013. Under the employment agreement, Mr. Parker
will receive an annual base salary of $200,000, and he is eligible to receive a
bonus up to $27,472.60. Mr. Parker receives insurance and other benefits in
accordance with our standard employee programs. In December 2013 Mr. Parkers salary was adjusted to $230,000
annually, effective January 1, 2014.
Mr. Parkers employment agreement provides that if his employment is
terminated by us without cause, he would be entitled to 12 months of salary
continuation. If we terminate his
employment with cause, which is defined to include his conviction of, or
pleading guilty or not contest to, a felony; his breach of fiduciary duty
involving personal profit; willful and material misconduct in the performance
of his assigned duties; or his illegal or unethical business practices, he
would be entitled to no severance. Mr.
Parkers employment agreement contains confidentiality, noncompetition and
invention assignment provisions.
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 Committee in its sole and absolute discretion. In 2011, his salary was adjusted to $180,000
annually. He received 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
was eligible for any bonus awarded for achieving corporate financial and
strategic objectives as set forth by our Compensation Committee. In connection with Mr. Smiths resignation
on June 24, 2013, and as provided under his amended employment agreement, we
agreed to pay to Mr. Smith total severance of $135,000, which was equal to nine
months of his annual base salary effective at the time of his termination of
employment, payable over nine months.
21
Table of Contents
Potential Payments upon Termination of E
mployment 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, 2013, include amounts
earned through that time and are estimates of the amounts which would be paid
out to our Named Executive Officers upon the termination of their
employment. 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, if the Named Executive Officer
voluntarily terminates his employment, we may award, subject to our discretion,
a pro-rata portion of the incentive pay that such Named Executive Officer would
have received had he remained employed by us.
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|
Name
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|
Cash
Severance
Payment
|
|
Total
|
|
Kris B. Tufto
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|
|
|
|
|
|
|
Retirement or resignation
|
|
$
|
|
|
$
|
|
|
Termination without cause
|
|
|
300,000
|
|
|
300,000
|
|
Termination for cause
|
|
|
|
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|
|
|
Death
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dale E.
Parker
|
|
|
|
|
|
|
|
Retirement or resignation
|
|
$
|
|
|
$
|
|
|
Termination without cause
|
|
|
230,000
|
|
|
230,000
|
|
Termination for cause
|
|
|
|
|
|
|
|
Death
|
|
|
|
|
|
|
|
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.
RELATED PERSON T
RANSACTIONS
AND POLICY
Related Person Transa
ctions
Thomas G. Hudson was appointed to the Companys Board of Directors on
April 12, 2013. He is the Chief
Executive Officer and a member of the Board of Directors of Municipal Parking
Services, Inc. (MPS). In January 2013,
the Company invested $300,000 in MPS in exchange for 150,000 shares of common
stock of MPS, which represents approximately 1 percent of the outstanding
shares of MPS common stock. The
Companys ownership of shares of MPS represents only a passive investment, and
the Company received no other interest in or compensation from MPS in
connection with the investment.
In addition to the MPS stock purchase, in 2013, the Company paid to MPS
a total of $20,097, of which $10,962 was related to the purchase of two parking
meters and $9,135 was related to a shared trade show space. In 2013, the Company billed MPS $22,817 related
to the purchase by MPS of six cameras.
Related Person Transact
ion Policy
The Companys Code of Ethics and Business Conduct (the Ethics 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
22
Table of Contents
opportunity which may belong to the Company. In considering these transactions under the
Ethics 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 MPS investment described above involving
Mr. Hudson under the Ethics Code because the Company entered into these
transactions before Mr. Hudson became an associate of the Company.
23
Table of Contents
AUDIT COMMITTEE REP
ORT
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 Comm
ittee
Report
The Audit Committee of the Board of Directors is currently composed of
the following non‑employee directors: Paul F. Lidsky (Chair), James W.
Bracke and Thomas G. Hudson. Dale E. Parker served as Chair of the Audit
Committee in 2013 until June 21, 2013, when he stepped down and Mr. Lidsky was
appointed as Chair. Panos G. Michalopoulos served as a member of the Audit
Committee in 2013 until May 30, 2013, when Mr. Hudson was appointed to the
Audit Committee. The members of the Audit Committee in 2013 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. Lidsky, Bracke and Hudson 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 Auditing Standards
No. 16,
Communications
with Audit Committee
, as adopted by the Public Company Accounting
Oversight Board. 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,
2013 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, 2014.
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By the Audit
Committee
|
|
|
|
Paul F.
Lidsky,
Chair
|
|
James W.
Bracke
|
|
Thomas G.
Hudson
|
24
Table of Contents
PAYMEN
T OF FEES
TO OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit
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 $139,340 and
$257,220 for fiscal 2013 and 2012, respectively.
Audit‑Rela
ted
Fees
There were no audit‑related fees for fiscal 2013 and 2012.
Tax F
ees
There were no tax‑related fees for fiscal 2013 and 2012.
All Oth
er Fees
We paid no other fees to our independent registered public accounting
firm in 2013 or 2012.
Policy 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 2013 and 2012 were approved by the Audit Committee
under its pre‑approval policies.
25
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, 2013. The Audit Committee has appointed
Grant Thornton LLP as our independent registered public accounting firm for the
year ending December 31, 2014.
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, 2014 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 2014
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, 2014. Proxies will be voted FOR ratifying
this appointment unless otherwise specified.
P
ROPOSAL 3 ADVISORY (NON-BINDING) VOTE ON
THE COMPENSATION PAID
TO OUR NAMED EXECUTIVE OFFICERS
Our
executive compensation program emphasizes performance-based compensation,
recognizes both quantitative and qualitative performance objectives based upon
our executives officers responsibilities, and includes a mix of short-term
cash and long-term equity-based compensation. The annual cash incentives and
the stock options we grant to our Named Executive Officers, which constitute a
significant portion of their total compensation, are performance-based
compensation. We believe that 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.
We
generally do not have separate retirement plans or benefits for our Named
Executive Officers. They may participate in our 401(k) plan in which all
eligible employees may participate. In addition, our Named Executive Officers
participate in Company-sponsored group benefit plans available to all
employees.
We
urge you to read the Compensation Discussion section of this proxy statement
for additional details on our executive compensation, including our
compensation philosophy and objectives and the fiscal 2013 compensation of our
Named Executive Officers. We believe that, viewed as a whole, our compensation
practices and policies are appropriate and fair to both the Company and its executives.
As
provided by the say-on-pay rules, we are asking you to vote on the adoption of
the following resolution:
|
|
|
BE
IT RESOLVED by the shareholders of Image Sensing Systems, Inc. that the
shareholders approve the compensation of the Companys Named Executive
Officers as disclosed pursuant to Item 402 of Regulation S-K in the Companys
proxy statement for the 2014 Annual Meeting.
|
Proxies
will be voted in favor of the resolution unless shareholders specify otherwise
in their proxies and except for broker non-votes. The affirmative vote of at
least a majority of the voting power of the shares present, in person or by
proxy, and entitled to vote (excluding broker non-votes) is required for
advisory approval of our executive compensation. As an advisory vote, this
proposal is non-binding. However, the Board and our Compensation Committee,
which is responsible for designing and overseeing the administration of our
executive compensation program, values the opinions of our shareholders and
will consider the outcome of the vote when making future compensation decisions
for our Named Executive Officers.
The Board
of Directors recommends that you vote FOR the approval of the compensation of
our Named Executive Officers as disclosed in this proxy statement pursuant to
the SECs compensation disclosure rules.
26
Table of Contents
P
ROPOSAL 4 APPROVAL OF THE IMAGE SENSING
SYSTEMS, INC. 2014 STOCK OPTION AND
INCENTIVE PLAN
On
April 9, 2014, the Companys Board of Directors adopted, subject to shareholder
approval, the Image Sensing Systems, Inc. 2014 Stock Option and Incentive Plan
(the 2014 Stock Plan). The purpose of the 2014 Stock Plan is to promote the
growth and general prosperity of the Company by permitting it to grant awards
to employees, officers, members of the Board of Directors, consultants,
independent contractors, and other service providers of the Company, thereby
assisting it in its efforts to attract and retain the best available persons
for positions of substantial responsibility and to provide employees, officers,
members of the Board of Directors, consultants, independent contractors, and
other service providers an additional incentive to contribute, by the
performance of services, to the future success of the Company.
Our
2005 Stock Incentive Plan will expire in May 2015, and we plan to continue to
grant options and other awards under the 2005 Stock Incentive Plan until shares
are no longer available for the grant of awards. As of March 31, 2014, 99,000
shares remained available for awards under the 2005 Stock Incentive Plan.
The
Board believes that the continuation of incentive compensation is essential in
attracting, retaining and motivating individuals to enhance the likelihood of
our future success. Shareholder approval of the 2014 Stock Plan will permit us
to award incentives that achieve these goals.
The
following is a summary of the material terms of the 2014 Stock Plan and is
qualified in its entirety by reference to the 2014 Stock Plan, a copy of which
is attached as Appendix A to this proxy statement.
Summary of
the 2014 Stock Plan
Administration
The
Compensation Committee will administer the 2014 Stock Plan and will have full
power and authority to determine when and to whom awards will be granted and
the type, amount, form of payment and other terms and conditions of each award,
consistent with the provisions of the 2014 Stock Plan. In addition, the
Compensation Committee can determine any restrictions to be placed on common
stock purchased upon exercising an option and whether any specific grants of
awards should include provisions regarding non-solicitation, non-competition,
confidentiality or for cause restrictions. Subject to the provisions of the
2014 Stock Plan, the Compensation Committee may amend or waive the terms and
conditions, or accelerate the exercisability, of an outstanding award. The
Compensation Committee has authority to interpret the 2014 Stock Plan and
establish rules and regulations for its administration. The Board may exercise
the powers of the Compensation Committee at any time, subject to certain
conditions. The Compensation Committee may delegate to one or more of our
officers the authority to grant options, subject to certain conditions and the
terms, conditions and limitations the Compensation Committee may establish. The
Board may exercise the powers and duties of the Compensation Committee under
the 2014 Stock Plan unless the exercise of such powers and duties by the Board
would cause the 2014 Stock Plan not to comply with the requirements of Section
162(m) of the Code.
Eligible
Participants
Any
employee, officer, member of the Companys Board of Directors, consultant,
independent contractors or others providing services to us or any of our
affiliates who is selected by the Compensation Committee is eligible to receive
an award under the 2014 Stock Plan. As of April 16, 2014, approximately 70
employees, officers and directors were eligible to be selected by the
Compensation Committee to receive awards under the 2014 Stock Plan.
Shares
Available For Awards
The
maximum number of shares of our common stock that may be issued under all
stock-based awards made under the 2014 Stock Plan will be 400,000 shares. The
closing price of a share of our common stock as reported on The NASDAQ Capital
Market on April 09, 2014 was $5.19. Certain awards under the 2014 Stock Plan
are subject to limitations on the number of shares that may be awarded, as
follows:
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No
person may be granted options, stock appreciation rights or any other award
under the 2014 Stock Plan in any calendar year, the value of which award is
based solely on an increase in the value of our common stock after the date
of grant of the award, for more than 150,000 shares in the aggregate.
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No
person may receive performance awards in any calendar year for more than $500,000
in value in the aggregate, whether payable in cash, shares or other property.
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The
maximum number of shares subject to the 2014 Stock Plan may be increased by the
Board of Directors or the Compensation Committee, subject to the approval of
our shareholders. In addition, the Compensation Committee may adjust the number
of shares subject to the 2014 Stock Plan and awards already granted under the
2014 Stock Plan and, if appropriate, the per share exercise price of
outstanding awards in the case of a stock dividend, split, reverse split,
reclassification, combination, exchange of common stock or other similar
recapitalization of the Company in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be provided under the 2014 Stock
Plan.
Shares
of our common stock subject to any awards which terminate or expire prior to
exercise by or vesting in a recipient of the award will be available for future
awards under the 2014 Stock Plan. In addition, shares used by award recipients
as payment of the exercise price of an award or in satisfaction of the tax
obligations relating to an award will be available again for award grants.
Change in
Control
Unless
otherwise provided by the Compensation Committee, in the event of a Change in
Control (as that term is defined in the 2014 Stock Plan), the following shall
occur immediately as of the effective date of such Change in Control:
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any
and all awards granted will be, as nearly as may reasonably be, automatically
converted into the same type of award to acquire the kind and amount of
shares of stock or other securities or property (including cash) which the
recipient of the award would have owned or been entitled to receive had the
awards been exercised or realized in full immediately before the effective
date of the Change in Control;
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all
options will become immediately exercisable in full and will remain
exercisable for the remainder of their terms, regardless of whether the
recipients to whom such options have been granted remain in the employ or
service of the Company or any Affiliate (as the term Affiliate is defined
in the 2014 Stock Plan);
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all
outstanding awards of restricted stock and restricted stock units will become
immediately fully vested regardless of whether the recipients to whom such
awards have been granted remain in the employ or service of the Company or
any Affiliate; and
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all
other outstanding awards will vest and/or continue to vest in the manner
determined by the Compensation Committee.
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In
addition, the Compensation Committee has the discretion, exercisable without
the consent of any recipient of an award under the 2014 Stock Plan, if not
prohibited by the applicable agreement, at any time before the effective date
of a Change in Control, to take such further action as it determines to be
necessary or advisable with respect to outstanding awards. Such authorized
action may include establishing, amending or waiving the type, terms,
conditions or duration of, or restrictions on, awards so as to provide for
earlier, later, extended or additional time for exercise; paying cash or other
consideration in exchange for all or part of such awards; and lifting
restrictions and other modifications. The Compensation Committee may take such
actions with respect to all recipients, to certain categories of recipients or
to only individual recipients of awards granted under the 2014 Stock Plan.
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Types of
Awards and Terms and Conditions
The
2014 Stock Plan permits the granting of:
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stock
options (including both incentive stock options (ISOs) intended to qualify
as such as defined in Section 422 of the Code and non-qualified stock
options);
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stock
appreciation rights (SARS);
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restricted
stock and restricted stock units;
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performance
awards of cash, stock or property; and
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other
stock grants.
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Awards
may be granted alone, in addition to, in combination with or in substitution
for, any other award granted under the 2014 Stock Plan or any other
compensation plan.
Stock
Options
. The holder
of an option granted under the 2014 Stock Plan will be entitled to purchase a
number of shares of our common stock at a specified exercise price during a
specified time period, all as determined by the Committee. However, the exercise
price of shares of common stock that are subject to an ISO cannot be less than
100% of the Fair Market Value of such shares at the time the option is granted
(as the term Fair Market Value is defined in the 2014 Stock Plan), and the
exercise price of an ISO granted to an employee of the Company or any Affiliate
who owns at least 10% of the total combined voting power of all classes of the
Companys stock or any Affiliate cannot be less than 110% of the Fair Market
Value of the shares subject to the ISO. In addition, the term of an ISO cannot
be more than 10 years after the date of grant, although the term of an ISO
granted to an employee or an Affiliate who owns at least 10% of the total
combined voting power of all classes of the Companys stock or any Affiliate
cannot be more than five years. The aggregate Fair Market Value of the shares
of common stock with respect to which an ISO are exercisable by the recipient
for the first time during any calendar year cannot exceed $100,000. To the
extent an ISO exceeds this $100,000 limit, the portion of the ISO in excess of
such limit shall be deemed a non-statutory option. An ISO is not transferable
except by will or the laws of descent and distribution, and ISOs are
exercisable during a recipients lifetime only by the recipient.
The
option exercise price of any option granted under the 2014 Stock Plan may be
payable either in cash or, at the discretion of the Compensation Committee,
payment or a portion thereof may be made by surrendering previously acquired shares
of common stock or shares of common stock issuable upon the exercise of that
option, or by a combination of such shares and cash. Except for an ISO as
described above, and subject to the discretion of the Compensation Committee to
provide otherwise when an option is granted, options granted under the 2014
Stock Plan are not transferable except by will or the laws of descent and
distribution and are exercisable during a recipients lifetime only by the
recipient.
Subject
to the discretion of the Compensation Committee to determine otherwise at the
time of grant of an option under the 2014 Stock Plan, upon the termination of
the recipients employment or other relationship with the Company or with an
Affiliate for any reason other than the recipients death, all options held by
the recipient may be exercised to the same extent that the recipient would have
been entitled to exercise such options at the date of termination and may be
exercised within a period of 90 days after the date of termination, but in no
case later than the expiration date of each such option. Any portion of an
option that is not exercisable at the time of the termination of a recipients
employment or other relationship with the Company as described in the foregoing
sentence shall automatically terminate.
Subject
to the discretion of the Compensation Committee to determine otherwise at the
time of grant of an option under the 2014 Stock Plan, upon the termination of a
recipients employment as a result of the death of a recipient, all options
held by the recipient may be exercised to the same extent that the recipient
would have been entitled to exercise such options at the date of death and may
be exercised within a period of 180 days after the date of death, but in no
case later than the expiration date of each such option. In such event, such
options shall be exercisable only by the executors or administrators of the
recipient or by the person or persons to whom the recipients rights under
the options have passed by will or the laws of descent and distribution. Any
portion of an option that is not exercisable at the time of a recipients death
will automatically terminate.
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Table of Contents
Stock
Appreciation Rights
.
The holder of a SAR granted under the 2014 Stock Plan is entitled to receive
upon its exercise the excess of the Fair Market Value (calculated as of the
exercise date or, in the Compensation Committees discretion, as of any time
during a specified period before or after the exercise date) of a specified
number of shares of our common stock over the grant price of the SAR, which
price will not be less that 100% of the Fair Market Value of one share of
common stock on the date of grant. SARs vest and become exercisable in
accordance with a vesting schedule established by the Compensation Committee.
Subject to the terms of the 2014 Stock Plan, the grant price, term, methods of
exercise, dates of exercise, methods of settlement and any other terms and
conditions (including conditions or restrictions on the exercise thereof) of
any SAR are as determined by the Compensation Committee.
Subject
to the provisions of the 2014 Stock Plan and the agreement for any award of
SARs, SARs are not transferable during any applicable restriction period.
Restricted
Stock and Restricted Stock Units
. The holder of awards of restricted stock granted under the 2014 Stock
Plan will own shares of our common stock subject to restrictions imposed by the
Compensation Committee (including, for example, a restriction on the right to
vote the restricted shares or to receive any dividends with respect to the
shares) for a specified time period determined by the Compensation Committee.
The 2014 Stock Plan provides that certificates for shares evidencing restricted
stock will be held in custody by or on behalf of the Company until the
restrictions on the restricted stock have lapsed. The certificates will be
delivered to the recipient after the period of forfeiture has expired and any
other conditions to the vesting of the restricted stock have been met. Except
as provided in the 2014 Stock Plan or by the Compensation Committee in an
applicable award agreement, recipients of restricted stock awards have all of
the rights of a holder of the Companys common stock.
The
holder of restricted stock units granted under the 2014 Stock Plan will have
the right, subject to the restrictions and conditions imposed by the
Compensation Committee, to receive one share of our common stock for each
restricted stock unit at some future date determined by the Compensation
Committee.
Subject
to the provisions of the 2014 Stock Plan and the agreement for any award of
restricted stock or a restricted stock unit, they are not transferable during
any applicable restriction period.
If
the recipients employment or service as a director otherwise terminates during
the vesting period for any reason, the restricted stock and restricted stock
units will be forfeited, unless the Compensation Committee determines it
appropriate to waive the remaining restrictions.
Performance
Awards
. Performance
awards granted under the 2014 Stock Plan are intended to qualify as
performance-based compensation within the meaning of Section 162(m) of the
Code. Performance awards will give participants the right to receive payments
in cash, shares of common stock or other awards based solely upon the
achievement of one or more performance goals during a specified performance
period. Subject to the terms of the 2014 Stock Plan and the applicable
agreement, the performance goals to be achieved during any performance period,
the length of any performance period, and amount of the performance award
granted, the amount of any payment or transfer to be made under any performance
award, and any other terms and conditions of any performance award will be
determined by the Compensation Committee and must comply with Section 162(m) of
the Code.
Performance
goals are defined in the 2014 Stock Plan as any one or more of the following,
either individually, alternatively or in any combination, applied on a
corporate, subsidiary or group basis: revenue, cash flow, earnings (including
one or more of gross profit, earnings before interest and taxes, earnings
before interest, taxes, depreciation and amortization and net earnings),
earnings per share (basic or diluted), margins (including one or more of gross,
operating and net income margins), returns (including one or more of return on
assets, equity, investment, capital and revenue and total shareholder return),
stock price, economic value added, working capital, market share, cost
reductions, workforce satisfaction and diversity goals, employee retention,
customer satisfaction, completion of key projects and strategic plan
development and implementation.
Such
goals may reflect absolute entity or group performance or a relative comparison
to the performance of a peer group of entities or other external measure of the
selected performance criteria.
Subject
to the provisions of the 2014 Stock Plan and the agreement for any performance
award, performance awards are not transferable during any applicable
restriction period.
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Other
Stock Grants
. Under
the 2014 Stock Plan, the Compensation Committee may grant shares of our common
stock with or without restrictions as are determined by the Compensation
Committee to be consistent with the purposes of the 2014 Stock Plan. Subject to
the provisions of the 2014 Stock Plan and the agreement for any other stock
grant, stock grants are not transferable during any applicable restriction
period.
Duration,
Termination and Amendment
Unless
terminated by the Board of Directors or the Compensation Committee, the 2014
Stock Plan will expire on April 9, 2024. No awards may be made after the date
that the 2014 Stock Plan terminates. However, any award granted under the 2014
Stock Plan prior to its termination may extend beyond the end of such period
through the awards normal expiration date.
The
Board of Directors or the Compensation Committee may amend the 2014 Stock Plan
at any time in such respects as it deems advisable, including to affect awards
already granted., However, no amendment may be made to the extent that such
amendment would (i) violate the applicable rules or regulations of The NASDAQ
Stock Market or any other securities exchange applicable to the Company, (ii)
prevent the grant of options or SARs that would qualify under Section 162(m) of
the Code, or (iii) cause any ISO already granted under the 2014 Stock Plan to
cease to satisfy the requirements for ISOs under Section 422 of the Code. In
addition, certain amendments, such as an amendment increasing the number of
shares of our common stock available under the 2014 Stock Plan for the grant of
awards, are subject to the approval of our shareholders.
New Plan
Benefits
No
benefits or amounts have been granted, awarded or received under the 2014 Stock
Plan. In addition, the Committee in its sole discretion will determine the
number and types of awards that will be granted. Thus, it is not possible to
determine the benefits that will be received by eligible participants if the
2014 Stock Plan were to be approved by the shareholders.
Equity
Compensation Plan Information
The following table provides information as of December 31, 2013 about
our shares of common stock subject to outstanding awards or available for
future awards under our equity compensation plans and arrangements.
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Plan Category
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Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
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Weighted-average exercise
price of outstanding
options, warrants and
rights
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Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
the first column)
(2)
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Equity compensation plans
approved by shareholders (1)
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339,750
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$
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6.73
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205,750
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Federal Income Tax Treatment
Because
the Code and other federal income tax law is subject to change, and because
local and state tax laws vary, the Company strongly recommends that potential
recipients of awards under the 2014 Stock Plan consult with a professional tax
advisor prior to exercising an option or any other award granted under the 2014
Stock Plan.
Grant of
Options and SARs
The
grant of a stock option or SAR under the 2014 Stock Plan is not expected to
result in any taxable income for the recipient.
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Table of Contents
Exercise of Options and SARs
Upon
exercising a non-qualified stock option granted under the 2014 Stock Plan, the
recipient of the option must recognize ordinary income equal to the excess of
the fair market value of the shares of our common stock acquired on the date of
exercise over the exercise price, and we will generally be entitled at that
time to an income tax deduction for the same amount. The holder of an ISO
generally will have no taxable income upon exercising the ISO (except that an
alternative minimum tax liability may arise), and we will not be entitled to an
income tax deduction. Upon exercising an SAR, the amount of any cash received
and the fair market value on the exercise date of any shares of our common
stock received are taxable to the recipient as ordinary income and generally
deductible by us.
Disposition
of Shares Acquired Upon Exercise of Options and SARs
The
tax consequence upon a disposition of shares acquired through the exercise of
an option or SAR granted under the 2014 Stock Plan will depend on how long the
shares have been held and whether the shares were acquired by exercising an ISO
or by exercising a non-qualified stock option or SAR. Generally, there will be
no tax consequence to us in connection with the disposition of shares acquired
under an option or SAR, except that we may be entitled to an income tax
deduction in the case of the disposition of shares acquired under an ISO before
the applicable ISO holding periods set forth in the Code have been satisfied.
Awards
Other than Options and SARs
As
to other awards granted under the 2014 Stock Plan that are payable either in
cash or shares of our common stock that are either transferable or not subject
to substantial risk of forfeiture, the holder of the award must recognize
ordinary income equal to (a) the amount of cash received or, as applicable, (b)
the excess of (i) the fair market value of the shares received (determined as
of the date of receipt) over (ii) the amount (if any) paid for the shares by
the holder of the award. We will generally be entitled at that time to an income
tax deduction for the same amount.
As
to an award that is payable in shares of our common stock that are restricted
from transfer and subject to substantial risk of forfeiture, unless a special
election is made by the holder of the award under the Code, the holder must
recognize ordinary income equal to the excess of (a) the fair market value of
the shares received (determined as of the first time the shares become
transferable or not subject to substantial risk of forfeiture, whichever occurs
earlier) over (b) the amount (if any) paid for the shares by the holder. We
will generally be entitled at that time to an income tax deduction for the same
amount.
Income Tax
Deduction
Subject
to the usual rules concerning reasonable compensation, and assuming that, as
expected, performance awards paid under the 2014 Stock Plan are qualified
performance-based compensation within the meaning of Section 162(m) of the
Code, we will generally be entitled to a corresponding income tax deduction at
the time a participant recognizes ordinary income from awards made under the
2014 Stock Plan.
Application
of Section 16 of the Securities Exchange Act of 1934
Special
rules may apply to individuals subject to Section 16 of the Securities Exchange
Act of 1934. In particular, unless a special election is made pursuant to the
Code, shares received through the exercise of a stock option or SAR may be
treated as restricted as to transferability and subject to a substantial risk
of forfeiture for a period of up to six months after the date of exercise.
Accordingly, the amount of any ordinary income recognized and the amount of our
income tax deduction will be determined as of the end of that report.
The Board
of Directors recommends that the shareholders vote FOR the proposal to approve
the Image Sensing Systems, Inc. 2014 Stock Option and Incentive Plan.
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SHAREHO
LDER
PROPOSALS FOR THE 2015 ANNUAL MEETING
Any proposal by a shareholder to be included in our proxy statement for
the 2015 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, 2014. 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 3, 2015.
ANNUAL REPO
RT TO
SHAREHOLDERS
We are including with this proxy statement our Annual Report to
Shareholders for the year ended December 31, 2013, which includes our Annual
Report on Form 10-K for the year ended December 31, 2013, without certain
exhibits. Shareholders may request a complete copy of our Annual Report on Form
10-K for fiscal 2013 with all 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.
OTHER
MATTERS
We know of no matters other than those that are described in this proxy
statement to come before the 2014 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 W.
Bracke
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Chairman of the Board
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Dated: April
17, 2014
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Table of Contents
IMAGE SENSING SYSTEMS, INC.
2014 STOCK OPTION AND INCENTIVE PLAN
Effective Date: April 9, 2014
Table of Contents
TABLE OF CONTENTS
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Page No.
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ARTICLE I. GENERAL
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1
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1.1
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DEFINITIONS
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1
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1.2
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PURPOSE
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5
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1.3
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ADMINISTRATION
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5
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1.4
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TERM OF THE PLAN
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5
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1.5
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SHARES TO BE AWARDED
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6
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1.6
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LIMITATIONS ON AWARDS
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6
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1.7
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AMENDMENT OR TERMINATION
OF THE PLAN
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6
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1.8
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ADJUSTMENTS UPON CERTAIN
EVENTS
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6
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1.9
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AGREEMENT AND
REPRESENTATIONS OF RECIPIENT
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8
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ARTICLE II. OPTIONS
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9
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2.1
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GRANTING OF OPTIONS
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9
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2.2
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ELIGIBLE RECIPIENTS
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10
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2.3
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EXERCISE OF OPTIONS
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10
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2.4
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SECTION 83(b) ELECTION
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11
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2.5
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TRANSFERABILITY
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11
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2.6
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INCENTIVE STOCK OPTIONS
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11
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ARTICLE III. OTHER AWARDS
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12
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3.1
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GRANT
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12
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3.2
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AWARD AGREEMENT
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12
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3.3
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STOCK APPRECIATION RIGHTS
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12
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3.4
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RESTRICTED STOCK
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13
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3.5
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RESTRICTED STOCK UNITS
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14
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3.6
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PERFORMANCE AWARDS
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14
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3.7
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OTHER STOCK GRANTS
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15
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3.8
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TRANSFERABILITY
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15
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ARTICLE IV. ADDITIONAL
PROVISIONS
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15
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4.1
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NO RIGHTS AS SHAREHOLDER
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15
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4.2
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WITHHOLDING
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15
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4.3
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RESERVATION OF COMMON STOCK
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15
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4.4
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ISSUANCE OF SHARES OF
COMMON STOCK
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15
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4.5
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INCOME TAX TREATMENT
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16
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4.6
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EXCEPTIONS TO TERMINATION
OF EMPLOYMENT
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16
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4.7
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OTHER BENEFITS AND
COMPENSATION PROGRAMS
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16
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4.8
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INTERNATIONAL RECIPIENTS
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16
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4.9
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NO RIGHT TO CONTINUED
EMPLOYMENT, SERVICE AS A DIRECTOR OR AWARDS
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4.10
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EXPENSES OF PLAN
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17
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4.11
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RELIANCE ON REPORTS
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17
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4.12
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STOCK CERTIFICATES
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17
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4.13
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GENERAL RESTRICTIONS
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17
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A-i
Table of Contents
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4.14
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SUCCESSORS AND ASSIGNS
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17
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4.15
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SEVERABILITY
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18
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4.16
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MINNESOTA LAW
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18
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4.17
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NO TRUST OR FUND
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18
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4.18
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APPLICATION OF CODE
SECTION 409A
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A-ii
Table of Contents
IMAGE SENSING SYSTEMS, INC.
2014 STOCK OPTION AND INCENTIVE PLAN
ARTICLE I.
GENERAL
1.1
DEFINITIONS
.
As used in this Image Sensing Systems, Inc. 2014 Stock Option and Incentive
Plan, the following definitions shall apply:
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a.
Affiliate
means any entity that is (i) a member of a controlled group of corporations
(within the meaning of Code Section 414(b)) that includes the Company, (ii)
any trade or business (whether or not incorporated) which is under common
control (as defined in Code Section 414(c)) with the Company, (iii) any
organization (whether or not incorporated) which is a member of an affiliated
service group (as defined in Code Section 414(m)) which includes the Company,
and (iv) any other entity required to be aggregated with the Company pursuant
to regulations under Code Section 414(o).
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b.
Agreement
means the formal written agreement to be entered into by and between the
Company and the Recipient which will contain the specific terms and
conditions upon which an Award is granted to a Recipient, as determined by
the Board of Directors or the Committee.
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c.
Award
means an Option, Stock Appreciation Right, Restricted Stock or Restricted
Stock Unit, Performance Award, Other Stock Grant or any combination thereof
granted pursuant to the terms of this Plan. Each Award shall be subject to
the terms and conditions of the Plan and any other terms and conditions (not
inconsistent with the Plan) determined by the Committee.
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d.
Board
of Directors
or
Board
means the Board of Directors
of the Company.
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e.
Change
in Control
means any one or more of the following events
occurring after the Effective Date:
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(i)
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the purchase
or other acquisition by any one person, or more than one person acting as a
group, of capital stock of the Company that, together with the Companys
capital stock beneficially owned by such person or group (as the term
beneficial ownership is defined in Rule 13d-3 under the Exchange Act,
constitutes more than 50% of the total combined value or total combined
voting power of all classes of capital stock issued by the Company;
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(ii)
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a merger or
consolidation to which the Company is a party if the individuals and entities
who were shareholders of the Company immediately before the effective date of
such merger or consolidation have, immediately following the effective date
of such merger or consolidation, beneficial ownership (as defined in Rule
13d-3 under the Exchange Act) of less than 50% of the total combined voting
power of all
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classes of
securities issued by the surviving entity for the election of directors of
the surviving corporation;
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(iii)
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the purchase
or other acquisition by any one person, or more than one person acting as a
group, of all or substantially all of the assets of the Company during the
12-month period ending on the date of the most recent purchase or other
acquisition of such assets by such person or persons;
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(iv)
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a change in
the composition of the Board of Directors at any time during any consecutive
12-month period such that the Incumbent Directors cease for any reason to
constitute greater than 50% of the members of the Board;
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(v)
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the
Shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; or
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(vi)
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any other
change of control of the Company of a nature that would be required to be
reported pursuant to Section 13 or 15(d) of the Exchange Act, whether or not
the Company is then subject to such reporting requirements.
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Notwithstanding
anything in this Section to the contrary, a Change in Control shall not occur
as the result of a sale or transfer to an employee stock ownership plan,
within the meaning of Code Section 4975(e)(7), that is sponsored by the
Company.
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f.
Code
means the Internal Revenue Code of 1986, as amended.
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g.
Committee
means the Compensation Committee of the Board or any successor committee of
the Board designated by the Board to administer the Plan. The Committee shall
be comprised of not less than such number of Directors as shall be required
to permit Awards granted under the Plan to qualify under Rule 16b-3 and
Section 162(m) of the Code, and each member of the Committee shall be a
Non-Employee Director.
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h.
Common
Stock
means the voting common stock, $0.01 par value, of the
Company.
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i.
Company
means Image Sensing Systems, Inc., a Minnesota corporation.
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j.
Director
means a member of the Board, including any Non-Employee Director.
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k.
Effective
Date
has the meaning set forth at the end of this Plan.
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l.
Exchange
Act
means the Securities Exchange Act of 1934, as amended.
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m.
Fair
Market Value
means (i) if the Common Stock is listed or
admitted to unlisted trading privileges on any national securities exchange,
the average of the closing sales prices of the Common Stock on the end of any
day on all national securities
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exchanges on
which the Common Stock may at the time be listed or, if there have been no
sales on any such exchange on any day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such day, or (ii) if
the Common Stock is not so listed or admitted to unlisted trading privileges
on any national securities exchange, and bid and asked prices therefor in the
domestic over-the-counter market are reported by the National Quotation
Bureau, Incorporated (or any comparable reporting service), the average of
the closing bid and asked prices on such day as reported by the National
Quotation Bureau, Incorporated (or any comparable reporting service), or
(iii) if the Common Stock is not listed on any national securities exchange
or quoted in the domestic over-the-counter market, the fair value of the
Common Stock determined by the Committee in good faith in the exercise of its
reasonable discretion based upon a reasonable application of a reasonable
valuation method within the meaning of Code Section 409A and the applicable
treasury regulations or other authority promulgated thereunder.
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n.
Incentive
Stock Option
means an Option that is an option to purchase
shares of Common Stock which is intended to qualify as an incentive stock
option as defined in Section 422 of the Code.
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o.
Incumbent
Director
means those members of the Board of Directors who
either (i) were members of the Board of Directors on the Effective Date or
(ii) were elected or appointed by, or on the nomination or recommendation of,
at least a majority of the members of the then-existing Board (either by
specific vote or by approval of the Companys proxy statement in which such
individual is named as a nominee for director without objection to such
nomination).
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p.
Non-Employee
Director
means any Director who is not also an employee of
the Company or an Affiliate within the meaning of Rule 16b-3 and an outside
director within the meaning of Section 162(m) of the Code.
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q.
Non-Statutory
Option
means an Option to purchase shares of Common Stock
which is not an Incentive Stock Option.
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r.
Option
means an Award of an Incentive Stock Option or a Non-Statutory Option.
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s.
Other
Stock Grant
means any Award pursuant to Article III below
that is subject to restrictions as described therein, including the
restrictions contained in Section 3.7 below.
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t.
Performance
Award
means any Award pursuant to Article III below that is
subject to restrictions as described therein, including the restrictions
contained in Section 3.6 below.
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u.
Performance
Goal
shall mean one or more of the following performance
goals, either individually, alternatively or in any combination, applied on a
corporate, subsidiary or group basis: revenue, cash flow, earnings (including
one or more of gross profit, earnings before interest and taxes, earnings
before interest, taxes, depreciation and
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amortization
and net earnings), earnings per share (basic or diluted), margins (including
one or more of gross, operating and net income margins), returns (including
one or more of return on assets, equity, investment, capital and revenue and
total shareholder return), stock price, economic value added, working
capital, market share, cost reductions, workforce satisfaction and diversity
goals, employee retention, customer satisfaction, completion of key projects
and strategic plan development and implementation. Such goals may reflect
absolute entity or group performance or a relative comparison to the
performance of a peer group of entities or other external measure of the
selected performance criteria. Pursuant to rules and conditions adopted by
the Committee on or before the 90th day of the applicable performance period
for which Performance Goals are established, the Committee may appropriately
adjust any evaluation of performance under such goals to exclude the effect
of certain events, including any of the following events: asset write-downs;
litigation or claim judgments or settlements; changes in tax law, accounting
principles or other such laws or provisions affecting reported results;
severance, contract termination and other costs related to exiting certain
business activities; extraordinary or non-recurring expenses; amortization of
intangible assets; goodwill impairment; and gains or losses from the
disposition of businesses or assets or from the early extinguishment of debt.
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v.
Plan
means this Image Sensing Systems, Inc. 2014 Stock Option and Incentive Plan.
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w.
Recipient
means a holder of an Award granted pursuant to the Plan.
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x.
Restricted
Stock
means an Award of shares of Common Stock pursuant to
Article III below that is subject to restrictions as described therein,
including the restrictions contained in Section 3.4 below.
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y.
Restricted
Stock Unit
means an Award of the future right to receive
shares of Common Stock granted pursuant to Article III below that is subject
to restrictions as described therein, including the restrictions contained in
Section 3.5 below.
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z.
Rule
16b-3
means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor rule or
regulation.
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aa.
Section
162(m)
means Section 162(m) of the Code and the applicable
treasury regulations and other authority promulgated thereunder.
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bb.
Securities
Act
means the Securities Act of 1933, as amended.
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cc.
Shareholders
means the holders of outstanding shares of the Companys Common Stock.
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dd.
Stock
Appreciation Right
means any Award pursuant to Article III
below that is subject to restrictions as described therein, including the
restrictions contained in Section 3.3 below.
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Table of Contents
1.2
PURPOSE
.
The purpose of the Plan is to promote the growth and general prosperity of the
Company and its Affiliates by permitting the Company to grant Awards to
employees, officers, members of the Board of Directors, consultants,
independent contractors, and other service providers of the Company and its
Affiliates, thereby assisting the Company in its efforts to attract and retain
the best available persons for positions of substantial responsibility, and to
provide employees, officers, members of the Board of Directors, consultants,
independent contractors, and other service providers an additional incentive to
contribute, by the performance of services, to the future success of the
Company and its Affiliates.
1.3
ADMINISTRATION
.
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a.
Administration
by Committee
.
Except as otherwise provided for in this Plan,
the Plan shall be administered by the Committee. Notwithstanding anything to
the contrary contained herein, the Board may, at any time and from time to
time, without any further action of the Committee, exercise the powers and
duties of the Committee under the Plan unless the exercise of such powers and
duties by the Board would cause the Plan not to comply with the requirements
of Section 162(m) of the Code.
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b.
Powers
and Duties
.
Subject to the provisions of this Plan, the
Committee shall have sole authority to do everything necessary or appropriate
to administer the Plan, including, without limitation, making any rules and
regulations governing the administration of the Plan; selecting the eligible
employees, officers, members of the Board of Directors, consultants,
independent contractors and other service providers to whom Awards shall be
granted; determining the type, amount, size and terms of Awards; determining
the time when Awards shall be granted; determining whether any restrictions
shall be placed on Common Stock purchased upon exercising an Option;
determining whether any specific grants of Awards shall include provisions
regarding non-solicitation, non-competition, confidentiality or for cause
restrictions and forfeiture provisions; whether such Awards shall be subject
to vesting restrictions; interpreting the Plan; and making all other
determinations necessary or advisable for the administration of the Plan. The
determinations of the Committee need not be uniform and may be made by it
selectively among persons who are eligible to receive Awards under the Plan,
whether or not such persons are similarly situated. All decisions,
determinations and interpretations of the Committee regarding the Plan shall
be final and binding on all Recipients. The day-to-day administrative duties
for the Plan may be delegated by the Committee to one or more executive
officers or other employees of the Company; provided, however, that the
Committee shall not delegate such authority (i) with regard to grants of
Options to be made to officers or directors of the Company or any Affiliate
who are subject to Section 16 of the Exchange Act or (ii) in such a manner as
would cause the Plan not to comply with the requirements of Section 162(m) of
the Code. All actions authorized to be taken by the Committee under this Plan
may as well be taken by any appropriately appointed committee thereof.
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1.4
TERM OF
THE PLAN
.
The Plan was adopted by the Board of Directors as of
the Effective Date. No Awards shall be granted under the Plan after the earlier
of (a) the date on which the Plan is terminated as provided in Section 1.7
hereof, or (b) the tenth (10th) anniversary
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of the
Effective Date. The expiration of the term of the Plan with respect to any
Awards granted under the Plan shall not affect Awards then outstanding which
have not yet expired.
1.5
SHARES TO
BE AWARDED
.
The maximum number of shares of Common Stock which
may be awarded under the Plan is 400,000 shares of Common Stock, which number
of shares is subject to adjustment in the same manner as the number of shares
of Common Stock underlying Awards are subject to adjustment pursuant to Section
1.8 of this Plan. In addition, the number of shares of Common Stock authorized
for issuance under the Plan may be increased from time to time by approval of
the Board of Directors or the Committee and, if required by the Code or any
rules or regulations adopted thereunder, the Shareholders. Common Stock subject
to Awards which terminate or expire prior to exercise by or vesting in a
Recipient shall be available for the issuance of future Awards.
1.6
LIMITATIONS
ON AWARDS
.
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a.
Section
162(m) Limitation for Certain Awards
.
No Recipient may be
granted Options, Stock Appreciation Rights or any other Award or Awards under
the Plan, the value of which Award or Awards is based solely on an increase
in the value of the Shares after the date of grant of such Award or Awards,
for more than 150,000 Shares (subject to adjustment as provided in Section
1.8 of the Plan) in the aggregate in any calendar year.
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b.
Section
162(m) Limitation for Performance Awards
.
The maximum amount
payable pursuant to all Performance Awards to any Recipient in the aggregate
in any calendar year shall be $500,000 in value, whether payable in cash,
Shares or other property. This limitation does not apply to any Award subject
to the limitation contained in Section 3.6 of the Plan.
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1.7
AMENDMENT
OR TERMINATION OF THE PLAN
.
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a.
Except
as hereinafter provided, and notwithstanding anything to the contrary contained
herein, the Board of Directors or Committee may amend the Plan from time to
time in such respects as the Board of Directors or Committee may deem
advisable, including, without limitation, to affect Awards already granted.
However, no amendment may be made to the extent that such amendment would (i)
violate the applicable rules or regulations of The NASDAQ Stock Market or any
other securities exchange applicable to the Company, (ii) prevent the grant
of Options or Stock Appreciation Rights that would qualify under Section
162(m) of the Code, or (iii) cause any Incentive Stock Options already
granted under the Plan to cease to satisfy the requirements for incentive
stock options under Code Section 422.
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b.
The
Board of Directors or the Committee may at any time terminate the Plan. Any
such termination of the Plan shall not affect Awards already granted, and
such Awards shall remain in full force and effect as if the Plan had not been
terminated.
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1.8
ADJUSTMENTS
UPON CERTAIN EVENTS
.
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a.
Anti-Dilution
Adjustments
.
Upon any change in the number of outstanding
shares of Common Stock of the Company occurring after the Effective Date by
reason of
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any stock
dividend, split, reverse split, reclassification, combination, exchange of
Common Stock or other similar recapitalization of the Company, there shall be
an appropriate adjustment to the number of shares of Common Stock underlying
each outstanding Award and, where applicable, to the per share exercise price
of the Award so that the Recipient shall then receive for the aggregate price
paid by such Recipient on such exercise of an Option or termination of
restrictions for any Restricted Stock or Restricted Stock Unit all shares of
Common Stock subject to the Award to the same extent prior to such stock
dividend, split, reverse split or other similar recapitalization. No
adjustment shall be made under this Section upon the issuance by the Company
of any warrants, rights or options to acquire additional Common Stock or of
securities convertible into Common Stock unless such warrants, rights,
options or convertible securities are issued to all Shareholders on a
proportionate basis.
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b.
Change
in Control
.
Unless otherwise provided by the Committee either
in the applicable Award Agreement at the time of grant or at any time after
the grant of an Award under the Plan (including pursuant to Section 1.8(c)
before the effective date of a Change in Control), in the event of a Change
in Control, the following shall occur immediately as of the effective date of
such Change in Control with respect to any and all Awards outstanding as of
the effective date of such Change in Control: (i) any and all Awards granted
hereunder will be, as nearly as may reasonably be, automatically converted
into the same type of Award to acquire the kind and amount of shares of stock
or other securities or property (including cash) which the Recipient would
have owned or have been entitled to receive as of the effective date of the
Change in Control had the Awards been exercised or realized in full
immediately before the effective date of the Change in Control; (ii) all
Options will become immediately exercisable in full and will remain
exercisable for the remainder of their terms, regardless of whether the
Recipients to whom such Options have been granted remain in the employ or
service of the Company or any Affiliate; (iii) all outstanding Awards of
Restricted Stock and Restricted Stock Units will become immediately fully
vested regardless of whether the Recipients to whom such Awards have been
granted remain in the employ or service of the Company or any Affiliate; (iv)
all other outstanding Awards will vest and/or continue to vest in the manner
determined by the Committee and set forth in the applicable Agreement
evidencing such Awards; and (v) appropriate adjustment shall be made in the
application of the provisions of all outstanding Awards with respect to the
rights and interests thereafter of each Recipient, to the end that the
provisions set forth in each Award Agreement shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares
of stock or other securities or property (including cash) thereafter
deliverable under the Award.
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c.
Additional
Adjustments of Awards
.
The Committee shall have the
discretion, exercisable without the consent of any Recipient affected thereby
if not prohibited by the applicable Agreement, at any time before the
effective date of a Change in Control, to take such further action as it
determines to be necessary or advisable with respect to Awards. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise; paying cash or other consideration in exchange
for all or part of such Awards; and lifting restrictions and
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other
modifications. The Committee may take such actions with respect to all
Recipients, to certain categories of Recipients or to only individual
Recipients. The Committee may take such action before or after granting
Awards to which the action relates and before or after any public
announcement with respect to such Change in Control that is the reason for
such action. The grant of an Award under the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge
or to consolidate or to dissolve, liquidate or sell, or transfer all or any
part of its business or assets.
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d.
Limitation
on Change in Control Payments
.
Notwithstanding anything in
this Plan to the contrary, if, with respect to a Recipient, the acceleration
of the vesting of an Award as provided in Section 1.8(c), the payment of cash
in exchange for all or part of an Award as provided in Section 1.8(c) or any
other adjustment to an Award pursuant to Section 1.8(c) (which acceleration,
payment or adjustment could be deemed a payment within the meaning of
Section 280G(b)(2) of the Code), together with any other payments which
such Recipient has the right to receive from the Company or any corporation
that is a member of an affiliated group (as defined in Section 1504(a) of
the Code without regard to Section 1504(b) of the Code) of which the Company
is a member, would constitute a parachute payment (as defined in Section
280G(b)(2) of the Code), then the payments to such Recipient pursuant to
Section 1.8(c) of the Plan will be reduced to the largest amount as will
result in no portion of such payments being subject to the excise tax
imposed by Section 4999 of the Code; provided, however, that if a Recipient
is subject to a separate agreement with the Company or an Affiliate that
expressly addresses the potential application of Section 280G or Section 4999
of the Code (including, without limitation, that payments under such
agreement or otherwise will not be reduced or that the Recipient will have
the discretion to determine which payments will be reduced), then the
limitations of this Section 1.8(d) will not apply, and any payments to a
Recipient pursuant to Section 1.8(c) of the Plan will be treated as payments
arising under such separate agreement.
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1.9
AGREEMENT
AND REPRESENTATIONS OF RECIPIENT
.
As a condition to the grant or
exercise of any portion of an Option or receipt of any shares of Common Stock
pursuant to a Restricted Stock or Restricted Stock Unit, if the issuance of the
Award or of any shares of Common Stock is not registered under the Securities
Act or applicable state securities laws, upon the request of the Company, the
Recipient must represent and agree that any and all shares of Common Stock
purchased or received under an Award will be acquired for investment and not
for resale. The Company may restrict the transfer of the Common Stock so
purchased or received and affix a legend to any certificate representing such
shares of Common Stock, stating that such shares may not be transferred without
an opinion of counsel satisfactory to the Company that the proposed transfer
may lawfully be made without registration under the Securities Act and
registration, notice or approval under any applicable state securities laws, or
such applicable registration(s), notice(s) and approval(s).
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Table of Contents
ARTICLE II.
OPTIONS
2.1
GRANTING
OF OPTIONS
.
An Option granted pursuant to the Plan
shall entitle the Recipient, upon vesting and exercise, to purchase a specified
number of shares of Common Stock at a specified price during a specified
period. Subject to the following, Options shall be subject to such terms and
conditions as the Committee shall from time to time approve and may be made
exercisable in one or more installments, upon the happening of certain events,
upon the fulfillment of certain conditions, or upon such other terms and
conditions as the Committee shall determine; provided, that each Option shall
be subject to the following requirements in addition to the requirements set
forth in this Article II:
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a.
Type
of Option
.
Each Option shall be identified in
the Agreement pursuant to which it is granted as an Incentive Stock Option or
a Non-Statutory Option, as the case may be.
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b.
Number
of Shares Subject to Option
.
Each Agreement for
an Option granted under this Plan shall identify the number of shares of
Common Stock to which the Option to purchase is being given to Recipient
under the Option.
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c.
Payment
.
The purchase price of the number of shares of Common Stock subject to an
Option as to which such Option is being exercised shall be payable in full at
the time the Option is exercised. Payment may be made in cash or by a
cashiers or certified check. However, in the sole discretion of the
Committee, and subject to such terms and conditions as the Committee deems
appropriate in its discretion, payment of the exercise price or a portion
thereof may be made by surrender to the Company of previously acquired shares
of Common Stock or shares of Common Stock issuable upon the exercise of that
Option, such shares to be credited against the exercise price based upon the
Fair Market Value thereof on the date of exercise, or by a combination of
such shares and cash.
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d.
Termination
of Employment or Other Relationship
.
Subject to
the discretion of the Committee to determine otherwise at the time of grant
of an Option, upon termination of the Recipients employment or other
relationship with the Company or with an Affiliate for any reason other than
the Recipients death, all Options held by the Recipient may be exercised to
the same extent that the Recipient would have been entitled to exercise such
Options at the date of termination and may be exercised within a period of
ninety (90) days after the date of termination, but in no case later than the
expiration date of each such Option. Any portion of an Option that is not
exercisable at the time of the termination of a Recipients employment or
other relationship with the Company as described in the foregoing sentence
shall automatically terminate. Notwithstanding the foregoing, if an
independent contractor or other non-employment relationship between the
Recipient and the Company or an Affiliate is terminated due to the
commencement of an employment relationship with the Company or an Affiliate,
this provision shall apply only upon termination of both the independent
contractor and employment relationship between the Recipient and the Company
or an Affiliate.
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e.
Death
of Recipient
.
Subject to the discretion of the
Committee to determine otherwise at the time of grant of an Option, upon
termination of a Recipients employment as a result of the death of a
Recipient, all Options held by the Recipient may be exercised to the same
extent that the Recipient would have been entitled to exercise such Options
at the date of death and may be exercised within a period of one hundred
eighty (180) days after the date of death, but in no case later than the
expiration date of each such Option. In such event, such Options shall be
exercisable only by the executors or administrators of the Recipient or by
the person or persons to whom the Recipients rights under the Options shall
pass by will or the laws of descent and distribution. Any portion of an
Option that is not exercisable at the time of a Recipients death shall
automatically terminate.
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f.
Written
Agreement
.
Each Option shall be granted pursuant
to a formal written Agreement to be entered into by and between the Company
and the Recipient, which Agreement shall be in such form as the Committee
deems appropriate. Multiple Options may be evidenced by a single Agreement.
Subject to the terms and limitations of the Plan, the Committee may, with the
consent of the Recipient (when required), amend any such Agreement to modify
the terms or conditions governing the Option.
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2.2
ELIGIBLE
RECIPIENTS
.
Subject to the requirements of Section
2.6 regarding Incentive Stock Options, Options may be issued to any employees
of the Company or of any Affiliate, including, among others, employees who are
officers and/or members of the Board of Directors of the Company or any
Affiliate. In addition, notwithstanding anything to the contrary contained
herein, the Committee may grant Options under the Plan which are Non-Statutory
Options to persons who are, at the time of such grant, employees of the Company
or its Affiliates, or to persons who are, at the time of such grant, not
employees of the Company but who are members of the Board of Directors of the
Company or its Affiliates or persons who are deemed by the Committee to be
important to the future success of the Company or its Affiliates, including,
but not limited to, directors, employees, consultants, independent contractors
or other providers of services to the Company or its Affiliates. In addition,
eligible persons may be selected to receive Options individually or by group
category (for example, by pay grade) as the Committee may determine. A person
who has been granted an Option under the Plan or under any other plan of the
Company or its Affiliates may be granted additional Options if the Committee
shall so determine. Except to the extent otherwise provided in the Agreement
evidencing an Option, the granting of an Option under this Plan shall not
affect any outstanding Options previously granted under this Plan or under any
other plan of the Company or any Affiliate.
2.3
EXERCISE
OF OPTIONS
.
An Option can be exercised only in the
manner provided in this Section 2.3. The Recipients of the Option or other
proper parties shall deliver written notice of exercise to the Company at its
principal office within the Option period, stating the number of shares of
Common Stock as to which the Option is being exercised and accompanied by
payment in full of the exercise price for all shares designated in the notice.
If required by the Company, such notice shall further contain a representation
that such shares are being acquired for investment and not for resale. As
provided in the Agreement setting forth the terms of the Option being
exercised, the exercise price shall be paid in cash or by certified or
cashiers check or by the delivery of previously acquired shares of Common
Stock or shares of Common Stock
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issuable upon
exercise of such Option. The Company shall then cause a certificate or
certificates for such Common Stock to be delivered to the Recipient or other
proper parties within a reasonable period.
2.4
SECTION
83(b) ELECTION
.
The Company recognizes that
certain persons who receive Options may be subject to restrictions regarding
their right to trade shares of Common Stock under Section 16(b) of the Exchange
Act. Such restrictions may cause Recipients not to be taxable when they
exercise their Options. However, it may be more beneficial to a Recipient to be
taxed upon exercise of an Option as opposed to when trading restrictions lapse.
Accordingly, Recipients exercising such Options may consider making an election
to be taxed upon exercise of the Option under Section 83(b) of the Code. If
requested, the Company shall provide reasonable assistance to such Recipients
to effect a Section 83(b) election.
2.5
TRANSFERABILITY
.
Subject to the requirements of Section 2.6 regarding Incentive Stock Options
and to the discretion of the Committee to provide otherwise upon the grant of
an Option, Options shall not be transferable other than by will or the laws of
descent and distribution, and Options shall be exercisable during a Recipients
lifetime only by such Recipient.
2.6
INCENTIVE
STOCK OPTIONS
.
In addition to the foregoing
provisions of this Article II, Options that are intended to constitute
Incentive Stock Options shall be subject to the following additional provisions
of this Section 2.6.
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a.
Eligible
Recipients
.
Incentive Stock Options may be granted
only to persons who are employees of the Company or an Affiliate.
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b.
Exercise
Price
.
Subject to the provisions of Section
2.6(e), the exercise price of shares of Common Stock that are subject to an
Incentive Stock Option shall not be less than 100% of the Fair Market Value
of such shares at the time the Option is granted, as determined in good faith
by the Committee.
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c.
Limit
on Exercisability
.
The aggregate Fair Market
Value (determined at the time the Option is granted) of the shares of Common
Stock with respect to which Incentive Stock Options are exercisable by the
Recipient for the first time during any calendar year, under this Plan or any
other plan of the Company or any Affiliate, shall not exceed $100,000. To the
extent an Incentive Stock Option exceeds this $100,000 limit, the portion of
the Incentive Stock Option in excess of such limit shall be deemed a
Non-Statutory Option.
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d.
Limit
on Term
.
Subject to the provisions of Section
2.6(e), an Incentive Stock Option shall not be exercisable more than ten (10)
years after the date on which it is granted.
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e.
Restrictions
for Certain Shareholders
.
The purchase price of
shares of Common Stock that are subject to an Incentive Stock Option granted
to an employee of the Company or any Affiliate who, at the time such Option
is granted, owns 10% or more of the total combined voting power of all
classes of stock of the Company or of any Affiliate, shall not be less than
110% of the Fair Market Value of such shares on the date
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such Option is
granted, and such Option may not be exercisable more than five (5) years
after the date on which it is granted. For the purposes of this subparagraph,
the rules of Section 424(d) of the Code shall apply in determining the stock
ownership of any employee of the Company or any Affiliate.
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f.
Incentive
Stock Options Not Transferable
.
Incentive Stock
Options shall not be transferable except by will or the laws of descent and
distribution, and Incentive Stock Options shall be exercisable during an
Recipients lifetime only by such Recipient.
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g.
Effect
of Not Meeting Requirements
.
Subject to the
discretion of the Committee to provide otherwise, if the terms of an
Incentive Stock Option do not meet any requirements of this Plan or the Code
necessary to be treated as an Incentive Stock Option under the Code, such
Option shall not terminate but shall be a Non-Statutory Option granted under
this Plan.
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ARTICLE III.
OTHER AWARDS
3.1
GRANT
.
Awards of Stock Appreciation Rights, Restricted Stock, Restricted Stock Units,
Performance Awards and Other Stock Grants may be granted either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
to whom Restricted Stock and Restricted Stock Units will be granted, the number
of shares of Common Stock subject to Awards of Restricted Stock or Restricted
Stock Units, the times or other conditions under which such an Award may be
subject to forfeiture, and all other conditions of Awards of Restricted Stock
or Restricted Stock Units in addition to those contained in Section 3.4 and
Section 3.5. The Committee may also grant Restricted Stock and Restricted Stock
Units in which the restrictions lapse upon the attainment of specified
Performance Goals over a specified performance period.
3.2
AWARD
AGREEMENT
.
Each Award of Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, Performance Awards and Other
Stock Grants shall be evidenced by a written Agreement, in such form as the
Committee may approve from time to time, which Agreement shall be subject to
the provisions of this Plan and to such other terms and conditions as the
Committee deems appropriate. The Recipient of an Award of Restricted Stock or
Restricted Stock Units shall not have any rights with respect to such Award
unless and until such Recipient has executed an Agreement evidencing the Award,
has delivered a fully executed copy thereof to the Company, and has otherwise
complied with its applicable terms and conditions.
3.3
STOCK
APPRECIATION RIGHTS
.
The Committee may grant Stock
Appreciation Rights to Recipients subject to the terms of the Plan and any
applicable Agreement. A Stock Appreciation Right granted under the Plan shall
confer on the holder thereof a right to receive upon exercise thereof the
excess of (i) the Fair Market Value of one share of Common Stock on the date of
exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant
price of the Stock Appreciation Right as determined by the Committee, which
grant price shall not be less than 100% of the Fair Market Value of one share
of Common Stock on the date of grant of the Stock Appreciation Right; provided,
however, that the Committee may designate a per share grant price that is less
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than Fair
Market Value on the date of grant (A) to the extent necessary or appropriate,
as determined by the Committee, to satisfy applicable legal or regulatory
requirements of a foreign jurisdiction or (B) if the Stock Appreciation Right
is granted in substitution for a stock appreciation right previously granted by
an entity that is acquired by or merged with the Company or an Affiliate.
Subject to the terms of the Plan, the grant price, term, methods of exercise,
dates of exercise, methods of settlement and any other terms and conditions
(including conditions or restrictions on the exercise thereof) of any Stock
Appreciation Right shall be as determined by the Committee.
3.4
RESTRICTED
STOCK
.
Awards of Restricted Stock may be granted
under the Plan subject to the following terms and conditions:
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a.
Restricted
Stock Certificate
.
Subject to the last sentence
of this Section 3.4, each Recipient of an Award of Restricted Stock shall be
issued a certificate in respect of the Common Stock that is Restricted Stock
awarded under the Plan. Such certificate shall be registered in the name of
the Recipient and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Award, substantially in the
following form:
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The
transferability of this certificate and the Common Stock represented hereby
are subject to the terms and conditions (including forfeiture) of the Image
Sensing Systems, Inc. 2014 Stock Option and Incentive Plan and an Agreement
entered into between the registered owner of such Common Stock and the
Company. Copies of such Plan and Agreement are on file in the offices of the
Company.
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The
Committee shall require that the certificates evidencing such Common Stock be
held in custody by the Company or its designated agent for that purpose until
the restrictions thereon shall have lapsed, and that, as a condition of any
Award of Restricted Stock, the Recipient shall have delivered a stock power,
endorsed in blank, relating to the Common Stock covered by such Award.
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b.
Restriction
Period
.
Subject to the provisions of this Plan
and the applicable Agreement, during a period set by the Committee commencing
with the date of such Award (the Restriction Period), the Recipient shall
not be permitted to sell, transfer, pledge or assign shares of Restricted
Stock awarded under the Plan. Within these limits, the Committee may provide
for the lapse of such restrictions in installments where deemed appropriate.
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c.
Rights
as Shareholder
.
Except as provided in Sections
3.4(b) and 3.4(d), or as otherwise provided in an applicable Award Agreement,
the Recipient shall have, with respect to the Common Stock that is Restricted
Stock, all of the rights of a holder of Common Stock of the Company. The
Committee, in its sole discretion or as otherwise required by application of
Section 409A of the Code, may require the payment of any cash dividends to be
deferred and, if the Committee so determines, reinvested in additional Common
Stock or Restricted Stock (to the extent shares are available under Section
1.5). Certificates for shares of unrestricted Common Stock shall be delivered
to the Recipient promptly after, and only after, the period of forfeiture
shall have expired
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without
forfeiture in respect of such shares of Restricted Stock and any other
conditions to the vesting of the Restricted Stock have been met.
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d.
Performance
Restrictions
.
Notwithstanding Section 3.4(c)
above, any Award of Restricted Stock based on the achievement of Performance
Goals shall not be considered outstanding for any purpose, and no dividends
or other rights of a Shareholder shall attach to such Common Stock until such
time as the Performance Goals have been satisfied and the Common Stock is
issued to the Recipient without restriction.
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e.
Termination
of Employment or Service
.
Except to the extent
provided in the applicable Award Agreement, upon termination of employment or
service of a Recipient for any reason during the Restriction Period, all
Common Stock that is Restricted Stock then subject to restriction shall
automatically terminate and be forfeited by the Recipient. The Committee may,
in its sole discretion, when it finds that a waiver would be in the best
interest of the Company, waive in whole or in part any or all remaining
restrictions with respect to the Recipients Common Stock that is Restricted
Stock.
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3.5
RESTRICTED
STOCK UNITS
.
The Common Stock that represents
Restricted Stock Units awarded pursuant to the Plan shall be subject to the
following restrictions and conditions:
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a.
Vesting
.
At the time of the grant of Restricted Stock Units, the Committee may impose
such restrictions or conditions to the vesting of such Restricted Stock Units
as it, in its sole discretion, deems appropriate, to be contained in the
Award Agreement. The Committee may divide such Restricted Stock Units into
classes and assign different vesting conditions for each class. If all
conditions to the vesting of a Restricted Stock Unit are satisfied, and
except as provided in Section 3.5(c), upon the satisfaction of all vesting
conditions with respect to a Restricted Stock Unit, such Restricted Stock
Unit shall vest.
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b.
Shares
Upon Vesting
.
Upon the vesting of Restricted
Stock Units, the Recipient shall be entitled to receive, within 30 days
following the date on which such Restricted Stock Units vest, one share of
Common Stock for each Restricted Stock Unit that so vests.
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c.
Termination
of Employment or Service
.
Except to the extent
provided in the applicable Award Agreement, upon termination of a Recipients
employment or service for any reason, all Restricted Stock Units shall
automatically terminate and be forfeited by the Recipient. The Committee may,
in its sole discretion, when it finds that a waiver would be in the best
interest of the Company, waive in whole or in part any or all remaining
restrictions with respect to the Recipients Restricted Stock Units.
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3.6
PERFORMANCE
AWARDS
.
The Committee may grant Performance Awards
to Recipients which are intended to be qualified performance-based
compensation within the meaning of Section 162(m). A Performance Award granted
under the Plan may be payable in cash, in shares of Common Stock, or other
Awards (including, without limitation, Restricted Stock). Performance Awards
shall, to the extent required by Section 162(m), be conditioned solely on the
achievement of one or more objective Performance Goals, and such Performance
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Goals shall be
established by the Committee within the time period prescribed by, and shall
otherwise comply with the requirements of, Section I62(m). Subject to the terms
of the Plan and any applicable Agreement, the Performance Goals to be achieved
during any performance period, the length of any performance period, the amount
of any Performance Award granted, the amount of any payment or transfer to be
made pursuant to any Performance Award and any other terms and conditions of
any Performance Award shall be determined by the Committee. The Committee shall
also certify in writing that such Performance Goals have been met prior to
payment of the Performance Awards to the extent required by Section 162(m).
3.7
OTHER
STOCK GRANTS
.
The Committee may, subject to the
terms of the Plan, grant shares of Common Stock to Recipients with or without
restrictions thereon as are deemed by the Committee to be consistent with the
purposes of the Plan. Subject to the terms of the Plan and any applicable
Agreement, such Stock Awards may have such terms and conditions as the
Committee shall determine.
3.8
TRANSFERABILITY
.
Subject to the provisions of this Plan and the Award Agreements, Awards of
Stock Appreciation Rights, Restricted Stock, Restricted Stock Units,
Performance Awards or Other Stock Grant may not be sold, assigned, transferred,
pledged or otherwise encumbered during any applicable Restriction Period.
ARTICLE IV.
ADDITIONAL PROVISIONS
4.1
NO
RIGHTS AS SHAREHOLDER
.
No Recipient shall have any
rights as a Shareholder of the Company with respect to any Common Stock subject
to such Recipients Award prior to the date of issuance to such Recipient of a
certificate or certificates for such Common Stock or the date on which such
issuance is recorded on the Companys books and records in the case of
non-certificated shares.
4.2
WITHHOLDING
.
Whenever the Company proposes or is required to issue or transfer shares of
Common Stock under the Plan, the Company shall have the right to require the
Recipient to remit to the Company an amount sufficient to satisfy any federal,
state or local withholding tax liability prior to the delivery of any
certificate or certificates for such shares or the date on which such issuance
is recorded on the Companys books and records in the case of non-certificated
shares. Whenever under the Plan payments are to be made in cash, such payments
shall include an amount sufficient to satisfy any federal, state, or local
withholding tax liability.
4.3
RESERVATION
OF COMMON STOCK
.
The Company, during the terms of
the Plan and all Awards issued under the Plan, will at all times reserve and
keep available, and will use its commercially reasonable best efforts to seek
or obtain approval from any regulatory body having jurisdiction over the
transactions contemplated by this Plan necessary in order to issue and sell,
such number of Common Stock as shall be sufficient to satisfy the requirements
of the Plan.
4.4
ISSUANCE
OF SHARES OF COMMON STOCK
.
Notwithstanding any
other provision of the Plan, the Company shall have no obligation to issue or
deliver any shares of Common Stock under an Award granted under the Plan or
make any other distribution of
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benefits under
the Plan unless, in the opinion of the Companys legal counsel, such issuance,
delivery or distribution would comply with all applicable laws (including,
without limitation, the requirements of the Securities Act or the laws of any
state or foreign jurisdiction) and the applicable requirements of any
securities exchange or similar entity. The Company shall be under no obligation
to any Recipient to register for offering or resale or to qualify for an
exemption from registration under the Securities Act, or to register or qualify
under the laws of any state or foreign jurisdiction, any Awards, shares of
Common Stock, security or interest in a security paid or issued under, or
created by, the Plan, or to continue in effect any such registrations or
qualifications if made. The Company may issue stock certificates evidencing
shares of Common Stock with such legends and subject to such restrictions on
transfer and stop transfer instructions as legal counsel for the Company deems
necessary or desirable for compliance by the Company with federal, state and
foreign securities laws. The Company may also require such other action or
agreement by the Recipients as may from time to time be necessary to comply
with applicable securities laws.
4.5
INCOME
TAX TREATMENT
.
Government jurisdiction, income
reporting and tax withholding requirements will be complied with by the Company
whenever Awards are granted or exercised and any income tax payment, and any
income tax prepayment requirements (including any tax withholding requirements
imposed upon the Company) will be effectively borne by the Recipient. BECAUSE
FEDERAL INCOME TAX LAW IS SUBJECT TO CHANGE AND INCOME TAX LAWS VARY FROM STATE
TO STATE, THE COMPANY STRONGLY RECOMMENDS THAT RECIPIENTS CONSULT WITH THEIR
INDIVIDUAL TAX ADVISORS PRIOR TO EXERCISING AN OPTION OR ANY OTHER AWARD.
4.6
EXCEPTIONS
TO TERMINATION OF EMPLOYMENT
.
Whether military,
government or other service or other leave of absence shall constitute a
termination of employment or other relationship with the Company shall be
determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive and binding on all
Recipients. A termination of employment or other relationship with the Company
shall not occur where the Recipient transfers from the Company to one of its
Affiliates or transfers from an Affiliate to the Company or another Affiliate.
4.7
OTHER
BENEFITS AND COMPENSATION PROGRAMS
.
Payments and
other benefits received by a Recipient under an Award shall not be deemed a
part of a Recipients regular, recurring compensation for purposes of any
termination, indemnity or severance pay laws and shall not be included in, nor
have any effect on, the determination of benefits under any other employee
benefit plan, contract or similar arrangement provided by the Company or an
Affiliate, unless expressly so provided by such other plan, contract or
arrangement or the Committee determines that an Award or portion of an Award
should be included to reflect competitive compensation practices or to
recognize that an Award has been made in lieu of a portion of competitive cash
compensation.
4.8
INTERNATIONAL
RECIPIENTS
.
With respect to Recipients who reside
or work outside the United States of America, the Committee may, in its sole
discretion, amend the terms of the Plan or adopt such modifications, procedures
or sub-plans with respect to such Recipients as are necessary or desirable to
ensure the viability of the benefits of the Plan, comply with applicable
foreign laws or obtain more favorable tax or other treatment for a Recipient,
the
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Company or an
Affiliate; provided, however, that no such changes shall apply to the Awards to
Recipients who may be covered employees under Section 162(m) of the Code or
any successor thereto unless consistent with the provisions thereof.
4.9
NO
RIGHT TO CONTINUED EMPLOYMENT, SERVICE AS A DIRECTOR OR AWARDS
.
The granting of an Award under the Plan shall impose no obligation on the
Company or any Affiliate to continue the employment of a Recipient and shall
not lessen or affect the Companys or the Affiliates right to terminate the
employment of such Recipient. Nothing in the Plan will interfere with or limit
in any way the right of the Company, the Board or the Shareholders to terminate
the directorship of any Director at any time, nor confer upon any Director any
right to continue to serve as a member of the Board. No Recipient or other
person shall have any claim to be granted any Award, and there is no obligation
for uniform treatment of Recipients or holders or beneficiaries of Awards.
4.10
EXPENSES
OF PLAN
.
The expenses of administering this Plan
shall be borne by the Company and its Affiliates.
4.11
RELIANCE
ON REPORTS
.
Each Director or of a committee of the
Board, including the Committee, shall be fully justified in relying or acting
in good faith upon any report made by the independent registered public
accounting firm of the Company and its Affiliates and upon any other
information furnished in connection with this Plan by any person or persons
other than such member. In no event shall any person who is or shall have been
a Director or of a committee of the Board, including the Committee, be liable
for any determination made or other action taken or omitted in reliance upon
any such report or information, or for any action taken or omitted, including
the furnishing of information, in good faith.
4.12
STOCK
CERTIFICATES
.
To the extent this Plan or any
applicable Agreement provides for the issuance of stock certificates to reflect
the issuance of shares of Common Stock, the Company may issue such shares on a
non-certificated basis to the extent it reasonably can do so in compliance with
the restrictions set forth in this Plan and the applicable Agreement and to the
extent not prohibited by applicable law or the applicable rules of any stock
exchange or market on which such shares are traded.
4.13
GENERAL
RESTRICTIONS
.
Each Award granted pursuant to the
Plan shall be subject to the requirement that if, in the opinion of the Board
or Committee, the listing, registration, or qualification of any shares of
Common Stock related thereto upon any securities exchange or under any state or
federal law, the consent or approval of any regulatory body, or an agreement by
the Recipient with respect to the disposition of any such shares, is necessary
or desirable as a condition of the issuance or sale of such shares, such Award
shall not be exercised or shares of Common Stock granted without restriction
and/or such shares of Common Stock shall not be sold unless and until such
listing, registration, qualification, consent, approval, or agreement is effected
or obtained in form satisfactory to the Board or Committee.
4.14
SUCCESSORS
AND ASSIGNS
.
This Plan will be binding upon and
inure to the benefit of the successors and permitted assigns of the Company and
the Recipients, and Agreements entered into in accordance with the Plan shall
be binding upon the heirs, successors and assigns of the Company and the
Recipients.
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4.15
SEVERABILITY
.
If any provision of the Plan or any Agreement shall be held illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining
parts of the Plan or Agreement, and such Plan or Agreement shall be construed
and enforced as if the illegal or invalid provision had not been included.
4.16
MINNESOTA
LAW
.
The validity, construction, interpretation,
administration and effect of the Plan; any rules, regulations and actions
relating to the Plan; and the Agreements evidencing Awards granted under the
Plan, will be governed by and construed exclusively in accordance with the laws
of the State of Minnesota without regard to its choice of law provisions.
4.17
NO
TRUST OR FUND
.
The Plan is intended to constitute
an unfunded plan. Nothing contained herein shall require the Company to
segregate any monies, other property, or shares of Common Stock, or to create
any trusts, or to make any special deposits for any immediate or deferred
amounts payable to any Recipient, and no Recipient shall have any rights that
are greater than those of a general unsecured creditor of the Company.
4.18
APPLICATION
OF CODE SECTION 409A
.
If and to the extent that
any provision of an Award is required to comply with Section 409A of the Code,
such provision shall be administered and interpreted in a manner consistent
with the requirements of Section 409A. If and solely to the extent that any
such provision of an Award as currently written would conflict with Section
409A of the Code, the Committee shall have the authority, without the consent
of the Recipient, to administer such provision and to amend the Award with
respect to such provision to the extent the Committee deems necessary for the
purposes of avoiding any portion of amounts owed to the Recipient being
retroactively included in the taxable income of the Recipient for any prior
taxable year.
I hereby
certify that this Plan was adopted by the Board of Directors of the Company
effective April 9, 2014 (the Effective Date), and approved by the
Shareholders of the Company on _______________________, 2014, with such Plan to
be effective on the Effective Date.
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IMAGE SENSING SYSTEMS, INC.
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By:
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Its:
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IMAGE
SENSING SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, May 13, 2014
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 17, 2014, revoking any proxy previously given, hereby
appoint(s) Kris B. Tufto and Dale E. Parker 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 Tuesday, May 13, 2014 at 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.
Table of Contents
6
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
6
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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 2014 fiscal year, FOR the non-binding resolution to approve
the compensation of our named executive officers, FOR the Image Sensing
Systems, Inc. 2014 Stock Option and Incentive Plan, 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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1.
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Election of
directors:
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FOR all nominees
listed
below
(except as
specified below).
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WITHHOLD
AUTHORITY
to
vote for all
nominees listed below.
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2.
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To ratify the appointment of Grant Thornton LLP as
the independent registered public accounting firm of the company for
2014.
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FOR
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AGAINST
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ABSTAIN
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01
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Kris B. Tufto
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04
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Thomas G. Hudson
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3.
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Non-binding resolution to approve the compensation
of our named executive officers.
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FOR
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AGAINST
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ABSTAIN
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02
03
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Dale E. Parker
James W. Bracke
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Paul F. Lidsky
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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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4.
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Approval of Image Sensing Systems, Inc. 2014 Stock
Option and Incentive Plan.
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FOR
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AGAINST
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ABSTAIN
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o
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COMPANY ID:
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PROXY NUMBER:
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ACCOUNT NUMBER:
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PLEASE DATE AND SIGN name(s) exactly as shown
on this proxy card. When shares are held by joint tenants, both should
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Image Sensing Systems (NASDAQ:ISNS)
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From Jun 2024 to Jul 2024
Image Sensing Systems (NASDAQ:ISNS)
Historical Stock Chart
From Jul 2023 to Jul 2024