The
change in control provisions that we use contain a double trigger
requirement, meaning that for an executive to receive a payment under the
change of control provision, there must be both a change of control, as defined
in the applicable agreement, and an involuntary termination of the executives
employment. The double trigger requirement was chosen to prevent us from having
to pay substantial payments in connection with a change in control where an
executive had not suffered any adverse employment consequences. However, all
stock options will vest and become immediately exercisable upon a change of
control, regardless of whether the executive is involuntarily terminated.
Disability Benefits for Certain Named Officers.
We provide all of our full-time salaried employees with short-term disability
benefits for six months. We also maintain a disability insurance policy on
behalf of certain members of our senior management, including our Named
Officers, that is in addition to the disability benefits that we maintain for
our salaried employees. In the event that any of these executives became
disabled, as provided in their respective policies, was unable to return to the
performance of their duties after six months and was terminated as an employee
effective as of December 31, 2011, they would be paid monthly benefits until
age 65 as follows: Mr. Gorder - $8,370 per month; Mr. Geraci - $6,450 per
month; Mr. Gonsior - $5,860 per month; Mr. Conger - $3,000 per month; Mr.
Gruenhagen - $6,935 per month; and Mr. Longval $3,250 per month.
Equity Plans.
Our Named Officers hold
unvested stock options under our 2001 Stock Option Plan and our 2006 Equity Incentive
Plan. All options under the 2001 Stock Option Plan are vested.
Under
our 2006 Equity Incentive Plan, all unvested options will automatically
accelerate and become vested upon the death, disability, retirement of the
holder or upon a change of control of us, as defined in that Plan.
Under both the
2001 Stock Option Plan and 2006 Equity Incentive Plan, options held by an
employee whose employment is terminated for cause, as defined in those plans,
will terminate immediately. In addition, under the 2006 Equity Incentive Plan,
the voluntary resignation of employment by an employee will not result in the
acceleration of unvested options.
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
Mr.
Gorder, our president, chief executive officer and a director, is a general
partner (with a one-third interest) of Arden Partners I, L.L.P., a Minnesota
limited liability partnership, referred to as Arden, that owns and leases to us
property under a lease entered into in 1991, which we use as a manufacturing
facility. In 2011, the lease was renewed with a term expiring on October 31,
2013. Under the lease, we pay Arden a base monthly rent of approximately
$31,007 plus real estate taxes and other charges. In 2011 and 2010, we paid
Arden approximately $486,000 and $477,000, respectively, for rent, real estate
taxes and other charges. Mr. Gorders interest in such payments was
approximately $162,000 and $159,000 in 2011 and 2010, respectively.
We
use the law firm of Blank Rome LLP for legal services. A partner of that firm,
David A. Dorey, is the son-in-law of the Chairman of our Board of Directors,
Mr. McKenna; however, the legal services are provided by other attorneys at
that firm and not by Mr. Dorey. In 2011 and 2010, we paid that firm
approximately $217,000 and $205,000, respectively, for legal services and
costs. The interest of Mr. Dorey in such amounts is not determinable.
29
PROPOSAL 2
AMENDMENT OF 2006 EQUITY INCENTIVE PLAN
Description of the Proposal
In
March 2006, the Board of Directors, upon recommendation from the Compensation
Committee, adopted, and in April 2006, the Corporations shareholders approved,
the 2006 Equity Incentive Plan (the 2006 Equity Plan). In March 2012, the
Board of Directors, upon recommendation from the Compensation Committee,
adopted an amendment to the 2006 Equity Plan, subject to shareholder approval,
to increase the authorized number of Common Shares reserved and issuable
thereunder by an additional 300,000 Common Shares. The amendment also increased
the limit on the maximum number of incentive stock options that may be issued
under the 2006 Equity Plan by such additional 300,000 Common Shares. Finally,
the amendment also increased the limit on the maximum number of Common Shares
for which stock options, SARs (as defined below) and other awards may be
granted to any person in any fiscal year to 50,000 shares for each type.
The
Corporation is submitting the amendment to the 2006 Equity Plan to shareholders
for approval in accordance with the Nasdaq Stock Market listing standards that
require shareholder approval of most equity-based compensation plans, including
the 2006 Equity Plan, and amendments thereto. The amendment to the 2006 Equity
Plan is also being submitted for shareholder approval so that, among other
reasons, the requisite shareholder approval may be obtained to permit the
issuance of incentive stock options under the Internal Revenue Code and to
permit the Corporation to deduct certain performance-based compensation under
Section 162(m) of the Internal Revenue Code.
Description of the 2006 Equity Plan
The
material terms of the 2006 Equity Plan are summarized below. A copy of the full
text of the 2006 Equity Plan, as proposed to be amended, is attached as
Appendix A to this Proxy Statement. This summary of the 2006 Equity Plan is not
intended to be a complete description of the 2006 Equity Plan and is qualified
in its entirety by the actual text of the 2006 Equity Plan to which reference
is made. Capitalized terms used but not defined herein have the meanings set
forth in the 2006 Equity Plan.
General
The
purposes of the 2006 Equity Plan are to attract and promote the long-term
retention of key employees, directors and certain other persons who are in a
position to make significant contributions to the success of the Corporation,
to reward these employees, directors and other persons for their contributions,
to provide additional incentive to such employees, directors and other persons to
continue making similar contributions and to further align the interests of
these employees, directors and other persons with those of the Corporations
shareholders. To achieve these purposes, the 2006 Equity Plan permits grants of
incentive stock options (ISOs), options not intended to qualify as incentive
stock options (non-ISOs), stock appreciation rights (SARs), restricted and
unrestricted stock awards, restricted stock units, performance awards,
supplemental cash awards and combinations of the foregoing (collectively
referred to as Awards). Awards of restricted and unrestricted stock,
restricted stock units and/or deferred stock may also be issued to participants
in connection with management or employee purchase programs. Shares issuable under
Awards that terminate unexercised or otherwise terminate without an issuance of
shares, shares issuable under Awards that are payable in stock or cash but are
paid in cash, shares issued but later forfeited and shares that, at the
election of the plan participant, are withheld by
the Corporation to pay the exercise or purchase price of the Award or
applicable withholding taxes will be available for future Awards under the 2006
Equity Plan.
30
The
2006 Equity Plan is intended to satisfy the requirements of Section 162(m) of
the Internal Revenue Code (the Section 162(m) Limitations), which limits the
deductibility for Federal corporate income tax purposes of certain compensation
in excess of $1,000,000 per year paid by a publicly traded corporation to
Covered Employees. Covered Employees are determined at the end of the tax
year, and consist of the Chief Executive Officer plus the other three most
highly compensated employees of the Corporation whose compensation is required
to be reported to shareholders by reason of such employee being among the three
highest compensated officers for the taxable year under applicable SEC rules
and regulations.
Compensation
paid to Covered Employees will not be subject to the Section 162(m) Limitations
if it is considered qualified performance-based compensation. Under the
regulations to Section 162(m), compensation related to Awards (other than
supplemental cash awards) is deemed to constitute qualified performance-based
compensation if the Award meets the following conditions: (i) it is made by a
committee of the Board of Directors comprised solely of two or more outside
directors; (ii) the plan under which the Award is made sets forth the maximum
number of shares with respect to Awards that may be granted to any individual
during a specified period; (iii) under the terms of the Award, the amount of
compensation that an employee can receive is based solely on an increase in the
value of the Common Shares after the date of the grant or award or the
entitlement to the compensation subject to the Award is contingent solely on
the attainment of one or more pre-established and objective performance goals;
and (iv) the material terms of the plan are disclosed to and approved by
shareholders. As described in more detail below, Awards granted under the 2006
Equity Plan are intended to satisfy the foregoing requirements with respect to
Awards to Covered Employees.
Administration
The
2006 Equity Plan is administered by the Compensation Committee (the
Committee) of the Board of Directors, which has full and exclusive power to
administer and interpret the 2006 Equity Plan, to grant Awards and to adopt
such administrative rules, regulations, procedures and guidelines governing the
2006 Equity Plan and the Awards as it may deem necessary in its discretion,
from time to time. The Committee is comprised solely of outside directors of
the Corporation who are intended to satisfy the requirements of the Section
162(m) Limitations. The Committees authority includes the authority to: (i)
determine the type of Awards to be granted under the 2006 Equity Plan; (ii)
select Award recipients and determine the extent of their participation; (iii)
determine the method or formula for establishing the fair market value of the
Common Shares for various purposes under the 2006 Equity Plan; and (iv)
establish all other terms, conditions, restrictions and limitations applicable
to Awards and the Common Shares issued pursuant to Awards, including, but not limited
to, those relating to a participants retirement, death, disability, leave of
absence or termination of employment. The Committee may accelerate or defer the
vesting or payment of Awards, cancel or modify outstanding Awards, waive any
conditions or restrictions imposed with respect to Awards or the Common Shares
issued pursuant to Awards and make any and all other interpretations and
determinations which it deems necessary with respect to the administration of
the 2006 Equity Plan, other than a reduction of the exercise price of an option
after the grant date and subject to the provisions of Section 162(m) of the
Internal Revenue Code with respect to Covered Employees. The Committees
right to make any decision, interpretation or determination under the 2006
Equity Plan shall be in its sole and absolute discretion.
The
Committee may, subject to criteria, limitations and instructions as the
Committee determines, delegate to an appropriate officer of the Corporation the
authority to determine the individual Participants and amount and nature of the
Award to be issued to such Participants; provided, that no Awards may be made pursuant
to such delegation to a Participant who is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended.
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Eligibility
ISOs
may be granted under the 2006 Equity Plan only to employees of the Corporation.
All current and future employees of the Corporation, directors and other
persons who, in the opinion of the Committee, are in a position to make
significant contributions to the success of the Corporation, such as
consultants and non-employee directors, are eligible to receive all other types
of Awards under the 2006 Equity Plan.
Number of Shares Available for Issuance
Under
the 2006 Equity Plan as approved by the shareholders on April 26, 2006, the
Corporation was authorized to issue up to 698,500 Common Shares, subject to
increase from time to time by a number of shares equal to the number of Common
Shares that are issuable pursuant to option grants outstanding under the
Corporations 2001 Stock Option Plan and Amended and Restated Non-Employee
Directors Stock Option Plan (collectively, the Old Plans) as of April 26,
2006 that, but for the termination and/or suspension of the Old Plans, would
otherwise have reverted to the share reserve of the Old Plans pursuant to the
terms thereof as a result of the expiration, termination, cancellation or
forfeiture of such options. As of April 26, 2006, options to purchase 519,000
Common Shares were outstanding under the Old Plans. On April 21, 2010, the
Corporations shareholders approved an amendment to the 2006 Equity Plan to
increase (i) the authorized number of shares of the Corporations common stock
reserved and issuable under the plan by an additional 250,000 shares and (ii)
the maximum number of incentive stock options that may be granted under the
plan to be the same as the maximum number of shares that may be granted under
the plan.
Currently,
the maximum total number of shares for which awards may be granted under the
2006 Equity Plan, as amended, is 948,500 Common Shares, subject to appropriate
adjustment in a manner determined by the Board of Directors to reflect changes
in the Corporations capitalization; however, such authorized share reserve
will be increased from time to time by a number of shares equal to the number
of Common Shares that are issuable pursuant to option grants outstanding under
the Old Plans as of April 26, 2006 that, but for the termination and/or
suspension of the Old Plans, would otherwise have reverted to the share reserve
of the Old Plans pursuant to the terms thereof as a result of the expiration,
termination, cancellation or forfeiture of such options.
As
of March 6, 2012:
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options to
purchase 940,050 Common Shares were outstanding under the 2006 Equity Plan;
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the total
number of shares available for new awards under the 2006 Equity Plan was
98,643 Common Shares; and
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options to
purchase 268,200 Common Shares were outstanding under the Old Plans, which
shares will become available for new awards under the 2006 Equity Plan in the
event of the cancellation, expiration, forfeiture or repurchase of such
awards.
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In
March 2012, the Board of Directors approved an amendment to the 2006 Equity
Plan to, among other things, increase the number of Common Shares issuable
under the 2006 Equity Plan by 300,000 shares, subject to shareholder approval.
Assuming Proposal 2 is approved by shareholders, a total of 1,248,500 shares
would be authorized and reserved for issuance under the 2006 Equity Plan, plus such number of
shares that may become available for grant under the 2006 Equity Plan upon the
expiration, termination, cancellation or forfeiture of outstanding awards under
the Old Plans.
32
Additionally,
assuming Proposal 2 is approved, the maximum number of Common Shares for which
stock options may be granted to any person in any fiscal year and the maximum
number Common Shares subject to SARs granted to any person in any fiscal year
each will be increased from 25,000 to 50,000. The maximum number of Common
Shares subject to other Awards granted to any person in any fiscal year also
will be increased to 50,000 shares. The foregoing provisions will be construed
in a manner consistent with Section 162(m).
Adjustments
In
the event of any stock dividend, stock split, combination or exchange of equity
securities, merger, consolidation, recapitalization, reorganization,
divestiture or other distribution (other than ordinary cash dividends) of
assets to shareholders, or any other event affecting the Common Shares that the
Committee deems, in its sole discretion, to be similar circumstances, the
Committee may make such adjustments as it may deem appropriate, in its
discretion, to:
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the
maximum number of shares available for issuance under the 2006 Equity Plan or
to any one participant;
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the
number or kind of shares of Common Shares covered by outstanding Awards;
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the
exercise price applicable to outstanding Awards;
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any
measure of performance that relates to an Award in order to reflect such
change in the Common Shares; and/or
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any
other affected terms of any equity-based Award.
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Exercise Price
The
Committee determines the exercise price applicable to each ISO, non-ISO and
SAR, which will not be less than the fair market value of Corporation Common
Shares at the time of the grant, as described below. The 2006 Equity Plan does
not permit the repricing of options without prior shareholder approval. As of
March 6, 2012, the closing price of the Corporations Common Shares as reported
on the Nasdaq Global Market was $5.85 per share.
Options
Recipients
of stock options under the 2006 Equity Plan will have the right to purchase
Common Shares at an exercise price, during a period of time and on such other
terms and conditions as are determined by the Committee. For ISOs, the
recipient must be an employee, the exercise price must be at least 100% (110%
if issued to a greater than ten percent shareholder of the Corporation) of the
fair market value of the Corporations Common Shares on the date of grant and
the term cannot exceed ten years (five years if issued to a greater than ten
percent shareholder of the Corporation) from date of grant. The limit on the
maximum number of ISOs that may be granted under the 2006 Equity Plan is being
increased by the amendment to 1,248,500 Common Shares, plus such number of
shares that may become available for grant under the 2006 Equity Plan upon the
expiration, termination, cancellation or forfeiture of outstanding awards under
the Old Plans. The exercise price of a non-ISO must be at least 100% of the fair market
value of Common Shares on the date of grant, except that such exercise price
may be offset by forfeiture of an amount of cash compensation equivalent to the
reduction in the exercise price. An option exercise price may be paid in cash
or by check, bank draft or money order payable to the order of the Corporation,
or if permitted by the Committee and subject to certain conditions, by delivery
of Common Shares that have been owned by the recipient for at least six months
(unless the Committee expressly approves a shorter period) and have a fair
market value on the date of exercise at least equal to the exercise price, or
an unconditional and irrevocable undertaking by a broker to promptly deliver
the necessary funds (including in connection with so-called cashless exercise
effected by such broker) or by a combination of such methods. The Committee may
cancel options (other than those granted in tandem with SARs) and cause the
Corporation to pay to the recipient, in cash or Common Shares (valued at the
then fair market value of Common Shares), an amount equal to such fair market
value minus the exercise price of the option shares. The Committee may at any
time accelerate the time at which all or any part of the option may be
exercised.
33
Stock Appreciation Rights
SARs
may be granted under the 2006 Equity Plan either alone or in tandem with stock
options. Generally, recipients of SARs are entitled to receive upon exercise,
cash or Common Shares (valued at the then fair market value of Common Shares;
110% of its fair market if issued to a greater than ten percent shareholder of
the Corporation) equal to such fair market value on the date of exercise minus
the fair market value on the date of grant of the shares subject to the SAR,
although certain other measurements also may be used. A SAR granted in tandem
with a stock option is exercisable only if and to the extent that the option is
exercised.
Stock Awards
The
2006 Equity Plan provides for restricted and unrestricted stock awards,
restricted stock units and deferred stock awards. Restricted and unrestricted
stock awards allow the recipient to acquire Common Shares for no consideration,
nominal consideration or any higher price determined by the Committee. In the
case of restricted stock awards, the shares acquired are subject to a vesting
schedule and other possible conditions determined by the Committee. A restricted
stock unit is an award denominated in restricted Common Shares, pursuant to a
formula determined by the Committee, which may be settled either in restricted
Common Shares or in cash, in the discretion of the Committee, subject to such
other terms, conditions, restrictions and limitations determined by the
Committee from time to time. A deferred stock award entitles the recipient to
receive Common Shares to be delivered in the future. Delivery of the Common
Shares will take place at such time or times, and on such terms and conditions,
as the Committee may determine.
Performance Awards
The
2006 Equity Plan provides for performance awards entitling the recipient to
receive Awards without payment upon achieving certain performance goals determined
by the Committee. At the discretion of the Committee, any of the
above-described Awards may be contingent on attainment of performance goals
which are based on certain pre-established criteria. Performance goals may
involve overall corporate performance, operating group or business unit
performance, personal performance or any other category of performance
determined by the Committee.
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Supplemental Cash Awards
Under
the 2006 Equity Plan and subject to applicable law, supplemental cash awards
may be granted to recipients of Awards to help defray taxes due as a result of
the Awards. The terms and conditions of supplemental cash awards are determined
by the Committee.
Termination of Awards
Upon
termination of a recipients employment or other relationship with the
Corporation due to death, Disability or Retirement, except as otherwise
determined by the Committee: (i) stock options and SARs will automatically
become exercisable in full and will remain exercisable for a period of one year
in the event of death or disability, but not longer than the term of the stock
option or SAR, and for a period equal to the unexpired term of the stock option
or SAR in the case of retirement; (ii) all restricted stock and restricted
stock units shall automatically become free of all restrictions and conditions;
and (iii) any payment or benefit under deferred stock awards, performance
awards and supplemental grants shall be made by the Corporation. Retirement is
defined in the 2006 Equity Plan as termination of employment with or service to
the Corporation by a participant, other than by reason of death or permanent
disability or termination for cause, at a time when such participant has
attained age 65 or greater; provided that such participant has performed a
minimum of five years of service for the Corporation.
Upon
termination of a recipients employment or other relationship with the
Corporation for any reason, other than death, Disability or Retirement, except
as otherwise determined by the Committee: (i) stock options and SARs, to the
extent that they were exercisable at the time of termination, will remain
exercisable for a period ending on the earlier of (a) 90 days after the date of
termination and (b) the scheduled expiration date of the option, after which
they shall terminate; (ii) stock options and SARs that are not then exercisable
shall terminate upon such termination; (iii) all restricted stock shall be
transferred to the Corporation for purchase for the amount of cash paid for
such stock, or forfeited to the Corporation if no cash were paid; and (iv) any
payment or benefit under restricted stock units, deferred stock awards,
performance awards and supplemental grants to which the recipient was not irrevocably
entitled at the time of termination shall be forfeited and such Awards
cancelled as of the date of such termination.
Deferral of Awards
In
connection with the 2006 Equity Plan, the Board of Directors may implement
deferred compensation provisions that will permit participants in the 2006
Equity Plan to defer receipt of certain types of Awards granted pursuant to the
2006 Equity Plan. If deferred, such Awards would be paid at a future date
pursuant to such deferred compensation provisions.
Section 162(m) Limitations
If
the Committee determines at the time an Award that is intended to qualify as
performance-based compensation for purposes of Section 162(m) of the Code is
granted to a recipient that such recipient is, or may be as of the end of the
tax year for which the Corporation would claim a Federal income tax deduction
in connection with such Award, a covered employee, then, if necessary to
preserve the deductibility of the Award under Section 162(m), the Committee may
provide that the Award be subject to the achievement of specified levels of one
or more of the following performance goals, unless and until the Corporations
shareholders approve a change to such performance goals: operating income, net earnings,
earnings before interest, taxes, depreciation and amortization (EBITDA),
earnings before interest and taxes (EBIT), net income, earnings per share,
total shareholder return, cash flow, return on assets, decrease in expenses,
Common Share price, price-earnings multiple, comparisons to market indices,
sales growth, market share, the achievement of certain quantitatively and
objectively determinable non-financial performance measures including, but not
limited to, growth strategies, strategic initiatives, corporate development and
leadership development, and any combination of the foregoing. The
performance goals shall be determined and approved by the Committee within the
first 90 days of each fiscal year, or, if shorter, the first 25% of the performance
period to which the Award relates. Awards subject to such conditions may not be
adjusted upward; however, the Committee shall retain the discretion to adjust
such Awards downward. Prior to the payment of any Award subject to these
Section 162(m) Limitations, the Committee shall certify in writing that the
applicable performance goal was satisfied.
35
The
Committee shall have the discretion to impose such other restrictions on Awards
as it may deem necessary or appropriate to ensure that such Awards qualify as
performance-based compensation for purposes of Section 162(m) of the Code. In
the event that applicable tax/and or securities laws change to permit the
Committee the discretion to alter the governing performance goals without
obtaining shareholder approval, the Committee shall have the sole discretion to
make such changes without obtaining shareholder approval. In addition, in the
event that the Committee determines that it is advisable to grant Awards that
shall not qualify as performance-based compensation for purposes of Section
162(m) of the Code, the Committee may make such grants without satisfying the
Section 162(m) Limitations.
Change in Control
The
2006 Equity Plan generally provides that, unless the Committee determines
otherwise at the time of grant with respect to a particular Award, in the event
of a change in control (as defined below), (1) any options and SARs shall
automatically become exercisable in full upon the occurrence of such change of
control, (2) any restricted stock shall automatically become free of all
restrictions and conditions upon the occurrence of such change of control, and
(3) any conditions on restricted stock units, deferred stock awards performance
awards and supplemental grants which relate only to the passage of time and
continued employment shall automatically terminate upon the occurrence of such
change of control.
A
change in control means: (i) the occurrence of an event that would, if known to
the Corporations management, be required to be reported by the Corporation as
a change in control pursuant to the SECs Current Report on Form 8-K under to
the Exchange Act; or (ii) the acquisition or receipt, in any manner, by any
person (as defined for purposes of the Exchange Act) or any group of persons
acting in concert, of direct or indirect beneficial ownership (as defined for
purposes of the Exchange Act) of more than 50% of the Corporations combined
voting securities ordinarily having the right to vote for the election of
directors of the Corporation; or (iii) a change in the constituency of the
Board of Directors with the result that individuals (the Incumbent Directors)
who are members of the Board of Directors on the effective date of the 2006
Equity Plan cease for any reason to constitute at least a majority of the Board
of Directors, provided that any individual who is elected to the Board of
Directors after the effective date of the 2006 Equity Plan and whose nomination
for election was unanimously approved by the Incumbent Directors shall be
considered an Incumbent Director beginning on the date of his or her election
to the Board of Directors, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest (as defined for purposes of the Exchange Act) with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than the
Board of Directors; or (iv) the sale, exchange, liquidation or other
disposition of all or more than 50% of the Corporations business or assets;
unless in any such case, at least a majority of the Incumbent Directors
determine, prior to the occurrence of such change in control, that no change in
control has or will have occurred; or (v) the occurrence of a reorganization,
merger, consolidation or other corporate transaction involving the Corporation,
in each case, with respect to which the Corporations shareholders immediately
prior to such transaction do not, immediately after such transaction, own more
than 50% of the combined voting securities ordinarily having the right to vote
for the election of directors of the Corporation or other corporation resulting
from such transaction; or (vi) the approval by the Corporations shareholders
of a complete
liquidation or dissolution of the Corporation; or (vii) any similar
transaction, circumstance or event which the Committee determines to constitute
a change in control.
36
Additional Cancellation Provisions
In
any instance where the rights of a recipient under an Award continue after
termination of their relationship with the Corporation, all of such rights
shall terminate and be forfeited if, in the determination of the Committee, the
recipient, at any time prior or subsequent to such termination, breached or
violated, in a material way, the terms of any agreement with the Corporation,
including any employment agreement, termination agreement, confidentiality
agreement, non-solicitation agreement or non-competition agreement or engaged
or engages in conduct that would have permitted the Corporation to terminate
the recipients employment for Cause if the recipient was still an employee
of the Corporation.
Reduction of Payments to Participants
If
any payment or benefit under the 2006 Equity Plan constitutes a parachute
payment within the meaning of Section 280G of the Internal Revenue Code and
would be subject to the excise tax imposed on the participant by Section 4999
of the Internal Revenue Code (the Excise Tax), then such payment will be
reduced, if on an after-tax basis (including the Excise Tax), such reduction
would result in the recipient receiving a greater amount of the payment.
Summary of Federal Income Tax Consequences
The
following is a brief summary of the principal United States federal income tax
consequences of transactions under the 2006 Equity Plan, based on current
United States federal income tax laws. This summary is not intended to be
exhaustive, does not constitute tax advice and, among other things, does not
describe state, local or foreign tax consequences.
Non-ISOs
.
No taxable income is recognized by a participant upon the grant of a non-ISO.
Upon the exercise of a non-ISO, the participant will recognize ordinary income
in an amount equal to the excess, if any, of the fair market value of the
Common Shares exercised over the aggregate non-ISO exercise price, even though
that Common Share may be subject to a restriction on transferability or may be
subsequently forfeited, in limited circumstances. Income and payroll taxes are
required to be withheld by the Corporation on the amount of ordinary income
resulting to the participant from the exercise of a non-ISO. Any ordinary
income recognized by the participant is generally deductible by the Corporation
for federal income tax purposes, subject to the possible limitations on
deductibility of compensation paid to some executives under Section 162(m) of
the Internal Revenue Code. The participants tax basis in Common Shares
acquired by exercise of a non-ISO will be equal to the exercise price plus the
amount taxable as ordinary income to the participant.
Upon
a sale of the Common Shares received by the participant upon exercise of the
non-ISO, any gain or loss will generally be treated for federal income tax
purposes as long-term or short-term capital gain or loss, depending upon the
holding period of that stock. The participants holding period for shares
acquired after the exercise of a non-ISO begins on the date of exercise of that
option.
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If
the participant pays the exercise price in full or in part by using shares of
previously acquired Common Shares, the exercise will not affect the tax
treatment described above and no gain or loss generally will be recognized to
the participant with respect to the previously acquired shares. The shares
received upon exercise which are equal in number to the previously acquired
shares used will have the same tax basis as the previously acquired shares
surrendered to the Corporation, and will have a holding period for
determining capital gain or loss that includes the holding period of the shares
used. The value of the remaining shares received by the participant will be
taxable to the participant as compensation, even though those shares may be
subject to sale restrictions. The remaining shares will have a tax basis equal
to the fair market value recognized by the participant as ordinary income and
the holding period will commence on the exercise date. Shares used to pay
applicable income and payroll taxes arising from that exercise will generate
taxable income or loss equal to the difference between the tax basis of those
shares and the amount of income and payroll taxes satisfied with those shares.
The income or loss will be treated as long-term or short-term capital gain or
loss depending on the holding period of the shares used. Where the shares used
to pay applicable income and payroll taxes arising from that exercise generate
a loss equal to the difference between the tax basis of those shares and the
amount of income and payroll taxes satisfied with those shares, that loss may
not be currently recognizable if, within a period beginning 30 days before the
exercise date and ending 30 days after that date, the participant acquires or
enters into a contract or option to acquire additional Common Shares.
ISOs
.
No taxable income is recognized by a participant upon the grant or exercise of
an ISO. If Common Shares are issued to a participant after the exercise of an
ISO and if no disqualifying disposition of those shares is made by that
participant within two years after the date of grant or within one year after the
receipt of those shares by that participant, then:
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upon
the sale of those shares, any amount realized in excess of the option
exercise price will be taxed to that participant as a long-term capital gain,
and
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the
Corporation will not be allowed a deduction.
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Additionally,
the exercise of an ISO will give rise to an item of tax preference that may
result in alternative minimum tax liability for the participant.
If
Common Shares acquired upon the exercise of an ISO are disposed of prior to the
expiration of either holding period described above, that disposition would be
a disqualifying disposition, and generally:
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the
participant will realize ordinary income in the year of disposition in an
amount equal to the excess, if any, of the fair market value of the shares on
the date of exercise, or, if less, the amount realized on the disposition of
the shares, over the ISO exercise price, and
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the Corporation
will be entitled to deduct that amount.
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Any
other gain realized by the participant on that disposition will be taxed as
short-term or long-term capital gain, and will not result in any deduction to
the Corporation. If a participant pays the exercise price in full or in part
with previously acquired Common Shares, the exchange will not affect the tax
treatment of the exercise. Upon the exchange, no gain or loss generally will be
recognized upon the delivery of the previously acquired shares to the
Corporation, and the shares issued in replacement of the shares used to pay the
exercise price will have the same basis and holding period for capital gain
purposes as the previously acquired shares. A participant, however, would not
be able to utilize the holding period for the previously acquired shares for
purposes of satisfying the ISO statutory holding period requirements.
Additional Common Shares will have a basis of zero and a holding period that
commences on the date the Common Shares are issued to the participant upon
exercise of the ISO. If this exercise is effected using Common Shares
previously acquired through the exercise of an ISO, the exchange of the
previously acquired shares may be a disqualifying disposition of those Common Shares
if the holding periods discussed above have not been met.
38
If
an ISO is exercised at a time when it no longer qualifies as an ISO, the option
will be treated as a non-ISO. Subject to some exceptions for permanent
disability or death, an ISO generally will not be eligible for the federal
income tax treatment described above if it is exercised more than three months
following a termination of employment (one year if termination is due to death
or disability, as defined in the Internal Revenue Code).
Stock
Appreciation Rights
. No taxable income is recognized
by a participant upon the grant of a SAR. Upon the exercise of a SAR, the
participant will recognize ordinary income in an amount equal to the cash
received plus the fair market value of any Common Shares received from the
exercise. The participants tax basis in the Common Shares received in the
exercise of the SAR will be equal to the ordinary income recognized with
respect to the Common Shares. The participants holding period for shares
acquired on the exercise of a SAR begins on the exercise date. Income and
payroll taxes are required to be withheld on the amount of compensation
attributable to the exercise of the SAR, whether the income is paid in cash or
shares. Upon the exercise of a SAR, the Corporation will generally be entitled
to a deduction in the amount of the ordinary income recognized by the
participant.
Unrestricted
and Restricted Stock
. Upon the grant of an
unrestricted stock award, the participant recognizes ordinary income equal to
the fair market value on the date of grant minus the price paid for the shares
awarded. A recipient of a restricted stock award recognizes ordinary income
only as of and when the shares vest or are no longer subject to a substantial
risk of forfeiture (as defined in the Internal Revenue Code). The ordinary
income recognized on each vesting or transfer date equals the fair market value
on that date less any purchase price paid for the shares. A recipient of a
restricted stock award may, however, choose or be required by the terms of the
award to elect under Section 83(b) of the Internal Revenue Code to have the
ordinary income associated with all of the restricted shares recognized and
measured on the date of grant. A recipient who makes such an election and later
forfeits restricted shares may claim a loss for tax purposes only in an amount
equal to the excess of the purchase price paid for the shares (if any) over the
amount received (if any) upon the forfeiture. The Corporation will generally be
entitled to a deduction at the time and in the amount of the ordinary income
recognized by the participant.
Restricted
Stock Units
. A recipient of a restricted stock unit
award recognizes ordinary income only as of and when the shares vest or are no
longer subject to a substantial risk of forfeiture (as defined in the Internal
Revenue Code). The ordinary income recognized on each vesting or transfer date
equals the fair market value on that date less the price paid for the shares.
The Corporation will generally be entitled to a deduction at the time and in
the amount of the ordinary income recognized by the participant.
Performance
Awards and Supplemental Grants
. The tax consequences
of a performance award depend upon the nature of the underlying award earned if
and when the performance goals are achieved. The recipient of a supplemental
cash award recognizes ordinary income equal to the amount received, and the
Corporation will generally be entitled to a corresponding deduction.
Certain
Limitations on Deductibility of Executive Compensation
.
As discussed above, the Section 162(m) Limitations apply to all Awards granted
under the 2006 Equity Plan, unless certain conditions are satisfied.
Compensation under the 2006 Equity Plan generally is intended to satisfy those
conditions and constitute qualified performance-based compensation, but there
is no guarantee that an individual Award will do so. As discussed above,
payments to or benefits for participants that constitute parachute payments
within the meaning of Section 280G of the Internal Revenue Code may be subject
to an excise tax imposed on the participant by Section 4999 of the Code. If any
such payment or benefit is subject to the excise tax, the payment or benefit
may not be deducted by the Corporation.
39
Section
409A of the Internal Revenue Code.
Certain awards
under the 2006 Equity Plan may be subject to Section 409A of the Internal
Revenue Code, which addresses nonqualified deferred compensation.
Awards under the 2006 Equity Plan are generally designed to avoid the
additional taxes, excise taxes and interest imposed by Section 409A on
participants, but there is no guarantee that an individual Award will do so. If
an Award under the 2006 Equity Plan that is subject to Section 409A is not
administered in compliance with Section 409A or if an Award under the 2006
Equity Plan that is exempt from Section 409A is not administered in compliance
with such exemption, then all compensation under the 2006 Equity Plan that is
considered nonqualified deferred compensation (and awards under any other
plan of the Corporation that are required pursuant to Section 409A to be
aggregated with the Award under the 2006 Equity Plan) will be taxable to the
participant as ordinary income in the year of the violation, or if later, the
year in which the compensation subject to the award is no longer subject to a
substantial risk of forfeiture. In addition, the participant will be subject to
an additional tax equal to 20% of the compensation that is required to be
included in income as a result of the violation, plus interest from the date
that the compensation subject to the award was required to be included in
taxable income.
Amendment and Termination
The
2006 Equity Plan may be amended or terminated by the Committee at any time,
without the approval of shareholders or participants, provided that any such
action shall not affect any Awards granted before the actual date on which such
action is taken by the Committee; and further provided that the approval of
shareholders shall be required whenever necessary for the 2006 Equity Plan to
continue to satisfy the conditions of Rule 16b-3 under the Exchange Act,
Section 422 of the Internal Revenue Code with respect to the award of ISOs
(unless the Board of Directors determines that ISOs shall no longer be granted
under the 2006 Equity Plan), any bylaw, rule or regulation of the market system
or stock exchange on which our Common Shares are then listed or admitted to
trading, or any other applicable law, rule or regulation.
No
Awards may be granted under the 2006 Equity Plan from and after April 26, 2016.
Unless terminated earlier by the Board of Directors, the 2006 Equity Plan will
terminate on such date (which shall not be prior to April 26, 2016) as all
Awards under the 2006 Equity Plan have been exercised or have terminated.
New Plan Benefits
No
stock awards have been granted under the 2006 Equity Plan on the basis of the
share increase that forms part of this Proposal. Because benefits under the
2006 Equity Plan will depend on the individuals selected at the discretion of
the Board of Directors and/or the Compensation Committee to receive stock
awards, the number of shares to be awarded and the fair market value of the
Common Shares at various future dates, it is not possible at this time to
determine the benefits that will be received under the 2006 Equity Plan by all
eligible employees, officers, directors or consultants.
40
The Board of Directors recommends that the
shareholders vote for approval of the amendment to the 2006 Equity Incentive
Plan.
Equity Compensation Plans
The
following table details information regarding the Corporations existing equity
compensation plans as of December 31, 2011:
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Plan Category
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(a)
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
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(b)
Weighted-
average exercise
price of
outstanding
options, warrants
and rights
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(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
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Equity compensation plans approved by security holders(1)
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980,250
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$
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6.07
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342,416
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Equity compensation plans not approved by security holders(2)
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105,000
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$
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3.68
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Total
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1,085,250
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$
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5.84
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342,416
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(1) The amount
shown in column (c) includes 238,581 shares issuable under the Corporations
2006 Equity Plan and 103,835 shares available for purchase under the
Corporations Employee Stock Purchase Plan. Under the terms of the 2006 Equity
Plan, as outstanding options under the Corporations Old Plans expire, the
shares of common stock subject to the expired options will become available for
issuance under the 2006 Equity Plan. As of December 31, 2011, 284,700 Common
Shares were subject to outstanding options under the Old Plans. Accordingly, if
any of these options expire, the Common Shares subject to expired options also
will be available for issuance under the 2006 Equity Plan.
(2) Represents
shares issuable under the Non-Employee Directors Stock Option Plan, the,
pursuant to which directors who are not employees of the Corporation or any of
its subsidiaries were eligible to receive options. The exercise price of the
option was the fair market value of the stock on the date of grant. Options
become exercisable in equal one-third annual installments beginning one year
from the date of grant, except that the vesting schedule for discretionary
grants is determined by the Compensation Committee. As a result of the approval
of the 2006 Equity Plan by the shareholders at the 2006 annual meeting of
shareholders, no further grants will be made pursuant to the Non-Employee
Directors Stock Option Plan.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF AUDITOR
The
Corporations independent registered public accounting firm for the fiscal year
ended December 31, 2011 was the firm of Baker Tilly Virchow Krause, LLP
(previously known as Virchow, Krause & Company, LLP), referred to as Baker
Tilly. Services provided to the Corporation and its subsidiaries by Baker
Tilly in 2011 are described below under Independent Registered Public
Accounting Firm. The Audit Committee of the Board of Directors has appointed
Baker Tilly to serve as the independent registered public accounting firm for
the year ending December 31, 2012. Shareholders will be asked to ratify this
appointment. Although action by the shareholders on this matter is not
required, the Audit Committee believes it is appropriate to seek shareholder
ratification of the appointment of the independent registered public accounting
firm to provide a forum for shareholders to express their views with regard to
the Audit Committees appointment. If the shareholders do not ratify the
appointment of Baker Tilly, the selection of independent registered public
accounting firm may be reconsidered by the Audit Committee; provided however,
the Audit Committee retains the right to continue to engage Baker Tilly. Notwithstanding
the ratification of Baker Tilly as the Corporations independent registered
public accounting firm for the year ending December 31, 2012, the Audit
Committee retains the right to replace Baker Tilly at any time without
shareholder approval. A representative of Baker Tilly is expected to be present at the
annual meeting and to be available to respond to appropriate questions. The
representative will have the opportunity to make a statement if he or she so
desires.
41
Independent Registered Public Accounting Fee
Information
Fees
for professional services provided by Baker Tilly, the Corporations
independent auditor, for the fiscal years ended December 31, 2011 and 2010 in
each of the following categories were:
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Services
Rendered (1)
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2011
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2010
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Audit Fees
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$
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220,815
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$
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235,924
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Audit-Related Fees
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12,500
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13,800
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Tax Fees
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All Other Fees
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9,725
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12,600
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Total
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$
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243,040
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$
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262,324
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(1)
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The aggregate
fees included in Audit Fees are fees billed
for
the fiscal years. The aggregate fees included in each of the other categories
are fees billed
in
the fiscal
years. Baker Tilly was engaged as independent auditor beginning in August
2005. Does not include: foreign statutory audit fees of $24,290 and $21,203
for 2011 and 2010, respectively by Baker Tilly TFW, LLC, a firm that is also
an independent member firm of Baker Tilly International, for audits of the
Corporations foreign subsidiaries.
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Audit Fees.
The audit fees for 2011 and
2010 include fees for professional services rendered for the audit of the
Corporations annual financial statements and the review of the financial
statements included in the Corporations Form 10-K Reports and the review of
the financial statements included in the Corporations Form 10-Q Reports.
Audit-Related Fees.
The audit-related fees
for 2011 and 2010 include fees for professional services rendered for audits of
the Corporations employee benefit plan.
All Other Fees.
All other fees for 2011 and
2010 include fees for professional services rendered for a required review of
the Corporations royalty arrangements and other filings.
Tax Fees.
We did not use Baker Tilly for
tax services in 2011 or 2010.
Auditor Independence
The
Audit Committee has considered the nature of the above-listed services provided
by Baker Tilly and determined that the provisions of the services are
compatible with maintaining its independence.
Pre-Approval Policy
The
Audit Committee has established pre-approval policies and procedures pursuant
to which the Audit Committee pre-approved the foregoing audit and permissible
non-audit services provided by Baker Tilly in 2011.
42
Audit Committee Report
The
Audit Committee has prepared the following report on its activities with
respect to the Corporations audited consolidated financial statements for the
year ended December 31, 2011, which is referred to herein as the Corporations
audited consolidated financial statements:
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The Audit
Committee has reviewed and discussed the audited consolidated financial
statements with management.
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The Audit
Committee has discussed with Baker Tilly, the Corporations independent
auditors, the matters required to be discussed by Statements on Auditing
Standards No. 61, as amended, as adopted by the Public Company Accounting
Oversight Board in Rule 3200T.
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The Audit
Committee has received the written disclosures and the letter from Baker
Tilly required by applicable requirements of the Public Company Accounting
Oversight Board regarding the independent accountants communications with
the Audit Committees concerning independence, and has discussed with Baker
Tilly their independence.
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Based on the
review and discussions referred to above, the Audit Committee has recommended
to the Board of Directors that the audited consolidated financial statements
be included in the Corporations Annual Report on Form 10-K for the year
ended December 31, 2011, for filing with the Securities and Exchange
Commission.
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The Audit
Committee
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Nicholas A.
Giordano, Chairman
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Robert N.
Masucci
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Michael J.
McKenna
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Philip N.
Seamon
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The Board of Directors recommends that stockholders
vote for ratification of the appointment of Baker Tilly as the Corporations
independent registered public accounting firm for 2012.
43
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a)
of the Securities Exchange Act of 1934 requires the Corporations executive
officers and directors and persons who own more than ten percent of a
registered class of the Corporations equity securities (collectively, the
reporting persons) to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish the Corporation with
copies of these reports.
Based
on the Corporations review of the copies of these reports received by it and
written representations, if any, received from reporting persons with respect
to the filing of reports of Forms 3, 4 and 5, the Corporation believes
that all filings required to be made by the reporting persons for fiscal year
2011 (unless otherwise noted) were made on a timely basis except one Form 4
relating to sales of Common Shares by Mr. Conger was not timely filed.
SHAREHOLDER PROPOSALS FOR 2013 ANNUAL MEETING
Under
the Corporations bylaws, shareholder proposals with respect to the 2013 Annual
Meeting of Shareholders, including nominations for directors, which have not
been previously approved by the Board of Directors, must be submitted to the
Secretary of the Corporation no later than November 22, 2012. Any such
proposals must be in writing and sent either by personal delivery, nationally
recognized express mail or United States mail, postage prepaid to Corporate
Secretary, IntriCon Corporation, 1260 Red Fox Road, Arden Hills, Minnesota
55112. Each nomination or proposal must include the information required by the
bylaws. All late or nonconforming nominations and proposals may be rejected by
the officer presiding at the meeting.
Shareholder
proposals for the 2013 Annual Meeting of Shareholders must be submitted to the
Corporation by November 22, 2012 to receive consideration for inclusion in the
Corporations Proxy Statement relating to the 2013 Annual Meeting of
Shareholders. Any such proposal must also comply with SEC proxy rules,
including SEC Rule 14a-8, and any applicable requirements set forth in the
bylaws.
In
addition, shareholders are notified that the deadline for providing the
Corporation timely notice of any shareholder proposal to be submitted outside
of the Rule 14a-8 process for consideration at the Corporations 2013 Annual
Meeting of Shareholders is November 22, 2012. As to all such matters which the
Corporation does not have notice on or prior to November 22, 2012,
discretionary authority shall be granted to the persons designated in the
Corporations Proxy related to the 2013 annual meeting of shareholders to vote
on such proposal.
ANNUAL REPORT TO SHAREHOLDERS
A
copy of the Corporations 2011 Annual Report on Form 10-K for the year ended
December 31, 2011 as filed with the SEC is being mailed to each shareholder
with this Proxy Statement.
The
Corporation files reports and other information with the Securities and
Exchange Commission, referred to as the SEC. Copies of these documents may be
obtained at the SECs public reference room in Washington, D.C. The
Corporations SEC filings are also available on the SECs web site at
http://www.sec.gov.
44
EACH
SHAREHOLDER CAN OBTAIN A COPY OF THE CORPORATIONS ANNUAL REPORT ON FORM 10-K,
INCLUDING FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES FOR THE YEAR ENDED
DECEMBER 31, 2011 AS FILED WITH THE SEC,
WITHOUT CHARGE EXCEPT FOR EXHIBITS TO THE
REPORT, BY SENDING A WRITTEN REQUEST TO: INTRICON CORPORATION, 1260 RED FOX ROAD,
ARDEN HILLS, MINNESOTA 55112 ATTN: SCOTT LONGVAL.
HOUSEHOLDING
In
order to reduce printing costs and postage fees, the Corporation has adopted
the process called householding for mailing its annual report and proxy
statement to street name holders, which refers to shareholders whose shares
are held in a stock brokerage account or by a bank or other nominee. This means
that street name holders who share the same last name and address will receive
only one copy of the Corporations annual report and proxy statement, unless
the Corporation receives contrary instructions from a street name holder at
that address. The Corporation will continue to mail a proxy card to each
shareholder of record.
If
you prefer to receive multiple copies of the Corporations proxy statement and
annual report at the same address, you may obtain additional copies by writing
to IntriCon Corporation. Attention: Scott Longval, Chief Financial Officer,
1260 Red Fox Road, Arden Hills, Minnesota 55112 or by calling (651) 604-9526.
Eligible shareholders of record receiving multiple copies of the annual report
and proxy statement can request householding by contacting the Corporation in
the same manner.
OTHER MATTERS
The
Corporation is not presently aware of any matters (other than procedural
matters) that will be brought before the Meeting which are not reflected in the
attached Notice of the Meeting. The enclosed proxy confers discretionary
authority to vote with respect to any and all of the following matters that may
come before the Meeting: (i) matters which the Corporation did not receive
notice by November 28, 2011 were to be presented at the Meeting; (ii) approval
of the minutes of a prior meeting of shareholders, if such approval does not
amount to ratification of the action taken at the meeting; (iii) the election
of any person to any office for which a bona fide nominee named in this Proxy
Statement is unable to serve or for good cause will not serve; (iv) any
proposal omitted from this Proxy Statement and the form of proxy pursuant to
Rules 14a-8 or 14a-9 under the Securities Exchange Act of 1934; and (v) matters
incident to the conduct of the Meeting. In connection with such matters, the
persons named in the enclosed proxy will vote in accordance with their best
judgment.
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Scott
Longval
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Chief
Financial Officer, Secretary,
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and
Treasurer
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45
APPENDIX A
INTRICON
CORPORATION
2006 EQUITY
INCENTIVE PLAN
1.
Purposes
The
purposes of the IntriCon Corporation 2006 Equity Incentive Plan (the Plan)
are to (i) promote the long-term retention of employees of IntriCon Corporation
(IntriCon), and its current and future subsidiaries (collectively, the
Company), directors of IntriCon and other persons who are in a position to
make significant contributions to the success of the Company; (ii) further
reward these employees, directors and other persons for their contributions to
the Companys growth and expansion; (iii) provide additional incentive to these
employees, directors and other persons to continue to make similar
contributions in the future; and (iv) to further align the interests of these
employees, directors and other persons with those of IntriCons shareholders.
These purposes will be achieved by granting to such employees and other persons,
in accordance with the provisions of this Plan, Options, Stock Appreciation
Rights, Restricted Stock or Unrestricted Stock, Deferred Stock, Restricted
Stock Units or Performance Awards, for shares of IntriCons common stock, par
value $1.00 per share (Common Stock), or Supplemental Grants, or combinations
thereof (collectively, Awards).
As
of the Effective Date of the Plan, no additional grants will be made under the
Companys 2001 Stock Option Plan and Amended and Restated Non-Employee
Directors Stock Option Plan (collectively, the Old Plans). Any shares of
Common Stock not subject to exercised or outstanding grants under the Old Plans
may be issued under this plan (the Old Plans Shares). Outstanding grants
under the Old Plans will continue to be governed by their terms under the Old
Plans.
2.
Aggregate Number of
Awards
2.1
Shares Subject to the Plan and Maximum Awards
. The aggregate number of
shares of Common Stock for which Awards may be granted under the Plan shall be
1,248,500 shares of Common Stock (which includes the Old Plans Shares);
provided, however, that such share reserve shall be increased from time to time
by a number of shares equal to the number of shares of Common Stock that are
issuable pursuant to option grants outstanding under the Old Plans as of the
Effective Date that but for the termination of the Old Plans as of the
Effective Date, would otherwise have reverted to the share reserve of the Old
Plans pursuant to the terms thereof as a result of the expiration, termination,
cancellation or forfeiture of such options. Such maximum numbers of shares are
subject to adjustment in accordance with Section 2.5. Treasury shares,
reacquired shares (including shares of Common Stock purchased in the open market)
and unissued shares of Common Stock may be used for purposes of the Plan, at
IntriCons sole discretion. No fractional shares of Common Stock shall be
delivered under the Plan.
2.2
Section 162(m) Limits
. The maximum number of shares of Stock for
which Stock Options may be granted to any person in any fiscal year and the
maximum number of shares of Stock subject to SARs granted to any person in any
fiscal year will each be 50,000. The maximum number of shares subject to other
Awards granted to any person in any fiscal year will be 50,000 shares. The
foregoing provisions will be construed in a manner consistent with
Section 162(m).
2.3
Reversion of Shares to the Share Reserve
. Shares of Common Stock that
were issuable pursuant to an Award that has terminated but with respect to
which such Award had not been exercised, shares of Common Stock that
are issued pursuant to an Award but that are subsequently forfeited and shares
of Common Stock that were issuable pursuant to an Award that was payable in
Common Stock or cash but that was satisfied in cash, shall be available for
future Awards under the Plan and shall not count toward the maximum number of
shares of Common Stock that may be issued under the Plan as set forth in
Section 2.1.
2.4
Shares Used to Pay Exercise Price and Taxes
. If a Participant pays the
exercise price of an Option by surrendering previously owned shares of Common
Stock, as may be permitted by the Compensation Committee (Committee) of the
Board of Directors (Board) of IntriCon, and/or arranges to have the
appropriate number of shares of Common Stock otherwise issuable upon exercise
withheld by the Company to cover the withholding tax liability associated with
the Option exercise, the surrendered shares of Common Stock and shares of
Common Stock used to pay taxes shall not count towards the maximum number of
shares of Common Stock that may be issued under the Plan as set forth in
Section 2.1. If a Participant, as permitted by the Committee, arranges to have an
appropriate number of shares of a Stock Award withheld by the Company to cover
the withholding tax liability associated with such Stock Award, the shares of
Common Stock used to pay taxes shall not count towards the maximum number of
shares of Common Stock that may be issued under the Plan as set forth in
Section 2.1.
2.5
Other Items Not Included in Allocation
. The maximum number of shares of
Common Stock that may be issued under the Plan as set forth in Section 2.1
shall not be affected by (i) the payment in cash of dividends or dividend
equivalents in connection with outstanding Awards; (ii) the granting or payment
of stock-denominated Awards which by their terms may be settled only in cash;
or (iii) Awards that are granted through the assumption of, or in substitution
for, outstanding awards previously granted to individuals who have become
employees as a result of a merger, consolidation, or acquisition or other
corporate transaction involving the Company.
2.6
Adjustments
. In the event of any stock dividend, stock split,
combination or exchange of equity securities, merger, consolidation,
recapitalization, reorganization, divestiture or other distribution (other than
ordinary cash dividends) of assets to shareholders, or any other event
affecting the Common Stock that the Committee deems, in its sole discretion, to
be similar circumstances, the Committee may make such adjustments as it may
deem appropriate, in its discretion, to: (i) the maximum number of shares of
Common Stock that may be issued under the Plan as set forth in Section 2.1;
(ii) the maximum number of shares of Common Stock that may be granted to any
single individual pursuant to Section 2.1; (iii) the number or kind of shares
subject to an Award; (iv) the Exercise Price applicable to an Award; (v) any
measure of performance that relates to an Award in order to reflect such change
in the Common Stock; and/or (vi) any other affected terms of any equity-based
Award. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions,
or any other event, as the Committee may determine in its sole discretion.
2.7
Par Value
. Notwithstanding anything herein to the contrary, if a
Participant is required by applicable law to pay the par value of the Common
Stock subject to an Award, such payment may be made in any form permitted by
applicable law, including services performed or contracted to be performed, in
the sole discretion of the Committee.
3.
Participation
3.1
Eligible Persons
. All current and future employees of the Company,
including officers (Employees), all directors of IntriCon (including
directors who are Employees and directors who are not Employees) and all other
persons who are not Employees or directors who, in the opinion of the
Committee, are in a position to make a significant contribution to the success
of the Company, shall be eligible to receive Awards
under the Plan (each, a Participant). No eligible Employee, director or other
person shall have any right to receive an Award except as expressly provided in
the Plan.
3.2
Considerations to Participation
. The Participants who shall actually
receive Awards under the Plan shall be determined by the Committee in its sole
discretion. In making such determinations, the Committee shall consider the
positions and responsibilities of eligible Employees and other persons, their
past performance and contributions to the Companys growth and expansion, the
value of their services to the Company, the difficulty of finding qualified
replacements, and such other factors as the Committee deems pertinent in its
sole discretion.
3.3
Cancellation and Modification of Awards
. In the event of a change in a
Participants duties and responsibilities, or a transfer of the Participant to
a different position, the Committee may cancel or modify any Award granted to
such Participant or adjust the number of shares of Common Stock subject thereto
commensurate with the transfer or change in responsibility, as determined by
the Committee, in its discretion, provided that no such action shall violate
the provisions of Section 5.1(b)(4), and provided further that the Committee
may not modify or cancel Awards exercisable at the time of such change in
duties or responsibilities or transfer or to which the Participant was
irrevocably entitled at the time of such change or transfer.
4.
Administration
4.1
Power and Authority
. The Committee shall have full and exclusive power
to administer and interpret the Plan, to grant Awards and to adopt such
administrative rules, regulations, procedures and guidelines governing the Plan
and the Awards as it may deem necessary in its discretion, from time to time.
The Committees authority shall include, but not be limited to, the authority
to: (i) determine the type of Awards to be granted under the Plan; (ii) select
Award recipients and determine the extent of their participation; (iii)
determine the method or formula for establishing the fair market value of the
Common Stock for various purposes under the Plan; and (iv) establish all other
terms, conditions, restrictions and limitations applicable to Awards and the shares
of Common Stock issued pursuant to Awards, including, but not limited to, those
relating to a Participants Retirement ( as defined in Section 6.1(e)), death,
Disability, leave of absence or termination of employment. The Committee may
accelerate or defer the vesting or payment of Awards, cancel or modify
outstanding Awards, waive any conditions or restrictions imposed with respect
to Awards or the Common Stock issued pursuant to Awards and make any and all
other interpretations and determinations which it deems necessary with respect
to the administration of the Plan, subject to the limitations contained in
Section 5.1(b)(4) with respect to all Participants and subject to the
provisions of Section 162(m) of the Code with respect to covered employees as
defined thereunder, except that the Committee may not, without the consent of
the holder of an Award or unless specifically authorized by the terms of the
Plan or an Award, take any action under this clause with respect to such Award
if such action would adversely affect the rights of such holder. The
Committees right to make any decision, interpretation or determination under
the Plan shall be in its sole and absolute discretion.
4.2
Administrators of the Plan
. The Plan shall be administered by the
Committee. The Committee may delegate all or any portion of its authority
hereunder to one or more subcommittees consisting of at least one Committee
member (and references in this Plan to the Committee shall thereafter be to
the Committee or such subcommittees). The Committee shall be comprised of no
fewer than three members, each of whom must qualify as (i) an Independent
Director within the meaning of Section 121 of the American Stock Exchange
Company Guide or any future corresponding rule; (ii) a non-employee director
within the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of
1934, as amended (the 1934 Act), or any future corresponding rule; and (iii)
an outside director within the meaning of the regulations promulgated under
Section 162(m) of the Code, or any future corresponding rule, provided that the failure of
the Committee or of the Board for any reason to be composed solely of
Independent Directors, non-employee directors or outside directors shall not
prevent an Award from being considered granted under this Plan. Without
limiting the generality of the foregoing, the Committee shall have the
authority to select a class of potential Award recipients and the extent of
their participation and to delegate to an appropriate officer of the Company
the authority to determine the individual Participants and amount and nature of
the Award to be issued to such Participants, subject to such criteria,
limitations and instructions as the Committee shall determine; provided, however,
that no Awards shall be made pursuant to such delegation to a Participant who
is subject to Section 16(b) of the 1934 Act.
4.3
Administration of the Plan
. The Committee may adopt such rules for the
administration of the Plan as it deems necessary or advisable, in its sole
discretion. For all purposes of the Plan, a majority of the members of the
Committee shall constitute a quorum, and the vote of a majority of the members
of the Committee (or written consent of all of the members) on a particular
matter shall constitute the act of the Committee on that matter. The Committee
shall have the exclusive right to construe the Plan and any Award, to settle
all controversies regarding the Plan or any Award, to correct defects and
omissions in the Plan and in any Award, and to take such further actions as the
Committee deems necessary or advisable, in its sole discretion, to carry out
the purpose and intent of the Plan. Such actions shall be final, binding and
conclusive upon all parties concerned.
4.4
Liability; Indemnification
. No member of the Committee shall be liable
for any act or omission (whether or not negligent) taken or omitted in good
faith, or for the good faith exercise of any authority or discretion granted in
the Plan to the Committee, or for any act or omission of any other member of
the Committee. The members of the Committee shall be entitled to
indemnification and reimbursement to the fullest extent provided in IntriCons
articles of incorporation, bylaws and applicable law. In the performance of its
functions under the Plan, the Committee shall be entitled to rely upon
information and advice furnished by IntriCons officers, accountants, counsel
and other parties the Committee deems necessary, and no member of the Committee
shall be liable for any action taken or not taken in reliance upon such advice.
4.5
Costs; Liabilities
. All costs incurred in connection with the
administration and operation of the Plan shall be paid by the Company. Except
for the express obligations of the Company under the Plan and under Awards
granted in accordance with the provisions of the Plan, the Company shall have
no liability with respect to any Award, or to any Participant or any transferee
of shares of Common Stock from any Participant, including, but not limited to,
any tax liabilities, capital losses, or other costs or losses incurred by any
Participant or any such transferee.
5.
Types of Awards
5.1
Options
.
(a)
An Option is an Award entitling the recipient on exercise thereof to purchase
Common Stock at a specified exercise price. Both incentive stock options, as
defined in Section 422 of the Code (any Option intended to qualify as an
incentive stock option is hereinafter referred to as an ISO), and Options
that are not incentive stock options (any such Option is hereinafter referred
to as a non-ISO), may be granted under the Plan. ISOs shall be awarded only
to Employees. The maximum amount of ISOs that may be awarded under the
Incentive Plan will not exceed 1,248,500 shares of Common Stock plus the number
of shares of Common Stock that are issuable pursuant to option grants
outstanding under the Old Plans as of the Effective Date that but for the
termination of the Old Plans as of the Effective Date, would otherwise have
reverted to the share reserve of the Old Plans pursuant to the terms thereof as
a result of the expiration, termination, cancellation or forfeiture of such
options.
(b)
The exercise price of an Option shall be determined by the Committee subject to
the following:
(1)
The exercise price of an ISO shall not be less than 100% (110% in the case of
an ISO granted to a ten percent or greater shareholder) of the fair market
value of the Common Stock subject to the ISO, determined as of the time the
Option is granted. A ten percent shareholder is any person who at the time of
grant owns, directly or indirectly, or is deemed to own by reason of the
attribution rules of Section 424(d) of the Code, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or of
any of its subsidiaries.
(2)
The exercise price of a non-ISO shall not be less than 100% of the fair market
value of the Common Stock subject to the non-ISO, determined as of the time the
non-ISO is granted.
(3)
To the extent required by applicable law, the exercise price paid for Common
Stock which is part of an original issue of authorized Common Stock shall not
be less than the par value per share of the Common Stock.
(4)
In no case may the Committee reduce the exercise price of an Option at any time
after the time of grant, including by amendment or cancellation and subsequent
issuance, except in the case of an adjustment as set forth in Section 2.6(iv)
or unless approved by Shareholders.
(5)
Notwithstanding (1) and (2) above, an Option (whether an ISO or non-ISO) may be
granted with an exercise price determined according to the provisions of
Section 424(a) of the Code, if the grant of such Option is pursuant to a
transaction described in Section 424(a) of the Code.
(c)
The period during which an Option may be exercised shall be determined by the
Committee, except that the period during which an Option may be exercised shall
not exceed ten years (five years, in the case of an ISO granted to a ten
percent shareholder) from the day immediately preceding the date the Option was
granted.
(d)
An Option shall become exercisable at such time or times, and on such terms and
conditions, as the Committee may determine. The Committee may at any time
accelerate the time at which all or any part of the Option may be exercised.
Any exercise of an Option must be in writing, signed by the proper person and
delivered or mailed to the Company, accompanied by (i) any documents required
by the Committee and (ii) payment in full in accordance with Section 5.1(e)
below for the number of shares for which the Option is exercised.
(e)
Stock purchased on exercise of an Option must be paid for as follows: (i) in
cash or by check (acceptable to IntriCon in accordance with guidelines
established for this purpose), bank draft or money order payable to the order
of IntriCon or (ii) if so permitted by the instrument evidencing the Option (or
in the case of an Option which is not an ISO, by the Board at or after grant of
the Option), (A) through the delivery of shares of Common Stock which have been
outstanding for at least six months (unless the Board expressly approves a
shorter period) and which have a fair market value on the date of exercise at
least equal to the exercise price, or (B) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to IntriCon sufficient
funds to pay the exercise price (including in connection with a so-called
cashless exercise effected by such broker), or (C) by any combination of
the permissible forms of payment.
(f)
In the event a Participant tenders shares of Common Stock to pay the exercise
price of an Option and/or arranges to have a portion of the
shares otherwise issuable upon exercise withheld or sold to pay the
applicable withholding taxes, in no case may the Committee grant reload or restoration
options entitling the Participant to purchase shares of Common
Stock equal to the sum of the number of such shares tendered to pay the
exercise price and the number of shares used to pay the withholding taxes.
(g)
Any Employee who disposes of shares acquired upon the exercise of an ISO either
(i) within two years after the date of grant of such ISO or (ii) within one
year after the transfer of such shares to the Employee shall notify the Company
of such disposition and of the amount realized upon such disposition.
5.2
Stock Appreciation Rights
.
(a)
A Stock Appreciation Right (SAR) is an Award entitling the recipient on its
exercise to receive an amount, in cash or Common Stock or a combination thereof
(such form to be determined by the Committee), determined in whole or in part
by reference to appreciation in Common Stock value. In general, a SAR entitles
the Participant to receive, with respect to each share of Common Stock as to
which the SAR is exercised (110% of its fair market value in the case of grants
to ten percent or greater shareholders), the excess of the shares fair market
value on the date of exercise over its fair market value on the date the SAR
was granted, except that if a SAR is granted retroactively in substitution for
an Option, the fair market value established by the Committee may be the fair
market value at the time such Option was granted. Any such substitution of a
SAR for an Option granted to a covered employee under Section 162(m) of the
Code may only be made in compliance with the provisions thereof.
(b)
Notwithstanding the above, the Committee may provide at the time of grant that
the amount the recipient is entitled to receive shall be adjusted upward or
downward under rules established by the Committee to take into account the
performance of the Common Stock in comparison with the performance of other
stocks or an index or indices of other stocks. The Committee may also grant
SARs that provide that following a Change in Control of the Company (as defined
in Section 6.3(c)) the holder of such SAR shall be entitled to receive, with
respect to each share of Common Stock subject to the SAR, an amount equal to
the excess of a specified value (which may include an average of values) for a
share of Common Stock during a period preceding such Change in Control over the
fair market value of a share of Common Stock on the date the SAR was granted.
(c)
SARs may be granted in tandem with, or independently of, Options granted under
the Plan. A SAR granted in tandem with an Option that is not an ISO may be
granted either at or after the time the Option is granted. A SAR granted in
tandem with an ISO may be granted only at the time the Option is granted.
(d)
When SARs are granted in tandem with Options, the following rules shall apply:
(1)
The SAR shall be exercisable only at such time or times, and to the extent,
that the related Option is exercisable and shall be exercisable in accordance
with the procedure required for exercise of the related Option.
(2)
The SAR shall terminate and no longer be exercisable upon the termination or
exercise of the related Option, except that a SAR granted with respect to less
than the full number of shares covered by an Option shall not be reduced until
the number of shares as to which the related Option has been exercised or has
terminated exceeds the number of shares not covered by the SAR.
(3)
The Option shall terminate and no longer be exercisable upon the exercise of
the related SAR.
(4)
The SAR shall be transferable only with the related Option.
(5)
A SAR granted in tandem with an ISO may be exercised only when the market price
of the Stock subject to the Option exceeds the exercise price of such option.
(e)
A SAR not granted in tandem with an Option shall become exercisable at such
time or times, and on such terms and conditions, as the Committee may specify.
The Committee may at any time accelerate the time at which all or any part of
the SAR may be exercised. Any exercise of an independent SAR must be in
writing, signed by the proper person and delivered or mailed to IntriCon,
accompanied by any other documents required by the Committee.
5.3
Stock Awards
.
(a)
Form of Awards
. The Committee may grant Awards (Stock Awards) which
are payable in shares of Common Stock or denominated in units equivalent in
value to shares of Common Stock or are otherwise based on or related to shares
of Common Stock, including, but not limited to, Awards of Unrestricted Stock,
Restricted Stock, Deferred Stock and Restricted Stock Units, subject to such
terms, conditions, restrictions and limitations as the Committee may determine
to be applicable to such Stock Awards, in its discretion, from time to time.
The Committee may consider the impact of the conditions, restrictions or
limitations applicable to a Stock Award, as well as the possibility of
forfeiture or cancellation, in determining the fair market value for purposes
of determining the number of shares of Common Stock allocable to a Stock Award.
Without limiting the generality of the foregoing, the Committee may issue Stock
Awards to Participants in connection with management or employee stock purchase
programs.
(b)
Unrestricted Stock
. Shares of Common Stock may be used as payment for
services rendered (including any compensation that is intended to qualify as
performance-based compensation for purposes of Section 162(m) of the Code), and
unless otherwise determined by the Committee, no minimum vesting period shall
apply to such shares. Any shares of Common Stock used for such payment shall be
valued at the fair market value of such shares at the time of payment and shall
be subject to such terms, conditions, restrictions and limitations as shall be
determined by the Committee at the time of payment.
(c)
Restricted Stock
. A Restricted Stock Award entitles the recipient to
acquire shares of Common Stock subject to the restrictions described in Section
5.3(c)(3) (Restricted Stock) for no consideration, nominal consideration or
any higher price, all as determined by the Committee, subject to Section 2.7.
(1)
A Participant who is granted a Restricted Stock Award shall have no rights with
respect to such Award unless the Participant accepts the Award by written
instrument delivered or mailed to IntriCon accompanied by payment in full of
the specified purchase price, if any, of the shares covered by the Award. Payment
may be by certified or bank check or other instrument acceptable to the
Committee.
(2)
A Participant who receives Restricted Stock shall have all the rights of a
shareholder with respect to such stock, including voting and dividend rights,
subject to the restrictions described in 5.3(c)(3) and any other conditions
imposed by the Committee at the time of grant. Unless the Committee otherwise
determines, certificates evidencing shares of Restricted Stock shall remain in
the possession of the Company until such shares are free of all restrictions
under the Plan.
(3)
Except as otherwise specifically provided by the Plan or the Award, Restricted
Stock may not be sold, assigned, exchanged, pledged, gifted or otherwise
disposed of, or transferred, and if a Participant suffers a Status Change (as
defined in Section 6.1) for any reason (other than by reason of death or
Permanent Disability or Retirement), must be offered to IntriCon for purchase
for the amount of cash paid for such stock, or forfeited to the Company if no
cash was paid. These restrictions shall lapse at such time or times, and on
such terms and conditions, as the Committee may determine. The Committee may at
any time accelerate the time at which the restrictions on all or any part of
the shares shall lapse.
(4)
Any Participant making, or required by an Award to make, an election under
Section 83(b) of the Code with respect to Restricted Stock shall deliver to IntriCon,
within ten days of the filing of such election with the Internal Revenue
Service, a copy of such election.
(5)
The Committee may, at the time any Award described in this Section 5 is
granted, provide that any or all the Common Stock delivered pursuant to the
Award shall be Restricted Stock.
(6)
The Committee may, in its sole discretion, approve the sale to any Participant
of shares of Common Stock free of restrictions under the Plan for a price which
is not less than the par value of the Common Stock.
(d)
Deferred Stock
. A Deferred Stock Award entitles the recipient to receive
shares of Common Stock to be delivered in the future. Delivery of the Common
Stock shall take place at such time or times, and on such terms and conditions,
as the Committee may determine. The Committee may at any time accelerate the
time at which delivery of all or any part of the Common Stock shall take place.
At the time any Award described in this Section 5 is granted, the Committee may
provide that, at the time Common Stock would otherwise be delivered pursuant to
the Award, the Participant shall instead receive an instrument evidencing the
Participants right to future delivery of Deferred Stock. Awards of Deferred
Stock represent only an unfunded, unsecured promise to deliver shares in the
future and do not give Participants any greater rights than those of an
unsecured general creditor of the Company.
(e)
Restricted Stock Units
. A Restricted Stock Unit is an Award denominated
in shares of Restricted Stock, pursuant to a formula determined by the
Committee, which may be settled either in shares of Restricted Stock or in
cash, in the discretion of the Committee, subject to such other terms,
conditions, restrictions and limitations determined by the Committee from time
to time.
5.4
Supplemental Grants
. In connection with any Award under this Section 5,
the Committee may grant a supplemental cash award to the Participant (a
Supplemental Grant) not to exceed an amount equal to (i) the amount of any
Federal, state and local income tax on ordinary income for which the
Participant may be liable with respect to the Award, determined by assuming
taxation at the highest marginal rate, plus (ii) an additional amount on a
grossed-up basis intended to make the Participant whole on an after-tax basis
after discharging all the Participants income tax liabilities arising from all
payments under this Section 5. Any payments under this Section 5.4 shall be
made at the time the Participant incurs Federal income tax liability with
respect to the Award.
5.5
Performance Awards
. A Performance Award entitles the recipient to
receive, without payment, an Award or Awards described in this Section 5 (such
form to be determined by the Committee) following the attainment of such
performance goals, during such measurement period or periods, and on such other
terms and conditions, all as the Committee may determine. Performance goals may
be related to personal performance, corporate performance, group or
departmental performance or any such other category of performance as the
Committee may determine. The Committee shall have the authority to determine
the performance goals, the period or period during which performance is to be
measured and all other terms and conditions applicable to the Award.
5.6
Section 162(m) Limitations
.
(a)
If the Committee determines at the time an Award that is intended to qualify as
performance-based compensation for purposes of Section 162(m) of the Code is
granted to a Participant that such Participant is, or may be as of the end of
the tax year for which the Company would claim a tax deduction in connection
with such Award, a covered employee, then this Section 5.6 is applicable to
such Award under such terms as the Committee shall determine.
(b)
If an Award is subject to this Section 5.6, then any grant shall be subject to
the achievement of specified levels of one or more of the following performance
goals, unless and until the Companys shareholders approve a change to such
performance goals: operating income, net earnings, earnings before interest,
taxes, depreciation and amortization (EBITDA), earnings before interest and
taxes (EBIT), net income, earnings per share, total shareholder return, cash
flow, return on assets, decrease in expenses, Common Stock price,
price-earnings multiple, comparisons to market indices, sales growth, market
share, the achievement of certain quantitatively and objectively determinable
non-financial performance measures including, but not limited to, operational
measures, growth strategies, strategic initiatives, corporate development and
leadership development, and any combination of the foregoing. The performance
goals shall be determined and approved by the Committee within the first 90
days of each fiscal year. Awards subject to this Section 5.6 may not be
adjusted upward. The Committee shall retain the discretion to adjust such Awards
downward. Prior to the payment of any Award subject to this Section 5.6, the
Committee shall certify in writing that the applicable performance goal was
satisfied.
(c)
The Committee shall have the discretion to impose such other restrictions on
Awards subject to this Section 5.6 as it may deem necessary or appropriate to
ensure that such Awards qualify as performance-based compensation for purposes
of Section 162(m) of the Code. In the event that applicable tax/and or
securities laws change to permit the Committee the discretion to alter the
governing performance goals without obtaining shareholder approval, the
Committee shall have the sole discretion to make such changes without obtaining
shareholder approval. In addition, in the event that the Committee determines
that it is advisable to grant Awards, or modify existing Awards, that shall not
qualify as performance-based compensation for purposes of Section 162(m) of the
Code, the Committee may make such grants and modifications without satisfying
the requirements of Section 162(m) of the Code.
5.7
Section 409A of the Code
.
(a)
Awards under the Plan are intended either to be exempt from or to satisfy the
requirements of the rules of Section 409A of the Code and shall be
construed accordingly. However, the Company shall not be liable to any
Participant or other holder of an Award with respect to any Award-related
adverse tax consequences arising under Section 409A or other provision of
the Code.
(b)
To the extent that an Award under the Plan is intended to satisfy the
requirements of Section 409A of the Code and a provision of the Plan or an
Award agreement contravenes any Treasury regulations or other guidance
promulgated under Section 409A of the Code or could cause an Award to be
subject to the interest and additional tax under Section 409A of the Code, such
provision of the Plan or Award shall be modified to maintain, to the maximum
extent practicable, the original intent of the applicable provision without
violating the provisions of Section 409A of the Code. Moreover, any
discretionary authority that the Committee may have pursuant to the Plan shall
not be applicable to an Award that is subject to Section 409A of the Code to
the extent such discretionary authority will contravene Section 409A of the
Code or the Treasury regulations or other guidance promulgated thereunder.
(c)
Notwithstanding any provisions of this Plan or any Award granted hereunder to
the contrary, no acceleration shall occur with respect to any Award to the
extent such acceleration would cause the Plan or an Award granted hereunder to
fail to comply with Section 409A of the Code.
(d)
Notwithstanding any provisions of this Plan or any applicable Award agreement
to the contrary, no payment shall be made with respect to any Award granted
under this Plan to a specified employee (as such term is defined for purposes
of Section 409A of the Code) prior to the six-month anniversary of the
employees separation of service to the extent such six-month delay in payment
is required to comply with Section 409A of the Code.
6.
Events Affecting
Outstanding Awards
6.1
Termination of Service by Death or Permanent Disability or Retirement
.
If a Participant who is an Employee or director ceases to be an Employee or
director, or if there is a termination of the consulting, service or other
relationship in respect of which a non-Employee Participant was granted an
Award under the Plan (such termination of employment or other relationship
referred to as a Status Change) in any case by reason of death or Permanent
Disability or Retirement, the following rules shall apply, unless otherwise
determined by the Committee:
(a)
All Options and SARs held by the Participant at the time of such Status Change
shall automatically become exercisable in full and shall continue to be
exercisable by the Participant or his or her heirs, executor, administrator or
other legal representative for a period of one year after the Participants
Status Change by reason of death or Permanent Disability and for a period equal
to the unexpired term of the Option or SAR in the case of Retirement. After the
expiration of such one-year period, all such Options and SARs shall terminate.
In no event, however, shall an Option or SAR remain exercisable beyond the
latest date on which it could have been exercised without regard to this
Section 6.1.
(b)
All Restricted Stock and Restricted Stock Units held by the Participant at the
time of such Status Change shall automatically become free of all restrictions
and conditions.
(c)
The Participant shall automatically be entitled to any payment or benefit under
all Deferred Stock Awards, Performance Awards or Supplemental Grants, held by
the Participant at the time of such Status Change.
(d)
Disability or Permanent Disability shall mean disability as defined in
Section 22(e)(3) of the Internal Revenue Code or as otherwise determined by the
Committee.
(e)
Retirement means termination of employment with or service to the Company by
a Participant other than by reason of death or Permanent Disability or
termination for Cause at a time when such Participant has attained age 65 or
greater; provided that such Participant has performed a minimum of five Years
of Service. For purposes of the Plan, Years of Service means each period of
twelve consecutive months (including any permitted leaves of absences)
beginning on the Participants first day of employment with or service to the
Company and each anniversary thereof in which the Participant continues to be
employed by or provide service to the Company.
6.2
Termination of Service Other Than by Death or Permanent Disability or
Retirement
. Subject to the provisions of Section 6.4, if a Participant
suffers a Status Change other than by reason of death or Permanent Disability
(as determined by the Committee) or Retirement, the following rules shall
apply, unless otherwise determined by the Committee:
(a)
All Options and SARs held by the Participant at the time of such Status Change,
to the extent then exercisable, shall continue to be exercisable by the
Participant for a period of 90 days after the Participants Status Change.
After the expiration of such 90-day period, all such Options and SARs shall
terminate. In no event, however, shall an Option or SAR remain exercisable
beyond the latest date on which it could have been exercised without regard to
this Section 6.2. All Options and SARs held by a Participant at the time of
such Status Change that are not then exercisable shall terminate upon such
Status Change.
(b)
All Restricted Stock held by the Participant at the time of such Status Change
shall be transferred to the Company (and, in the event the certificates
representing such Restricted Stock are held by the Company, such Restricted
Stock shall be so transferred without any further action by the Participant) in
accordance with Section 5.3(c) above.
(c)
Any payment or benefit under a Restricted Stock Unit, Deferred Stock Award,
Performance Award, or Supplemental Grant, to which the Participant was not
irrevocably entitled at the time of such Status Change shall be forfeited and
the Award canceled as of the date of such Status Change.
(d)
For all purposes of this Section 6.2 and Section 6.3, the employment with the
Company of a Participant who is an Employee shall not be deemed to have been
terminated if the Participant is transferred from IntriCon to a subsidiary of
IntriCon, or vice versa, or from one subsidiary of IntriCon to another and, in
the sole discretion of the Committee, a Status Change shall not be deemed to
have occurred if, on the date that a Participants employment, directorship,
consulting, service or other relationship with the Company terminates, such
Participant has an employment, directorship, consulting, service or other
relationship with the Company that, in the discretion of the Committee, would
otherwise permit such Participant to receive an Award under this Plan.
(e)
Anything in this Section to the contrary nothwithstanding, all Awards held by a
Participant whose employment, directorship, consulting, service or other
relationship with the Company was terminated for Cause shall, in the
discretion of the Committee, terminate immediately as of the date of such
Status Change. A termination by the Company of a Participants employment,
directorship, consulting, service or other relationship with the Company shall
be for Cause if the Committee determines that the Participant: (i) was guilty
of fraud, gross negligence or willful misconduct in the performance of his or
her duties for the Company, (ii) willfully and continually failed to perform
substantially the Participants duties with the Company (other than any such
failure resulting from incapacity due to Permanent Disability) after delivery
of written demand for substantial performance to the Participant by the Board,
the Committee or the Chief Executive Officer that specifically identified the
manner in which the Board, the Committee or the Chief Executive Officer
believed the Participant did not substantially perform his or her duties, (iii)
breached or violated, in a material respect, any agreement between the
Participant and the Company or any of the Companys codes of conduct or
corporate policies, including policy statements regarding conflicts-of-interest,
insider trading or confidentiality, (iv) committed a material act of dishonesty
or breach of trust, (v) acted in a manner that was inimical or injurious, in a
material respect, to the business or interests of the Company, or (vi) was
convicted of, or plead guilty or nolo contendere to, a felony or any other
crime involving moral turpitude which subjects, or if generally known, would
subject, the Company to public ridicule or embarrassment.
6.3
Change in Control
.
(a)
Notwithstanding the provisions of Section 6.3(b), in the event of a Change in
Control (as defined in Section 6.3(c)), the following rules shall apply, unless
otherwise expressly provided by the Committee in accordance with Section
6.3(d):
(1)
Each outstanding Option and SAR shall automatically become exercisable in full
upon the occurrence of such Change in Control. This provision shall not prevent
an Option or SAR from becoming exercisable sooner as to Common Stock or cash
that would otherwise have become available under such Option or SAR during such
period.
(2)
Each outstanding share of Restricted Stock shall automatically become free of
all restrictions and conditions upon the occurrence of such Change in Control.
This provision shall not prevent the earlier lapse of any restrictions or
conditions on Restricted Stock that would otherwise have lapsed during such
period.
(3)
Conditions on Restricted Stock Units, Deferred Stock Awards, Performance Awards
and Supplemental Grants, which relate only to the passage of time and continued
employment shall automatically terminate upon the occurrence of such Change in
Control. This provision shall not prevent the earlier lapse of any conditions
relating to the passage of time and continued employment that would otherwise
have lapsed during such period. Performance or other conditions (other than
conditions relating only to the passage of time and continued employment) shall
continue to apply unless otherwise provided in the instrument evidencing the
Awards or in any other agreement between the Participant and the Company or
unless otherwise agreed to by the Committee.
(b)
The Committee may, in its discretion, at the time an Award is made hereunder or
at any time prior to, coincident with or after the time of a Change in Control:
(i) require the purchase and sale of any Awards for an amount of cash equal to
the amount which a Participant could have obtained upon the exercise or
realization of such rights had such Awards been currently exercisable; (ii)
make such adjustment to the Awards then outstanding as the Committee deems
appropriate to reflect such Change in Control; (iii) if applicable, provide
that such Awards shall be cancelled upon the effectiveness of such Change of
Control and converted into the right to receive the same consideration as
shareholders are receiving in such Change of Control (net of any exercise price
and/or purchase price payable by the Participant and/or Base Amount in the case
of a SAR); and/or (iv) cause the Awards then outstanding to be assumed, or
their rights substituted therefor, by the surviving or acquiring corporation in
such Change in Control. The Committee may, in its discretion, include such
further provisions and limitations in any Award Agreement as it may deem in the
best interests of the Company.
(c)
A Change in Control means: (i) the occurrence of an event that would, if
known to IntriCons management, be required to be reported by IntriCon as a
change in control under Form 8-K pursuant to the 1934 Act; or (ii) the
acquisition or receipt, in any manner, by any person (as defined for purposes
of the 1934 Act) or any group of persons acting in concert, of direct or
indirect beneficial ownership (as defined for purposes of the 1934 Act) of more
than 50% of the combined voting securities ordinarily having the right to vote
for the election of directors of IntriCon; or (iii) a change in the
constituency of the Board with the result that individuals (the Incumbent
Directors) who are members of the Board on the Effective Date (as defined in
Section 13) cease for any reason to constitute at least a majority of the
Board, provided that any individual who is elected to the Board after the
Effective Date and whose nomination for election was unanimously approved by
the Incumbent Directors shall be considered an Incumbent Director beginning on
the date of his or her election to the Board, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest (as defined for purposes of the 1934 Act)
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a person
other than the Board; or (iv) the sale, exchange, liquidation or other
disposition of all or more than 50% of IntriCons business
or assets; unless in any such case, at least a majority of the Incumbent
Directors determine, prior to the occurrence of such Change in Control, that no
Change in Control has or will have occurred; or (v) the occurrence of a
reorganization, merger, consolidation or other corporate transaction involving
IntriCon, in each case, with respect to which IntriCons shareholders
immediately prior to such transaction do not, immediately after such
transaction, own more than 50% of the combined voting securities ordinarily
having the right to vote for the election of directors of IntriCon or other
corporation resulting from such transaction; or (vi) the approval by IntriCons
shareholders of a complete liquidation or dissolution of IntriCon; or (vii) any
similar transaction, circumstance or event which the Committee determines to
constitute a Change in Control.
(d)
The provisions (or any of them) of Section 6.3(a) shall not apply to the extent
expressly determined by at least 75% of the Incumbent Directors at a duly
convened meeting of the Board held before the occurrence of a Change in
Control.
(e)
Any good faith determination by the Committee as to whether a Change in Control
within the meaning of this Section 6.3 has occurred shall be conclusive and
binding on the Participants.
(f)
Compliance with Section 409A of the Code. In the case of an Award
providing for the payment of deferred compensation subject to Section 409A
of the Code, any payment of such deferred compensation by reason of a Change in
Control shall be made only if the event constituting the Change in Control is
an event described in subsection (a)(2)(A)(v) of Section 409A of the Code
and Treasury regulations or other guidance thereunder and shall be paid
consistent with the requirements of Section 409A. If any deferred compensation
that would otherwise be payable by reason of a Change in Control cannot be paid
by reason of the immediately preceding sentence, it shall be paid as soon as
practicable thereafter consistent with the requirements of Section 409A of the
Code, as determined by the Committee.
6.4
Special Forfeiture Provisions Following a Termination of Employment
.
Notwithstanding the provisions of Section 6.2, in any instance where the rights
of a Participant with respect to an Award extend beyond a Status Change other
than by reason of death, all of such rights shall terminate and be forfeited,
if, in the determination of the Committee, the Participant, at any time prior
or subsequent to such Status Change (a) breaches or violates, in a material way,
the terms of any agreement with the Company, including any employment
agreement, termination agreement, confidentiality agreement, non-solicitation
agreement or non-competition agreement or (b) engaged or engages in conduct
that would have permitted the Company to terminate such Participants
employment for Cause (as defined in Section 6.2(e)) if such Participant was
still an employee of the Company.
7.
Grant and Acceptance
of Awards
7.1
Evidence of Approval
. The Committees approval of a grant of an Award
under the Plan, including the names of Participants and the size of the Award,
including the number of shares of Common Stock subject to the Award, shall be
reflected in minutes of meetings held by the Committee or in written consents
signed by members of the Committee. Once approved by the Committee, each Award
shall be evidenced by such written instrument, containing such terms as are
required by the Plan and such other terms, consistent with the provisions of
the Plan, as may be approved from time to time by the Committee.
7.2
Award Agreements
. Each instrument may be in the form of agreements to be
executed by both the Participant and the Company, or certificates, letters or
similar instruments, which need not be executed by the Participant but
acceptance of which shall evidence agreement to the terms thereof. The grant of
an Award shall not impose any obligation on the Participant to accept the
Award.
7.3
Conditions
. Except as specifically provided by the Plan or the instrument
evidencing an Award, a Participant shall not become a shareholder of IntriCon
until (i) the Participant makes any required payments in respect of the Common
Stock issued or issuable pursuant to the Award, (ii) the Participant furnishes
IntriCon with any required agreements, certificates, letters or other
instruments, and (iii) the Participant actually receives the shares of Common
Stock. Subject to any terms and conditions imposed by the Plan or the
instrument evidencing an Award, upon the occurrence of all of the conditions
set forth in the immediately preceding sentence, a Participant shall have all
rights of a shareholder with respect to shares of Common Stock, including, but
not limited to, the right to vote such shares and to receive dividends and
other distributions paid with respect to such shares. The Committee may, upon
such terms and conditions as it deems appropriate, provide that a Participant
will receive a benefit in lieu of cash dividends that would have been payable
on any and all Common Stock subject to the Participants Award, had such Common
Stock been outstanding. Without limitation, the Board may provide for payment
to the Participant of amounts representing such dividends, either currently or
in the future, or for the investment of such amounts on behalf of the
Participant.
7.4
Payments and Deferrals
. Payment of Awards may be in the form of cash,
shares of Common Stock, other Awards, or combinations thereof as the Committee
shall determine, subject to such terms, conditions, restrictions and
limitations as it may impose. The Committee may postpone the exercise of
Options or SARs, and may require or permit Participants to elect to defer the
receipt or issuance of shares of Common Stock pursuant to Awards or the
settlement of Awards in cash under such rules and procedures as it may
establish, in its discretion, from time to time. The Committee may adopt
deferred compensation plans to permit a Participant to defer the time when such
Award is recognized for income tax purposes. It also may provide for deferred
settlements of Awards including the payment or crediting of earnings on
deferred amounts, or the payment or crediting of dividend equivalents where the
deferred amounts are denominated in common share equivalents. In addition, the
Committee may stipulate in an Award Agreement, either at the time of grant or
by subsequent amendment, that a payment or portion of a payment of an Award be
delayed in the event that Section 162(m) of the Code (or any successor or
similar provision of the Code) would disallow a tax deduction by the Company
for all or a portion of such payment. The period of any such delay in payment
shall be until the payment, or portion thereof, is tax deductible, or such
earlier date as the Committee shall determine in its discretion.
7.5
Removal of Restrictions
. Notwithstanding any other provision of the
Plan, the Company shall not be obligated to deliver any shares of Common Stock
pursuant to the Plan or to remove any restriction from shares of Common Stock
previously delivered under the Plan (i) until all conditions to the Award have
been satisfied or removed, (ii) until, in the opinion of counsel to the
Company, all applicable Federal and state laws and regulations have been
complied with, (iii) if the outstanding Common Stock is at the time listed on
any stock exchange or included for quotation on an inter-dealer system, until
the shares to be delivered have been listed or included or authorized to be
listed or included on such exchange or system upon official notice of notice of
issuance, (iv) if it might cause the Company to issue or sell more shares of
Common Stock that the Company is then legally entitled to issue or sell, and
(v) until all other legal matters in connection with the issuance and delivery
of such shares have been approved by counsel to the Company. If the sale of
Common Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of an Award, such
representations or agreements as counsel to the Company may consider
appropriate to avoid violation of such Act and may require that the
certificates evidencing such Common Stock bear an appropriate legend
restricting transfer. If an Award is exercised by the Participants legal
representative, the Company shall be under no obligation to deliver Common
Stock pursuant to such exercise until the Company is satisfied as to the
authority of such representative.
8.
Tax Withholding
The
Company shall withhold from any cash payment made pursuant to an Award an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements (the withholding requirements). In the case of an Award pursuant
to which Common Stock may be delivered, the Committee shall have the right to
require that the Participant or other appropriate person remit to the Company
an amount sufficient to satisfy the withholding requirements, or make other
arrangements satisfactory to the Committee with regard to such requirements,
prior to the delivery of any Common Stock. If and to the extent that such
withholding is required, the Committee may permit a Participant or such other
person or entity to elect at such time and in such manner as the Committee may
determine to have the Company hold back from the shares of Common Stock to be
delivered, or to deliver to the Company, Common Stock having a value calculated
to satisfy the withholding requirement. If at the time an ISO is exercised, the
Committee determines that the Company could be liable for withholding
requirements with respect to a disposition of the Common Stock received upon
exercise, the Committee may require as a condition of exercise that the person
exercising the ISO agree (i) to inform the Company promptly of any disposition
(within the meaning of Section 424(c) of the Code) of Common Stock received
upon exercise, and (ii) to give such security as the Committee deems adequate
to meet the potential liability of the Company for the withholding requirements
and to augment such security from time to time in any amount reasonably deemed
necessary by the Board to preserve the adequacy of such security.
9.
Dividends and Dividend
Equivalents
The
Committee may provide that Stock Awards shall earn dividends or dividend
equivalents. Such dividends or dividend equivalents may be paid currently or
may be credited to an account maintained on the books of the Company. Any
payment or crediting of dividends or dividend equivalents will be subject to
such terms, conditions, restrictions and limitations as the Committee may
establish, from time to time, including reinvestment in additional shares of
Common Stock or common share equivalents. Unless the Committee determines
otherwise, any Employee subject to the reporting requirements of Section 16(a)
of the 1934 Act may not participate in dividend reinvestment programs
established under the Plan. The Committee shall determine the Participants
rights under the Plan with respect to extraordinary dividends or distributions
on the shares of Common Stock.
10.
Voting
The
Committee shall determine whether a Participant shall have the right to direct
the vote of shares of Common Stock allocated to a Stock Award. If the Committee
determines that an Award shall carry voting rights, the shares allocated to
such Award shall be voted by the Companys Secretary, or such other person as
the Committee may designate in accordance with instructions received from the
Participant (unless to do so would constitute a violation of fiduciary duties).
Shares as to which no instructions are received shall be voted by the Committee
or its designee proportionately in accordance with instructions received from
Participants in the Plan (unless to do so would constitute a violation of
fiduciary duties).
11.
Unfunded Plan
Unless
otherwise determined by the Committee, the Plan shall be unfunded and shall not
create (or be construed to create) a trust or a separate fund or funds. The
Plan shall not create any fiduciary relationship between the Company on behalf of
any Participant or other person. To the extent any Participant holds any rights
by virtue of an Award granted under the Plan, such rights shall constitute
general unsecured liabilities of the Company and shall not confer upon any
Participant any right, title, or interest in any assets of the Company.
12.
Rights as Shareholder
Unless
the Committee determines otherwise, a Participant shall not have any rights as
a shareholder with respect to shares of Common Stock covered by an Award until
the date the Participant becomes the holder of record with respect to such
shares in accordance with Section 7.3. No adjustment shall be made for
dividends or other rights for which the record date is prior to such date,
except as provided in Section 9.
13.
Effective Date and
Term of Plan
The
effective date of this Plan (the Effective Date) is April 26, 2006, the date
on which the Plan was approved by the affirmative vote of the holders of
IntriCons Common Stock. No Award shall be granted more than ten years after
the Effective Date.
14.
Effect, Amendment,
Suspension and Termination
Unless
otherwise determined by the Committee, Awards received by Participants under
the Plan shall not be deemed a part of a Participants regular, recurring compensation
for purposes of calculating payments or benefits under any Company benefit plan
or severance program. No Employee, director or other person shall have any
claim or right to be granted an Award under the Plan. There shall be no
obligation of uniformity of treatment of Employees, directors or other persons
under the Plan and the terms and conditions of Awards and the Committees
determinations and interpretations with respect thereto need not be the same
with respect to each Participant (whether or not such Participants are
similarly situated). Neither adoption of the Plan nor the grant of Awards to a
Participant shall affect the Companys right to grant to such Participant
awards that are not subject to the Plan, to issue to such Participant Common
Stock as a bonus or otherwise, or to adopt other plans or arrangements under
which Common Stock may be issued to Employees or other persons or entities. The
Committee reserves the right, at any time and from time to time, to amend the
Plan in any way, or to suspend or terminate the Plan, effective as of the date
specified by the Committee when it takes such action, which date may be before
or after the date the Committee takes such action; provided that any such
action shall not affect any Awards granted before the actual date on which such
action is taken by the Committee; and further provided that the approval of
IntriCons shareholders shall be required whenever necessary for the Plan to
continue to satisfy the conditions of Rule 16b-3 under the 1934 Act, Section
422 of the Code with respect to the award of ISOs (unless the Board determines
that ISOs shall no longer be granted under the Plan), any bylaw, rule or
regulation of the market system or stock exchange on which IntriCons Common
Stock is then listed or admitted to trading, or any other applicable law, rule
or regulation. Unless terminated earlier by the Board, this Plan shall
terminate on such date (which shall not be prior to April 26, 2016) as all
Awards under the Plan have been exercised or shall have terminated.
15.
Other Provisions
15.1
Future Rights
. Nothing contained in the Plan or any Award shall confer
upon any Employee or other Participant the right to continue in the employ of,
or to continue to provide service to, the Company or any affiliated person, or
interfere in any way with the right of the Company or any affiliated person to
terminate the employment or service of any Employee or other Participant for
any reason.
15.2
Grant Date
. Corporate action constituting an offer by IntriCon of Common
Stock to any Participant under the terms of an Award shall be deemed completed
as of the date of grant of the Award, regardless of when the instrument,
certificate, or letter evidencing the Award is actually received or accepted by
the Participant.
15.3
Transferability
. None of a Participants rights under any Award or under
the Plan may be assigned or transferred in any manner other than by will or
under the laws of descent and distribution. The foregoing shall not, however,
restrict a Participants rights with respect to Unrestricted Stock or the
outright transfer of cash, nor shall it restrict the ability of a Participants
heirs, estate, beneficiaries, or personal or legal representatives to enforce
the terms of the Plan with respect to Awards granted to the Participant.
Notwithstanding the foregoing, at the discretion of the Committee, the terms of
an Award may permit a Participant to transfer such Award to one or more members
of the Participants family or to trusts, family partnerships, or other
entities for the benefit of the Participant and/or members of the Participants
family to the extent provided in such Award and permitted under the terms for
use of Form S-8 promulgated under the Securities Act of 1933, as amended.
15.4
Governing Law
. The Plan, and all Awards granted hereunder, shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania.
15.5
Interpretation
. The headings of the Sections of the Plan are for
convenience of reference only and shall not affect the interpretation of the
Plan. All pronouns and similar references in the Plan shall be construed to be
of such number and gender as the context requires or permits. When used in this
Plan, the words including and include shall be deemed followed by the words
without limitation. Except as otherwise indicated, the term person as used
in the Plan shall include individuals, corporations, partnerships, trusts,
estates, limited liability companies and partnerships and any other type of
entity.
15.6
Severability
. If any provision of the Plan is determined to be
unenforceable for any reason, then that provision shall be deemed to have been
deleted or modified to the extent necessary to make it enforceable, and the
remaining provisions of the Plan shall be unaffected.
15.7
Notices
. All notices with respect to the Plan shall be in writing and
shall be hand delivered or sent by certified mail or reputable overnight
delivery service, expenses prepaid. Notices to the Company or the Committee
shall be delivered or sent to IntriCons headquarters to the attention of its
Chief Financial Officer. Notices to any Participant or holder of shares of
Common Stock issued pursuant to an Award shall be sufficient if delivered or
sent to such persons address as it appears in the regular records of the
Company or its transfer agent.
15.8
Prior Services
. In any case that a Participant purchases Common Stock
under an Award for a price equal to the par value of the Common Stock, the
Committee may determine, in its sole discretion, that such price has been
satisfied by past services rendered by the Participant.
15.9
Fair Market Value
. For the purposes of the Plan and any Award granted
hereunder, unless otherwise determined by the Committee, the term fair market
value of Common Stock on a specified date shall mean the last sale price for
one share of Common Stock on the last trading day on or before the specified
date, as reported on the American Stock Exchange, or on such other market
system or stock exchange on which IntriCons Common Stock is then listed or
admitted to trading, or, if the foregoing does not apply, the market value
determined by the Board.
15.10
Reduction of Payments
. Unless otherwise agreed upon in writing by the
Company and a Participant, in the event that any payment, benefit or transfer
under the Plan to or for the benefit of a Participant pursuant to a Change in
Control from the Company or otherwise (a Payment) would (i) constitute a
parachute payment within the meaning of Section 280G of the Code, and (ii)
but for this Section 15.10, be subject to the excise tax imposed by Section
4999 of the Code (the Excise Tax), then such Payment shall be reduced to the
Reduced Amount. The Reduced Amount shall be either (x) the largest portion of
the Payment that would result in no portion of the Payment being subject to the
Excise Tax or (y) the largest portion, up to and including the total, of the
Payment, whichever amount, after taking into account all
applicable federal, state and local employment taxes, income taxes, and the
Excise Tax (all computed at the highest applicable marginal rate), results in
the Participants receipt, on an after-tax basis, of the greater amount of the
Payment notwithstanding that all or some portion of the Payment may be subject
to the Excise Tax. If a reduction in payments or benefits constituting
parachute payments is necessary so that the Payment equals the Reduced Amount,
reduction shall occur in the following order unless the Participant elects in
writing a different order (provided, however, that such election shall be
subject to the Companys approval if made on or after the date on which the
event that triggers the Payment occurs): reduction of cash payments;
cancellation of accelerated vesting of Awards; and reduction of employee
benefits. In the event that the acceleration of vesting of Award compensation
is to be reduced, such acceleration of vesting shall be cancelled in the
reverse order of the date of grant of the Participants Awards unless the
Participant elects in writing a different order for cancellation.
15.11
Successors and Assigns
. The Plan and any applicable Award Agreement
entered into under the Plan shall be binding on all successors and assigns of a
Participant, including the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participants creditors.
16.
Plan History
.
The
Plan was originally adopted by the Board on March 14, 2006, subject to the
approval of the Companys shareholders. The Plan was originally approved by the
Companys shareholders at the Companys 2006 annual meeting of stockholders
that was held on April 26, 2006.
Since
its original adoption, the Plan has been amended as follows:
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Nature of Amendment
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Date Approved
by Board of
Directors
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Date approved by
Stockholders
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Increase authorized shares
under Section 2.1 from 698,500 to 948,500 shares of Common Stock; and
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March
12, 2010
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April
21, 2010
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Increase the limit under
Section 5.1 on the maximum amount of ISOs that may be awarded under the
Incentive Plan so that it will equal 948,500 shares of Common Stock plus the
number of shares of Common Stock that are issuable pursuant to option grants
outstanding under the Old Plans as of the Effective Date that but for the
termination of the Old Plans as of the Effective Date, would otherwise have
reverted to the share reserve of the Old Plans pursuant to the terms thereof
as a result of the expiration, termination, cancellation or forfeiture of
such options.
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Increase authorized shares
under Section 2.1 from 948,500 to 1,248,500 shares of Common Stock; and
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March
12, 2012
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Increase the limit under
Section 5.1 on the maximum amount of ISOs that may be awarded under the
Incentive Plan so that it will equal 1,248,500 shares of Common Stock plus
the number of shares of Common Stock that are issuable pursuant to option
grants outstanding under the Old Plans as of the Effective Date
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that but for the
termination of the Old Plans as of the Effective Date, would otherwise have
reverted to the share reserve of the Old Plans pursuant to the terms thereof
as a result of the expiration, termination, cancellation or forfeiture of
such options.
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Increase the limit under
Section 2.2 on the maximum number of shares of Stock for which Stock Options
may be granted to any person in any fiscal year and the maximum number of
shares of Stock subject to SARs granted to any person in any fiscal year to
50,000 for each. The maximum number of shares subject to other Awards granted
to any person in any fiscal year was also increased to 50,000 shares.
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INTRICON CORPORATION
C/O BROADRIDGE
1717 ARCH ST. SUITE 1300
PHILADELPHIA, PA 19103
YOUR VOTE IS IMPORTANT - VOTE IN ONE OF THREE WAYS
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions 24 hours a day, 7
days a week up until 11:59 P.M. Eastern Time on April 30, 2012. Have your proxy
card in hand when you access the web site and follow the instructions to obtain
your records and to create an electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone
telephone to transmit your voting instructions 24 hours a day, 7 days a week up
until 11:59 P.M. Eastern Time on April 30, 2012. Have your proxy card in hand
when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign
and date your proxy card and return it in the postage-paid envelope we have
provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way,
Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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M43072-Z57452
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KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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INTRICON CORPORATION
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For
All
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Withhold
All
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For All
Except
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To withhold
authority to vote for any individual nominee(s), mark For All Except and
write the number(s) of the nominee(s) on the line below.
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The Board of Directors recommends you vote FOR the following:
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o
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o
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o
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1.
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Election of Directors: To elect
the following director nominees to hold office for three years until his
respective successor has been duly elected and qualified, as more fully
described in the accompanying proxy statement.
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Nominees
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01) Nicholas A. Giordano
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02) Philip N. Seamon
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The Board of Directors recommends you vote FOR proposals 2 and 3.
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For
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Against
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Abstain
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2.
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To approve an amendment to the
Corporations 2006 Equity Incentive Plan to, among other things, increase the
number of shares authorized for issuance under that plan by 300,000 shares,
as more fully described in the accompanying proxy statement.
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o
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o
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o
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3.
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To ratify the appointment of
Baker Tilly Virchow Krause, LLP as the Corporations independent registered
public accounting firm for fiscal year 2012, as more fully described in the
accompanying proxy statement.
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o
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o
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o
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NOTE:
In their discretion, the
Proxies are authorized to vote upon such other business as may properly come
before the annual meeting.
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Please sign
exactly as your name(s) appear(s) hereon. When signing as attorney, executor,
administrator, or other fiduciary, please give full title as such. Joint owners
should each sign personally. All holders must sign. If a corporation or
partnership, please sign in full corporate or partnership name by authorized
officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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Important Notice Regarding the Availability
of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are
available at www.proxyvote.com.
M43073-Z57452
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INTRICON CORPORATION
ARDEN HILLS, MINNESOTA 55112
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This Proxy is Solicited on Behalf of the
Board of Directors
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The
undersigned, revoking all prior proxies, hereby appoints SCOTT LONGVAL and
ANNALEE VANASSE, and each of them, with full power of substitution, as
proxies and hereby authorizes them to represent and to vote all the Common
Shares of IntriCon Corporation held of record by the undersigned on March 6,
2012, at the annual meeting of shareholders to be held on May 1, 2012, or any
postponement or adjournment thereof.
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All
proxy agents present and acting in person or by their substitutes (or, if
only one is present and acting, then that one) may exercise all of the powers
conferred by this proxy. Discretionary authority is conferred by this proxy
with respect to certain matters, as described in IntriCon Corporations proxy
statement.
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THE
SHARES REPRESENTED BY THIS PROXY, DULY EXECUTED, WILL BE VOTED AS INSTRUCTED
ON THE REVERSE SIDE. IF INSTRUCTIONS ARE NOT GIVEN, THEY WILL BE VOTED FOR
THE ELECTION OF THE DIRECTOR NOMINEES, FOR APPROVAL OF THE AMENDMENT TO THE
CORPORATIONS 2006 EQUITY INCENTIVE PLAN AND FOR THE RATIFICATION OF THE APPOINTMENT
OF BAKER TILLY VIRCHOW KRAUSE, LLP AS THE CORPORATIONS INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2012. WITH RESPECT TO SUCH
OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF, SAID PROXIES ARE AUTHORIZED TO VOTE IN
ACCORDANCE WITH HIS OR HER BEST JUDGMENT.
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By signing this proxy, you hereby acknowledge receipt of
the 2011 Annual Report to shareholders, Notice of the Corporations 2012
Annual Meeting of shareholders and the Corporations proxy statement.
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Continued and to be signed on reverse side
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