UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
(Amendment
No. )
Filed
by the Registrant [X]
Filed
by a Party other than the Registrant [ ]
Check
the appropriate box:
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[X]
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Preliminary
Proxy Statement
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[ ]
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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SIGMA
LABS, INC.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment
of Filing Fee (check the appropriate box);
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[X]
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No
fee required.
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[ ]
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Fee
computed on table below per Exchange Act Rules 14a(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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SIGMA
LABS, INC.
3900
Paseo del Sol
Santa
Fe, New Mexico 87507
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
Be Held at 10:00 a.m. Local Time on Monday, June 15, 2020
Dear
Stockholders of Sigma Labs, Inc.:
The
2020 annual meeting of stockholders (the “Annual Meeting”) of Sigma Labs, Inc., a Nevada corporation, will be held
on June 15, 2020 at 10:00 a.m. local time, at 3900 Paseo del Sol, Santa Fe, New Mexico 87507, for the following purposes, as more
fully described in the accompanying Proxy Statement:
1.
To elect two Class III directors to serve until the 2023 annual meeting of stockholders and until their respective successors
are duly elected and qualified;
2.
To approve an amendment to our 2013 Equity Incentive Plan to fix at 890,000 shares the aggregate number of shares of our common
stock issued or issuable under the Sigma Labs, Inc. 2013 Equity Incentive Plan;
3.
To approve an amendment to our Amended and Restated Articles of Incorporation to increase the authorized number of shares of common
stock from 8,000,000 to 12,000,000;
4.
To approve, by non-binding vote, the compensation of our named executive officers as disclosed in this proxy statement;
5.
To ratify the appointment of Haynie & Company as our independent registered public accounting firm for our fiscal year ending
December 31, 2020;
6.
To approve the issuance of more than 20% of our issued and outstanding common stock as a result of a private placement of our
securities in April 2020; and
7.
To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof.
Our
Board of Directors has fixed the close of business on May 8, 2020 as the record date for the Annual Meeting. Only stockholders
of record on May 8, 2020 are entitled to notice of and to vote at the Annual Meeting. Further information regarding voting rights
and the matters to be voted upon is presented in the accompanying Proxy Statement.
This
Proxy Statement and our annual report can be accessed directly at the following Internet address: http://www.viewproxy.com/sigmalabsinc/2020.
YOUR
VOTE IS IMPORTANT. Whether or not you plan to attend the Annual Meeting, we urge you to submit your vote via the Internet, telephone
or mail.
We
are monitoring on-going developments regarding the novel coronavirus (COVID-19). As part of our precautions, we are planning for
the possibility that the Annual Meeting may be held virtually online. If we take this step, we will announce the decision to do
so as soon as possible via a press release and posting details on our website that will also be filed with the SEC as proxy material.
We
appreciate your continued support of Sigma Labs, Inc. and look forward to either greeting you personally at the Annual Meeting
or receiving your proxy.
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By
order of the Board of Directors
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Mark
K. Ruport
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President
and Chief Executive Officer
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Santa
Fe, New Mexico
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May
___, 2020
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TABLE
OF CONTENTS
SIGMA
LABS, INC.
PROXY
STATEMENT
FOR
2020 ANNUAL MEETING OF STOCKHOLDERS
To
Be Held at 10:00 a.m. Local Time on Monday, June 15, 2020
This
Proxy Statement and the enclosed form of proxy are furnished in connection with the solicitation of proxies by our Board of Directors
for use at the 2020 annual meeting of stockholders of Sigma Labs, Inc., a Nevada corporation (the “Company”), and
any postponements, adjournments or continuations thereof (the “Annual Meeting”). The Annual Meeting will be held on
Monday, June 15, 2020 at 10:00 a.m. local time, at 3900 Paseo del Sol, Santa Fe, New Mexico 87507. This Proxy Statement and the
accompanying proxy card are first being mailed on or about May 20, 2020 to all stockholders entitled to vote at the Annual Meeting.
The
information provided in the “question and answer” format below is for your convenience only and is merely a summary
of the information contained in this Proxy Statement. You should read this entire Proxy Statement carefully. Information contained
on, or that can be accessed through, our website is not intended to be incorporated by reference into this Proxy Statement and
references to our website address in this Proxy Statement are inactive textual references only.
Effective
February 27, 2020, the Company effected a 1-for-10 reverse stock split of its issued and outstanding shares of Common Stock, and
a corresponding decrease in the number of shares of Common Stock that the Company is authorized to issue. All share numbers in
this Proxy Statement with respect to the Company’s Common Stock have been adjusted to reflect the reverse split.
QUESTIONS
AND ANSWERS ABOUT THE PROXY MATERIALS AND OUR ANNUAL MEETING
What
matters am I voting on?
You
will be voting on:
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the
election of two Class III directors to serve until the 2023 annual meeting of stockholders and until their respective successors
are duly elected and qualified;
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the
approval of an amendment to our 2013 Equity Incentive Plan (the “2013 Plan”) to fix the aggregate number of shares
of our common stock issued or issuable under the 2013 Plan at 890,000 shares;
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the
approval of an amendment to our Amended and Restated Articles of Incorporation to increase the authorized number of shares
of common stock from 8,000,000 to 12,000,000;
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the
approval, by non-binding vote, of the compensation of our named executive officers as disclosed in this proxy statement;
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the
ratification of the appointment of Haynie & Company as our independent registered public accounting firm for our fiscal
year ending December 31, 2020;
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the
approval of the issuance of more than 20% of our issued and outstanding common stock as a result of a private placement of
our securities in April 2020; and
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any
other business as may properly come before the Annual Meeting.
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How
does the Board of Directors recommend I vote on these proposals?
Our
Board of Directors recommends a vote:
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“FOR”
the election of each of Dennis Duitch and Kent Summers as a Class III director;
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“FOR”
approval of an amendment to our 2013 Plan to fix the aggregate number of shares of our common stock issued or issuable under
the 2013 Plan at 890,000 shares as described in Proposal 2;
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“FOR”
approval of the amendment to our Amended and Restated Articles of Incorporation to increase the authorized number of shares
of common stock as described in Proposal 3;
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“FOR”
approval of the compensation of our named executive officers as disclosed in this Proxy Statement as described in Proposal
4;
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“FOR”
the ratification of the appointment of Haynie & Company as our independent registered public accounting firm for our fiscal
year ending December 31, 2020 as described in Proposal 5.
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“FOR
the approval of the issuance of more than 20% of our issued and outstanding common stock as a result of a private placement
of our securities in April 2020 as described in Proposal 6.
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Who
is entitled to vote?
Holders
of our common stock as of the close of business on May 8, 2020, the record date, may vote at the Annual Meeting. As of the record
date, there were 3,086,151 shares of our common stock outstanding. In deciding all matters at the Annual Meeting, each stockholder
will be entitled to one vote for each share of our common stock held by them on the record date. We do not have cumulative voting
rights for the election of directors.
Registered
Stockholders. If shares of our common stock are registered directly in your name with our transfer agent, you are considered
the stockholder of record with respect to those shares, and the Notice was provided to you directly by us. As the stockholder
of record, you have the right to grant your voting proxy directly to the individuals listed on the proxy card or to vote in person
at the Annual Meeting.
Street
Name Stockholders. If shares of our common stock are held on your behalf in a stock brokerage account or by a bank or other
nominee, you are considered the beneficial owner of those shares held in “street name,” and the Notice was forwarded
to you by your broker or nominee, who is considered the stockholder of record with respect to those shares. As the beneficial
owner, you have the right to direct your broker or nominee how to vote your shares. Beneficial owners are also invited to attend
the Annual Meeting. However, since a beneficial owner is not the stockholder of record, you may not vote your shares of our common
stock in person at the Annual Meeting unless you follow your broker’s procedures for obtaining a legal proxy. If you request
a printed copy of our proxy materials by mail, your broker or nominee will provide a voting instruction card for you to use. Throughout
this proxy, we refer to stockholders who hold their shares through a broker, bank or other nominee as “street name stockholders.”
Rules applicable to broker-dealers grant your broker discretionary authority to vote your shares without receiving your instructions
on certain routine matters such as approval of an increase in authorized shares (Proposal No. 3) and ratification of the appointment
of Haynie & Company (Proposal No. 5).
How
many votes are needed for approval of each proposal?
Holders
of our common stock are entitled to one vote per share with respect to each of the matters to be presented at the Annual Meeting.
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Proposal
No. 1: The election of each Class III director requires a plurality vote of the shares of our common stock present in
person or by proxy at the Annual Meeting and entitled to vote thereon to be approved. “Plurality” means that the
nominee who receives the largest number of votes cast “for” is elected as a director. As a result, any shares
not voted “for” a particular nominee (whether as a result of a stockholder “against” vote or abstention
or a broker non-vote) will not be counted in such nominee’s favor and will have no effect on the outcome of the election.
You may vote “for,” “against” or “abstain” on the nominees for election as a director.
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Proposal
No. 2: The approval of an amendment to our 2013 Equity Incentive Plan requires the affirmative vote of a majority of the
shares present in person or represented by proxy and entitled to vote on that proposal at the Annual Meeting. Abstentions
will have the same effect as an against vote, and broker non-votes will have no effect on the outcome of this proposal.
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Proposal
No. 3: The approval of an amendment to our Amended and Restated Articles of Incorporation requires the affirmative
vote of the holders of a majority of the outstanding shares of common stock. Because Proposal No. 3 is considered a “routine”
matter, there will be no broker non-votes with respect to this proposal, and brokers, banks or other nominees may vote uninstructed
shares on a discretionary basis.
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Proposal
No. 4: The approval of our executive compensation requires the affirmative vote of a majority of the shares of our common
stock that are cast affirmatively or negatively (excluding abstentions and broker non-votes) on the proposal. Abstentions
and broker non-votes will have no effect on the outcome of this proposal.
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Proposal
No. 5: The ratification of the appointment of Haynie & Company requires the affirmative vote of a majority
of the shares of our common stock that are cast affirmatively or negatively (excluding abstentions and broker non-votes) on
the proposal. Abstentions and broker non-votes will have no effect on the outcome of this proposal.
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Proposal
No. 6 The approval of the issuance of more than 20% of our issued and outstanding common stock as a result of a private
placement of our securities in April 2020 requires the affirmative vote of a majority of the shares of common stock that are
cast affirmatively or negatively (excluding abstentions and broker non-votes) on the proposal. Abstentions and
broker non-votes will have no effect on the outcome of the proposal.
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What
is a quorum?
A
quorum is the minimum number of shares required to be present at the Annual Meeting for the Annual Meeting to be properly held
under our amended and restated bylaws and Nevada law. The presence, in person or by proxy, of a majority of all issued and outstanding
shares of our common stock entitled to vote at the Annual Meeting will constitute a quorum at the Annual Meeting. Abstentions,
withheld votes and broker non-votes are counted as shares present and entitled to vote for purposes of determining a quorum.
How
do I vote?
If
you are a stockholder of record, there are four ways to vote:
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By
Internet — You may submit your proxy from any location in the world by following the internet voting instructions
on the proxy card or voting instruction card accompanying the proxy statement;
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By
Telephone — You may submit your proxy by following the telephone voting instructions on the proxy card or voting
instruction card accompanying the proxy statement;
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By
Mail — You may do this by marking, dating and signing your proxy card or, for shares held in street name, the voting
instruction card provided to you by your broker or nominee, and mailing it in the enclosed, self-addressed, postage prepaid
envelope. No postage is required if mailed in the United States. Please note that you will be mailed a printed proxy card
or printed voting instruction card only if you request that such printed materials be sent to you by following the instructions
in the Notice of Internet Availability for requesting paper copies of the proxy materials; or
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In
Person — You may vote by written ballot at the Annual Meeting.
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If
you are a street name stockholder, you will receive voting instructions from your broker, bank or other nominee. You must follow
the voting instructions provided by your broker, bank or other nominee in order to instruct your broker, bank or other nominee
on how to vote your shares. Street name stockholders should generally be able to vote by returning an instruction card, or by
telephone or on the Internet. However, the availability of telephone and Internet voting will depend on the voting process of
your broker, bank or other nominee. As discussed above, if you are a street name stockholder, you may not vote your shares in
person at the Annual Meeting unless you obtain a legal proxy from your broker, bank or other nominee.
Can
I change my vote?
Yes.
If you are a stockholder of record, you can change your vote or revoke your proxy any time before the Annual Meeting by:
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entering
a new vote by Internet or by telephone;
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returning
a later-dated proxy card;
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notifying
the Secretary of Sigma Labs, Inc., in writing, at Sigma Labs, Inc., 3900 Paseo del Sol, Santa Fe, New Mexico 87507; or
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completing
a written ballot at the Annual Meeting.
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If
you are a street name stockholder, your broker, bank or other nominee can provide you with instructions on how to change your
vote.
What
do I need to do to attend the Annual Meeting in person?
If
you plan to attend the meeting, you must be a record or street name holder of Company shares as of the record date of May 8, 2020.
On
the day of the meeting, each stockholder will be required to present a valid picture identification such as a driver’s license
or passport and you may be denied admission if you do not. Seating will begin at 9:30 a.m., and the meeting will begin at 10:00
a.m. Use of cameras, recording devices, computers and other personal electronic devices will not be permitted at the Annual Meeting.
What
is the effect of giving a proxy?
Proxies
are solicited by and on behalf of our Board of Directors. Mark K. Ruport has been designated as proxy by our Board of Directors.
When proxies are properly dated, executed and returned, the shares represented by such proxies will be voted at the Annual Meeting
in accordance with the instructions of the stockholder. If no specific instructions are given, however, the shares will be voted
in accordance with the recommendations of our Board of Directors as described above. If any matters not described in this Proxy
Statement are properly presented at the Annual Meeting, the proxy holder will use his own judgment to determine how to vote the
shares. If the Annual Meeting is adjourned, the proxy holder can vote the shares on the new Annual Meeting date as well, unless
you have properly revoked your proxy instructions, as described above.
Will
my shares be voted if I do not return my proxy card?
If
your shares are held by a broker in “street name,” the broker has authority under the rules of the New York Stock
Exchange to vote a customer’s shares on “routine” matters if the broker has not received timely voting instructions
from the customer. Under these rules, Proposals other than Proposals Nos. 3 and 5 are not considered routine so, if you do not
give your broker instructions, your broker generally will not have discretion to vote your shares “FOR” or “AGAINST”
such non-routine Proposals. Therefore, we urge you to provide instructions to your broker firm to vote “FOR” such
Proposals by returning your proxy card. This ensures that your shares will be voted “FOR” such Proposals at the Annual
Meeting.
How
are proxies solicited for the Annual Meeting?
Our
Board of Directors is soliciting proxies for use at the Annual Meeting. All expenses associated with this solicitation will be
borne by us. We will reimburse brokers or other nominees for reasonable expenses that they incur in sending our proxy materials
to you if a broker or other nominee holds shares of our common stock on your behalf. We also will engage a proxy solicitation
firm to assist in the solicitation of proxies. We will pay such firm fees, including flat fees per completed proxy solicitation
call and per telephone vote, plus certain out-of-pocket expenses.
If
I am a beneficial owner of shares, can my brokerage firm vote my shares?
If
you are a beneficial owner and do not vote via the Internet, telephone or by returning a signed voting instruction card to your
broker, your shares may be voted only with respect to so-called routine matters, such as the amendment to our Amended and Restated
Articles of Incorporation and the ratification of the appointment of our independent registered public accounting firm, where
your broker has discretionary voting authority over your shares.
We
encourage you to provide instructions to your brokerage firm by returning your voting instruction card. This ensures that your
shares will be voted at the Annual Meeting with respect to all of the proposals described in this proxy statement.
Where
can I find the voting results of the Annual Meeting?
We
will announce preliminary voting results at the Annual Meeting. We will also disclose voting results on a Current Report on Form
8-K that we will file with the SEC within four business days after the Annual Meeting. If final voting results are not available
to us in time to file a Current Report on Form 8-K within four business days after the Annual Meeting, we will file a Current
Report on Form 8-K to publish preliminary results and will provide the final results in an amendment to this Current Report on
Form 8-K as soon as they become available.
I
share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional
copy of the proxy materials?
We
have adopted a procedure called “householding,” which the SEC has approved. Under this procedure, we deliver a single
copy of the Notice and, if applicable, our proxy materials to multiple stockholders who share the same address unless we have
received contrary instructions from one or more of the stockholders. This procedure reduces our printing costs, mailing costs,
and fees. Stockholders who participate in householding will continue to be able to access and receive separate proxy cards. Upon
written or oral request, we will deliver promptly a separate copy of the Notice and, if applicable, our proxy materials to any
stockholder at a shared address to which we delivered a single copy of any of these materials. To receive a separate copy, or,
if a stockholder is receiving multiple copies, to request that we only send a single copy of the Notice and, if applicable, our
proxy materials, such stockholder may contact us at the following address:
Sigma
Labs, Inc.
Attention:
Corporate Secretary
3900
Paseo del Sol
Santa
Fe, New Mexico 87507
Stockholders
who beneficially own shares of our common stock held in street name may contact their brokerage firm, bank, broker-dealer or other
similar organization to request information about householding.
What
is the deadline to propose actions for consideration at next year’s annual meeting of stockholders or to nominate individuals
to serve as directors?
Stockholder
Proposals
Stockholders
may present proper proposals for inclusion in our Proxy Statement and for consideration at the next annual meeting of stockholders
by submitting their proposals in writing to our Secretary in a timely manner. For a stockholder proposal to be considered for
inclusion in our Proxy Statement for our 2021 annual meeting of stockholders, our Secretary must receive the written proposal
at our principal executive offices not later than January 20, 2021, which is 120 days prior to the first anniversary of the mailing
date of this proxy statement. In addition, stockholder proposals must comply with the requirements of Rule 14a-8 regarding the
inclusion of stockholder proposals in company-sponsored proxy materials. Stockholder proposals should be addressed to:
Sigma
Labs, Inc.
Attention:
Corporate Secretary
3900
Paseo del Sol
Santa
Fe, New Mexico 87507
As
to stockholders intending to present a proposal or to nominate a director candidate at the 2021 Annual Meeting of Stockholders,
but not to include the proposal or nomination in our Proxy Statement, our Bylaws state that the proposal or nomination must be
received by us no later than January 20, 2021, which is 120 days prior to the first anniversary of the mailing date of this proxy
statement. The proposal or nomination must also contain the information required by our Bylaws. The proposal or nomination to
be presented directly at the 2021 annual meeting should be submitted to Sigma Labs, Inc., Attention: Corporate Secretary, 3900
Paseo del Sol, Santa Fe, New Mexico 87507.
PROPOSAL
NO. 1 - ELECTION OF DIRECTORS
In
accordance with our amended and restated bylaws, our Board of Directors is divided into three staggered classes of directors,
with each class having a three-year term. Vacancies on the Board of Directors and newly created directorships may be filled only
by the affirmative vote of a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining
director. A director elected by the Board of Directors to fill a vacancy (including a vacancy created by an increase in the number
of directors) shall serve for the remainder of the full term of the class of directors in which the vacancy occurred and until
the director’s successor is elected and has duly qualified, or until such director’s earlier death, resignation or
removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of our directors.
Our
Board of Directors is currently composed of five members. There are two nominees for Class III directors who, if elected, will
serve until the 2023 Annual Meeting of Stockholders and until their respective successors are elected and duly qualified, or until
their respective death, resignation or removal. Each nominee is currently a director whose term of office expires in 2020 and
is being nominated for re-election. A director is elected by a plurality of the votes present in person or represented by proxy
and entitled to vote at the Annual Meeting. Shares represented by executed proxies will be voted, if authority to do so is not
withheld, for the election of the nominee named below.
Nominees
Our
Nominating and Corporate Governance Committee has recommended, and our Board of Directors has approved, each of Dennis Duitch
and Kent Summers as nominee for election as a Class III director at the Annual Meeting. If elected, Messrs. Duitch and Summers
will serve as Class III directors until the 2023 annual meeting of stockholders and until their respective successors are duly
elected and qualified. For information concerning the nominees, please see the section titled “Board of Directors and Corporate
Governance.”
If
you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet but do not give instructions
with respect to the voting of directors, your shares will be voted “FOR” the re-election of Messrs. Duitch and Summers.
We expect that Messrs. Duitch and Summers will accept such nomination; however, in the event that a director nominee is unable
or declines to serve as a director at the time of the Annual Meeting, the proxy will be voted for any nominee who shall be designated
by our Board of Directors to fill such vacancy. If you are a street name stockholder and you do not give voting instructions to
your broker or nominee, your broker will leave your shares unvoted on this matter.
Vote
Required
The
election of a director requires a plurality vote of the shares of our common stock present in person or by proxy at the Annual
Meeting and entitled to vote thereon to be approved. Broker non-votes will have no effect on this proposal.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”
THE
NOMINEES NAMED ABOVE.
BOARD
OF DIRECTORS AND CORPORATE GOVERNANCE
The
following table sets forth the name, age as of May 8, 2020, and certain other information for our directors, Messrs. Duitch and
Summers, with a term expiring at the Annual Meeting (who are nominees for election as directors at the Annual Meeting) and for
each of the other current members of our Board of Directors:
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Directors
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Class
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Age
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Position
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Director
Since
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Current
Term Expires
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Expiration
of Term For Which Nominated
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John
Rice
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I
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73
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Chairman
of the Board
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2017
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2021
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Mark
K. Ruport
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I
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67
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Director,
President and Chief Executive Officer
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2019
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2021
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-
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Salvatore
Battinelli(1)(2)(3)
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II
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78
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Director
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2017
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2022
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-
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Dennis
Duitch(1)(2)(3)
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III
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75
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Director
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2017
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2020
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2023
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Kent
Summers(1)(2)(3)
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III
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61
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Director
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2018
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2020
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2023
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(1)
Member of our Audit Committee
(2)
Member of our Compensation Committee
(3)
Member of our Nominating and Corporate Governance Committee
Nominees
for Director
Dennis
Duitch was appointed to our Board of Directors on August 8, 2017. Mr. Duitch has served as Managing Director of Duitch Consulting
Group, a private consulting company, since 2003. Prior to that time, he practiced public accounting, business management, mediation
and consultancy nationally, with expertise in strategic and operations management, finance, accounting, strategic planning and
business operations for a wide spectrum of companies, including technology, manufacturing and distribution, marketing, real estate,
entertainment, and professional practices. He has served in executive officer roles and as a director of public and private companies,
not-for-profit organizations, including as Vice-Chairman for Accountants Global Network, and as a top-level advisor for public
companies, closely-held businesses, families and high-wealth individuals for over thirty years.
Mr.
Duitch began his career with the international CPA firm Grant Thornton in its Chicago, San Francisco and Beverly Hills offices
before founding Duitch & Franklin LLP, which evolved to become one of Southern California’s largest independent CPA/Business
Management/Consultancy practices, and which was acquired by a public company in 1998. He subsequently served as President for
a consumer products company with direct responsibility for marketing, retail, and fulfillment operations, until forming Duitch
Consulting Group in 2003 to serve clients in advisory, C-level, and board of director roles.
Mr.
Duitch is a Certified Family Business and Estate Advisor, and mediator for matters including partner/shareholder agreements and
disputes, business and marital property dissolution, and dysfunctional executive teams and boards of directors. He has lectured
extensively in management, financial and accounting areas for the California CPA Foundation, business and professional groups,
has instructed at several colleges and universities, and has authored technical articles in management and taxation for regional
and national publications.
Mr.
Duitch earned a B.B.A degree in Accounting from the University of Iowa and a Master of Business Administration in Finance from
Northwestern University.
Our
Board of Directors believes that Mr. Duitch is qualified to serve as a member of the board because of his extensive public accounting
experience, which will assist the Board and the Audit Committee in addressing the numerous accounting-related issues, regulations
and SEC reporting requirements to which we are subject, as well as his expertise in business management, finance and strategic
planning.
Kent
Summers was appointed to our Board of Directors on January 18, 2018. Mr. Summers was also appointed to serve as a member of
the Company’s Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee.
Mr.
Summers currently divides his time among a number of independent activities which focus on early-stage technology company formation
and development strategies, and sales planning and execution needs for emerging- and mid-market technology companies located primarily
in the Boston metropolitan area, including: management consultant to private and family-owned businesses; volunteer Mentor and
Instructor with the Massachusetts Institute of Technology Venture Mentoring Services program; regular lectures on enterprise,
business-to-business sales to company founders and students enrolled at the Massachusetts Institute of Technology Sloan School
of Management, the Harvard MBA Program, the Wharton School at the University of Pennsylvania, and a number of domestic and international
entrepreneurship support organizations; and consultant to Fellows enrolled in the Harvard Advanced Leadership Initiative. Mr.
Summers has served in those roles at various times from 2003 to the present. From 2009 to the present, Mr. Summers has served
as the non-executive Chairman of CADNexus, Inc., and from 2017 to the present, director and Chairman of the Compensation Committee
with iQ3 Connect, Inc. Mr. Summers also currently serves as Chairman, Board of Managers, Massachusetts Materials Technologies
LLC.
From
2005 to 2017, Mr. Summers served as Managing Partner at Practical Computer Applications, Inc., a Boston-based database consulting
and engineering services firm, where he was responsible for sales planning and execution activities. Prior to Practical Computer
Applications, from 2001 to 2005, Mr. Summers provided independent merger & acquisition advisory services to support the sale
of privately-owned companies. Over a prior 14-year period, Mr. Summers served in leadership roles at several software and internet
start-ups, including: Chairman and CEO of Collego Corporation (acquired by MRO Software), founder and CEO of MyHelpDesk, Inc.
(acquired by Support.com), founder of PCMovingVan.com (acquired by a PE firm), and Vice President of Marketing at Electronic Book
Technologies, Inc. (acquired by INSO Corporation, formerly listed on Nasdaq).
Prior
to the software industry, Mr. Summers served as Technology Analyst at Electronic Joint Venture Partners LLC and Associate Program
Trader on the Options Trading Desk at Bear Stearns & Co. In 1986, Mr. Summers received a BA in English from the University
of Houston.
Our
Board of Directors believes that Mr. Summers is qualified to serve as a member of our Board on the basis of his deep understanding
of early-stage business growth strategies, enterprise sales, business acquisitions, as well as his background and extensive company
management and leadership experience.
Continuing
Directors
John
Rice was appointed to our Board of Directors on February 15, 2017, was appointed as Chairman of our Board on April 19, 2017,
he was appointed as our interim Chief Executive Officer on July 24, 2017, was our Chief Executive Officer from June 21, 2018 until
April 30, 2020 and was our President from October 10, 2018 through April 30, 2020. Mr. Rice has extensive experience in
business operations. In 1990, Mr. Rice founded ASiQ, LLC, a firm specializing in operations management services ranging from launching
successful startups and executing business turnarounds to financings, crisis management and the repositioning of enterprises for
sale at optimum market prices. Mr. Rice presently serves as ASiQ’s CEO and President. He also served as CEO of Coca-Cola
Bottling Company of Santa Fe, a client of ASiQ’s, from 2009 to 2015. From 2010 to 2012, Mr. Rice served as Director and
Contracts Officer of Detector Networks International. Mr. Rice frequently lectures on breakout growth strategies, crisis management,
corporate turnarounds, venture capital, and financial structuring and strategies. He has also served on a number of boards. Since
2005, Mr. Rice has served as Director of New Mexico Angels, Inc., a New Mexico based group of accredited individual angel investors.
Since 2016, Mr. Rice has served as Director of Akal Security, Inc. He was also a Director of Detector Networks International from
2010-2012, where he successfully negotiated the principal component of a business turnaround for the company. Mr. Rice is an honors
graduate of Harvard College.
Our
Board of Directors believes that Mr. Rice is qualified to serve as a member of the board because of his broad and deep experience
in improving business operations, engineering financial structures that support ongoing needs of operating companies, and building
investor and shareholder values.
Salvatore
Battinelli was appointed to our Board of Directors on August 16, 2017. Mr. Battinelli is currently the President and Chief
Executive Officer of Bello e Preciso Co., a manufacturer and wholesaler of Italian-made fashion watches and has served in those
roles since early 2017. Prior to joining Bello e Preciso Co., from 2011 to 2013, Mr. Battinelli served as Vice-President of Development
and Long-Term Strategy of North American Management Corporation, a wealth management firm based in Boston, Massachusetts with
over $2 billion in assets under management. From 1987 to 2011, Mr. Battinelli served as Executive Vice-President and acting Chief
Executive Officer and Chief Operating Officer of Faneuil Hall Associates, Inc., a concierge boutique family office devoted to
five interrelated ultra-high net-worth families. Mr. Battinelli’s primary responsibilities while at Faneuil Hall Associates
included providing planning and investment advice, the management of approximately 30 asset portfolios and more than 65 individual
business entities; and assisting the families in their various business ventures worldwide while working closely with law, accounting
and banking functions. During his tenure at Faneuil Hall Associates, Mr. Battinelli served as an executive officer or director
for certain of the family owned entities and successfully managed several portfolio company IPOs, as well as serving as CEO and
COO for Designhouse International, a Scandinavian furniture company operating out of Atlanta, Georgia, which was previously listed
on NASDAQ in 1983.
From
1970 to 1974, Mr. Battinelli served as Audit Manager for Deloitte & Touche (formally Touche Ross), where he specialized in
management information systems. From 2002 to 2011, Mr. Battinelli also served as the Chairman of the Board of Directors of HealthLink
Europe, BV, a logistics and services company that serves the healthcare industry. Mr. Battinelli is a Certified Public Accountant
and received a BS in accounting and an MBA with an emphasis in international economics and accounting, both from Babson College.
Our
board of directors believes that Mr. Battinelli is qualified to serve as a member of the board on the basis of his deep understanding
of business acquisitions and sales, as well as his background and extensive company management and integration experience.
Mark
K. Ruport was appointed as a director on December 3, 2019, served as our Executive Chairman from December 3, 2019 through
April 30, 2020, when he was appointed as our President and Chief Executive Officer. Mr. Ruport brings more than 30 years of public
and private company experience in the software sector to his position at Sigma Labs. Prior to joining Sigma Labs, Mr. Ruport served
since 2010 as the President of Step Function Consulting, LLC, a consulting firm that provides strategic consulting services to
early and mid-stage portfolio software companies. Mr. Ruport also served from 2014 to 2017 as the Executive Chairman of the Board
of Directors of Content Analyst Company, a leading developer of advanced analytics software for searching and analyzing unstructured
text, and before that served as its Vice Chairman from 2012 to 2013. From 2005 to 2009, Mr. Ruport served as the President and
Chief Executive Officer of Configuresoft, Inc., a venture-backed Enterprise Systems Management company, where he orchestrated
an OEM agreement which later led to its acquisition by EMC Corp. Prior to Configuresoft, Mr. Ruport served from 2004 to 2005 as
the Executive Vice President of Worldwide Operations at Stellent, Inc., which was subsequently acquired by Oracle, Inc., and from
1995 to 2005 as the President, Chief Executive Officer and Chairman of the Board of Directors of Optika, Inc., a venture-backed
Enterprise Content Management Company that he led through its initial public offering and merger with Stellent, Inc. From 1990
to 1994, Mr. Ruport served as the President and Chief Executive Officer of Interleaf, Inc., a public software company. He also
held various senior executive positions from 1985 to 1989 at Informix, Inc., a relational database management system company later
acquired by IBM, and from 1985 to 1989 at Cullinet, Inc., a mainframe database management system and enterprise resource planning
company later acquired by Computer Associates, Inc. Mr. Ruport received his Bachelor of Science degree and MBA from Bowling Green
State University.Mr. Ruport received a Bachelor of Science in Business and an MBA from Bowling Green State University.
Our
Board of Directors believes that Mr. Ruport is qualified to serve as a member of the board because of his extensive experience
in management and leadership in the technology industry.
Director
Independence
Our
Board of Directors currently consists of five members. As a result of his prior appointment as Chief Executive Officer, Mr. Rice
is not considered an independent director. As a result of his appointment as Chief Executive Officer, Mr. Ruport is also not considered
an independent director. Our Board of Directors has determined that our other directors, Salvatore Battinelli, Dennis Duitch and
Kent Summers, constituting a majority of our directors, are “independent” as that term is defined under Rule 5605(a)(2)
of the NASDAQ marketplace rules. Pursuant to NASDAQ rules, our board must consist of a majority of independent directors.
The
NASDAQ independence definition includes a series of objective tests, including that the director is not, and has not been for
at least three years, one of our employees and that neither the director nor any of his family members has engaged in various
types of business dealings with us. In addition, as required by NASDAQ rules, our Board of Directors has made a subjective determination
as to Messrs. Battinelli, Duitch and Summers, our independent directors, that no relationships exists, which, in the opinion of
our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
In making these determinations, our Board of Directors reviewed and discussed information provided by the directors and us with
regard to each director’s business and personal activities and relationships as they may relate to us and our management.
There are no family relationships among any of our directors or executive officers.
Classified
Board of Directors
In
accordance with our amended and restated bylaws, our Board of Directors is divided into three classes with staggered, three-year
terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from
the time of election and qualification until the third annual meeting following election. Our directors are classified as follows:
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the
Class I directors are John Rice and Mark Ruport, with terms expiring at our 2021 annual meeting of stockholders;
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the
Class II director is Salvatore Battinelli, with a term expiring at our 2022 annual meeting of stockholders; and
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the
Class III directors are Dennis Duitch and Kent Summers, with terms expiring at our 2020 annual meeting of stockholders.
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Our
Board of Directors appointed John Rice as Chairman of the Board on April 19, 2017. Our amended and restated bylaws provide that
the authorized number of directors may be changed by resolution of the Board of Directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. The division of our Board of Directors into three classes with staggered three-year
terms may delay or prevent a change of our management or a change in control of our company.
Leadership
Structure of the Board
Our
directors may be removed with or without cause at any meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of our outstanding voting stock entitled to vote in the election of directors. Our amended and restated bylaws provide
our Board of Directors with flexibility in its discretion to combine or separate the positions of Chairman of the Board and Chief
Executive Officer, if we elect to appoint a Chairman of the Board. Our Board of Directors believes it is important to select the
Company’s Chairman and Chief Executive Officer in the manner it considers in the best interests of the Company at any given
time. Our Board of Directors believes that the Chairman and Chief Executive Officer positions may be filled by one individual
or by two different individuals, as determined by our Board of Directors based on circumstances then in existence.
The
Chairman of the Board presides at all meetings of our Board of Directors (but not at its executive sessions) and exercises and
performs such other powers and duties as may be assigned to him from time to time by the Board or prescribed by our amended and
restated bylaws.
Currently,
the positions of Chairman of the Board of Directors and Chief Executive Officer of the Company are held by separate individuals,
with Mr. Rice serving as Chairman of the Board and Mr. Ruport serving as President and Chief Executive Officer. Mr. Rice has served
as the Chairman of the Board since April 19, 2017. The Chairman of the Board is appointed by our Board of Directors on an annual
basis.
Our
Board currently believes that this structure is best for the Company, as it allows Mr. Ruport to focus on the Company’s
strategy, business and operations, while enabling Mr. Rice to manage our Board of Directors and serve as a liaison between the
Board and the Company’s senior management, led by Mr. Ruport. Additionally, our Board currently believes the separation
of offices is beneficial, because a separate Chairman can provide the Chief Executive Officer with guidance and feedback on his
performance and the Chairman provides a more effective channel for our Board to express its views on management. This structure
can also enable Mr. Rice and Mr. Ruport, and the other members of our Board, to be better informed and to communicate more effectively
on issues, including with respect to risk oversight matters.
Our
Board of Directors has no established policy on whether it should be led by a Chairman who is also the Chief Executive Officer.
Our Board continually evaluates our leadership structure and could in the future decide to again combine the Chairman and Chief
Executive Officer positions if it believes that doing so would serve the best interests of our Company and our stockholders.
Board
Meetings and Committees
During
our fiscal year ended December 31, 2019, the Board of Directors held four meetings, and each director attended at least 75% of
the aggregate of (i) the total number of meetings of our Board of Directors held during the period for which he has been a director
and (ii) the total number of meetings held by all committees of our Board of Directors on which he served during the periods that
he served.
Although
we do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of stockholders, we
encourage, but do not require, our directors to attend. Each of our then current directors attended our 2019 Annual Meeting of
Stockholders.
Our
board has established three standing committees-audit, compensation, and nominating and corporate governance-each of which operates
under a written charter that has been approved by our board. Until February 15, 2017, when our common stock became listed on The
NASDAQ Capital Market, we were not required to establish or maintain an audit, nominating or compensation committee. Each committee
charter has been posted on the Investors section of our website at www.sigmalabsinc.com. The reference to our website address
does not constitute incorporation by reference of the information contained at or available through our website, and you should
not consider it to be a part of this Proxy Statement.
Audit
Committee
The
Audit Committee’s responsibilities include:
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appointing,
approving the compensation of, and assessing the independence of our registered public accounting firm;
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overseeing
the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm;
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reviewing
and discussing with management and the registered public accounting firm our annual and quarterly financial statements and
related disclosures;
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monitoring
our internal control over financial reporting, disclosure controls and procedures;
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establishing
procedures for the receipt, retention and treatment of accounting related complaints and concerns;
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meeting
independently with our registered public accounting firm and management;
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reviewing
and approving or ratifying any related person transactions; and
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preparing
the Audit Committee report required by SEC rules.
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The
members of our Audit Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Duitch serves as the chairperson of the committee.
Our Board of Directors has determined that each of Messrs. Duitch, Battinelli and Summers is an independent director under NASDAQ
rules and under SEC Rule 10A-3. All members of our Audit Committee meet the requirements for financial literacy under the applicable
rules and regulations of the SEC and NASDAQ. Our Board of Directors has determined that each member of our Audit Committee is
an “audit committee financial expert” as defined by applicable SEC rules and has the requisite financial sophistication
as defined under the applicable NASDAQ rules and regulations. The Audit Committee met four times during 2019.
Compensation
Committee
The
Compensation Committee’s responsibilities include:
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annually
reviewing and approving corporate goals and objectives applicable to CEO compensation;
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determining
our CEO’s compensation;
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reviewing
and approving, or making recommendations to our board with respect to, the compensation of our other executive officers;
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overseeing
an evaluation of our senior executives;
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overseeing
and administering our equity incentive plans;
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reviewing
and making recommendations to our board with respect to director compensation; and
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reviewing
and discussing annually with management our “Compensation Discussion and Analysis” when it is required by SEC
rules to be included in our Proxy Statements.
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The
members of our Compensation Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Battinelli serves as the chairperson
of the committee. Our board has determined that each of Messrs. Duitch, Battinelli and Summers is independent under the applicable
NASDAQ rules and regulations and is a “non-employee director” as defined in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). The Compensation Committee was established effective February
15, 2017 (i.e., when our common stock became listed on The NASDAQ Capital Market).
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee’s responsibilities include:
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identifying
individuals qualified to become board members;
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recommending
to our board the persons to be nominated for election as directors and to each of the board’s committees; and
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overseeing
an annual evaluation of the board.
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The
members of our Nominating and Corporate Governance Committee are Messrs. Duitch, Battinelli and Summers, and Mr. Duitch serves
as the interim chairperson of the committee. Our board has determined that each of Messrs. Duitch, Battinelli and Summers is independent
under the applicable NASDAQ rules and regulations. The Nominating and Corporate Governance Committee was established effective
February 15, 2017 (i.e., when our common stock became listed on The NASDAQ Capital Market).
Code
of Ethics and Business Conduct
The
Company has a code of ethics that applies to all employees, including the Company’s principal executive officer, principal
financial officer, and principal accounting officer, as well as to the members of the Board of Directors. The code is available
at www.sigmalabsinc.com. The Company intends to disclose any changes in, or waivers from, this code by posting such information
on the same website or by filing a Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or NASDAQ.
The reference to our website address does not constitute incorporation by reference of the information contained at or available
through our website, and you should not consider it to be a part of this Proxy Statement.
Considerations
in Evaluating Director Nominees
Our
Nominating and Corporate Governance Committee uses a variety of methods for identifying and evaluating director nominees. In its
evaluation of director candidates, our Nominating and Corporate Governance Committee will consider the current size and composition
of our Board of Directors and the needs of our Board of Directors and the respective committees of our Board of Directors. Some
of the qualifications that our Nominating and Corporate Governance Committee considers include, without limitation, issues of
character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, length of service,
potential conflicts of interest and other commitments. Nominees must also have the ability to offer advice and guidance to our
Chief Executive Officer based on past experience in positions with a high degree of responsibility and be leaders in the companies
or institutions with which they are affiliated. Director candidates must have sufficient time available in the judgment of our
Nominating and Corporate Governance Committee to perform all board of director and committee responsibilities. Members of our
Board of Directors are expected to prepare for, attend, and participate in all board of director and applicable committee meetings.
Other than the foregoing, there are no stated minimum criteria for director nominees, although our Nominating and Corporate Governance
Committee may also consider such other factors as it may deem, from time to time, are in our and our stockholders’ best
interests.
Although
our Board of Directors does not maintain a specific policy with respect to board diversity, our Board of Directors believes that
our Board of Directors should be a diverse body, and our Nominating and Corporate Governance Committee considers a broad range
of backgrounds and experiences. In making determinations regarding nominations of directors, our Nominating and Corporate Governance
Committee may take into account the benefits of diverse viewpoints. Our Nominating and Corporate Governance Committee also will
consider these and other factors as it oversees the annual board of director and committee evaluations. After completing its review
and evaluation of director candidates, our Nominating and Corporate Governance Committee recommends to our full Board of Directors
the director nominees for selection.
Stockholder
Recommendations for Nominations to the Board of Directors
Our
Nominating and Corporate Governance Committee will consider candidates for director recommended by stockholders so long as such
recommending stockholder was a stockholder of record both at the time of giving notice and at the time of the annual meeting,
and such recommendations comply with our amended and restated articles of incorporation and amended and restated bylaws and applicable
laws, rules and regulations, including those promulgated by the SEC. The Nominating and Corporate Governance Committee will evaluate
such recommendations in accordance with its charter, our amended and restated bylaws, our policies and procedures for director
candidates, as well as the regular director nominee criteria described above. This process is designed to ensure that our Board
of Directors includes members with diverse backgrounds, skills and experience, including appropriate financial and other expertise
relevant to our business. Eligible stockholders wishing to recommend a candidate for nomination should contact the Secretary in
writing. Our Nominating and Corporate Governance Committee has discretion to decide which individuals to recommend for nomination
as directors.
Any
nomination should be sent in writing to our Secretary at Sigma Labs, Inc., 3900 Paseo del Sol, Santa Fe, New Mexico 87507. To
be timely for our 2021 annual meeting of stockholders, our Secretary must receive the nomination by the date specified in the
“Stockholder Proposals” section above.
Communications
with the Board of Directors
Interested
parties wishing to communicate with our Board of Directors or with an individual member or members of our Board of Directors may
do so by writing to our Board of Directors or to the particular member or members of our Board of Directors, and mailing the correspondence
to our Secretary at Sigma Labs, Inc., 3900 Paseo del Sol, Santa Fe, New Mexico 87507. Each communication should set forth (i)
the name and address of the stockholder, as it appears on our books, and if the shares of our common stock are held by a nominee,
the name and address of the beneficial owner of such shares, and (ii) the number of shares of our common stock that are owned
of record by the record holder and beneficially by the beneficial owner.
Our
Secretary in consultation with appropriate members of our Board of Directors as necessary, will review all incoming communications
and, if appropriate, all such communications will be forwarded to the appropriate member or members of our Board of Directors,
or if none is specified, to John Rice.
Role
of Board in Risk Oversight Process
Risk
assessment and oversight are an integral part of our governance and management processes. Our Board of Directors encourages management
to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management
discusses strategic and operational risks at regular management meetings and conducts specific strategic planning and review sessions
during the year that include a focused discussion and analysis of the risks we face. Throughout the year, senior management reviews
these risks with the Board of Directors at regular board meetings as part of management presentations that focus on particular
business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks.
Our Board of Directors does not have a standing risk management committee, but rather administers this oversight function directly
through the Board of Directors as a whole, as well as through standing committees of the Board of Directors that will address
risks inherent in their respective areas of oversight. In particular, our Audit Committee is responsible for overseeing our major
financial risk exposures and the steps our management has taken to monitor and control these exposures. The Audit Committee also
monitors compliance with legal and regulatory requirements and considers and approves or disapproves any related-person transactions.
Our Nominating and Governance Committee monitors the effectiveness of our corporate governance guidelines that we may adopt or
amend from time to time. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs
has the potential to encourage excessive risk-taking by our management.
Director
Compensation
We
believe that a combination of cash and equity compensation is appropriate to attract and retain the individuals we desire to serve
on our Board of Directors. Our cash compensation policies are designed to encourage frequent and active interaction between directors
and our executives both during and between formal meetings as well as compensate our directors for their time and effort. Further,
we believe it is important to align the long-term interests of our non-employee directors (i.e. directors who are not employed
by us as officers or employees) with those of the Company and its stockholders, and that awarding equity compensation to, and
thereby increasing ownership of our common stock by, our non-employee directors is an appropriate means to achieve this alignment.
Directors who are also employees of our company do not receive compensation for their service on our Board of Directors.
Under our director compensation
program, each non-employee director received annual compensation of $27,000 and 5,000 shares of restricted common stock, which
vested ratably each quarter. In addition, the Chairperson of the Audit Committee received a $5,000 annual retainer in cash. All
cash fees are paid quarterly. Also, each non-employee director may be reimbursed for his reasonable expenses incurred in the performance
of his duties as a director as our Board of Directors determines from time to time. Our Compensation Committee periodically evaluates
our director compensation program and determines whether any changes should be recommended to the Board. In that regard, our directors
agreed to defer the payment of their cash compensation for the first two quarters of 2020 as a cash saving measure, and to defer
the issuance of shares of common stock. Our Compensation Committee will evaluate whether any changes to our director compensation
program for 2020 should be recommended to the Board.
The
following table sets forth certain information concerning the compensation paid to non-employee directors in 2019 for their services
as directors of the Company. The compensation of Mr. Rice, who serves as a director and served as our President and Chief Executive
Officer until April 30, 2020, is described in the Summary Compensation Table of Executive Officers. Our non-employee directors
do not receive fringe or other benefits.
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Name
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Fees
Earned or
Paid in
Cash ($)
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Stock
Awards ($)(5)
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Option
Awards ($)
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Total ($)
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Salvatore Battinelli(1)
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27,000
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75,000
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—
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102,000
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Dennis Duitch(2)
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32,000
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75,000
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—
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107,000
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Frank Garofalo(3)
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27,000
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75,000
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—
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102,000
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Kent Summers(4)
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72,000
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75,000
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—
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147,000
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(1)
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The
fees shown were paid to Mr. Battinelli for services as a director. In January 2019, the Company issued 5,000 shares of the
Company’s common stock to Mr. Battinelli, pursuant to the Company’s 2013 Equity Incentive Plan, in connection
with his service as a director, with such shares to vest in four equal, successive quarterly installments. Such shares were
valued at $75,000 or $15.00 per share.
|
|
(2)
|
The
fees shown were paid to Mr. Duitch for services as a director, including $5,000 as a retainer for serving as the Chairman
of the Audit Committee. In January 2019, the Company issued 5,000 shares of the Company’s common stock to Mr. Duitch,
pursuant to the Company’s 2013 Equity Incentive Plan, in connection with his service as a director, with such shares
to vest in four equal, successive quarterly installments. Such shares were valued at $75,000 or $15.00 per share.
|
|
(3)
|
The
fees shown were paid to Mr. Garofalo for services as a director. In January 2019, the Company issued 5,000 shares, of the
Company’s common stock to Mr. Garofalo, pursuant to the Company’s 2013 Equity Incentive Plan, in connection with
his service as a director, with such shares to vest in four equal, successive quarterly installments. Such shares were valued
at $75,000 or $15.00 per share. Mr. Garofalo resigned from the Board of Directors on February 19, 2020.
|
|
(4)
|
The
fees shown were paid to Mr. Summers for services as a director, including $45,000 for his additional services as a director
in his capacity as the Chairman of the Special Projects Committee. In January 2019, the Company issued 5,000 shares of the
Company’s common stock to Mr. Summers, pursuant to the Company’s 2013 Equity Incentive Plan, in connection with
his appointment and service as a director, with such shares to vest in four equal, successive quarterly installments. Such
shares were valued at $75,000 or $15.00 per share.
|
|
(5)
|
This
column represents the aggregate grant date fair value of stock awards computed in accordance with FASB ASC Topic 718. These
amounts do not correspond to the actual value that will be recognized by the named directors from these awards.
|
EXECUTIVE
OFFICERS
Executive
Officers
The
following table sets forth the name, age and position of each of our executive officers as of May 8, 2020:
|
Name
|
|
Age
|
|
Position
|
|
Mark
K. Ruport
|
|
67
|
|
President
and Chief Executive Officer
|
|
Frank
Orzechowski
|
|
60
|
|
Chief
Financial Officer, Treasurer and Corporate Secretary
|
|
Ronald
Fisher
|
|
50
|
|
Vice
President of Business Development
|
|
Darren
Beckett
|
|
46
|
|
Chief
Technology Officer
|
Mark
K. Ruport was appointed as a director on December 3, 2019,
served as our Executive Chairman from December 3, 2019 through April 30, 2020, and
he was appointed as our President and Chief Executive Officer on April 30, 2020. Additional information regarding Mr. Ruport is
set forth above under “Board of Directors and Corporate Governance.”
Frank
Orzechowski has served as our Chief Financial Officer, Treasurer, principal accounting officer, principal financial officer
and Corporate Secretary since July 1, 2019. Prior to joining the Company, Mr. Orzechowski
served as the Chief Financial Officer of StormHarbour Partners LP, an independent global markets and financial advisory firm since
September 2013. From May 2013 to August 2013, Mr. Orzechowski served as a contract CFO for Etouches Inc., a cloud-based event
management software company, to assist with financial matters in connection with that company’s planned equity financing.
Prior to that, he served as President and Owner/Operator of Four-O Technologies Inc. from August 2009 to December 2012, where
he successfully launched and guided operations for two Cartridge World franchise units in Connecticut. From February 2006 to July
2009, Mr. Orzechowski served as President and Chief Financial Officer of Nikko Americas Holding Company Inc., where he was responsible
for managing all of the support and infrastructure for that company’s U.S. business, as well as investment manager selection
and due diligence functions for its World Series Platform. Mr. Orzechowski began his career at Coopers & Lybrand in 1982,
received his CPA certification in 1984 and received his Bachelor of Science in Business Administration with a major in Accounting
from Georgetown University in 1982.
Darren
Beckett served as our Engineering Manager beginning on September 25, 2017, was appointed as our Vice President of Engineering
on June 29, 2018, and had his title changed to Chief Technology Officer of the Company on October 18, 2018. Mr. Beckett has over
20 years of experience in the semiconductor industry, including since 1997 with Intel Corporation at which he held various technical
and managerial positions, including process engineer of ion implant charged particle systems, chemical vapor deposition systems,
and, since 2008, engineering manager of multiple engineering groups such as rapid thermal anneal, defect metrology equipment and
fab environment micro contamination. Mr. Beckett’s expertise is in process engineering for advanced manufacturing technology,
including statistical process control for fabrication of semiconductor devices. Mr. Beckett serves as an independent director
and board member of M&T Foundation, San Diego, California. Mr. Beckett earned a B. Eng. in Mechanical Engineering from University
of Limerick, Ireland.
Ronald
Fisher was appointed as Vice President of Business Development of Sigma on August 10, 2015 and leads the PrintRite3D®
Operating Division. Mr. Fisher is a Mechanical Engineer with hands-on experience in quality, manufacturing, and product development.
He has an MBA and has distinguished himself as a lead sales and marketing officer as well as a Chief Operating Officer. He was
a Program Manager at Swagelok from 1988-2004, and Vice President and General Manager, Aftermarket and Geometry Systems, at Micropoise
Measurement Systems from 2004 until 2013, and a Partner and COO of Laszeray Technology, LLC from 2013 until 2014. Mr. Fisher holds
a Bachelor’s Degree in Mechanical Engineering Technology from the University of Akron as well as an MBA from Kent State
University.
EXECUTIVE
COMPENSATION
Processes
and Procedures for Compensation Decisions
Our
Compensation Committee is responsible for the executive compensation programs for our executive officers and reports to our board
of directors on its discussions, decisions and other actions. Typically, our Chief Executive Officer makes recommendations to
our Compensation Committee and is involved in the determination of compensation for the respective executive officers that report
to him. Our Chief Executive Officer does not determine his own compensation. Our Chief Executive Officer makes recommendations
to our Compensation Committee regarding short- and long-term compensation for all executive officers based on our results, an
individual executive officer’s contribution toward these results and performance toward individual goal achievement. Our
Compensation Committee then reviews the recommendations and other data and makes decisions (or makes recommendations to the Board)
as to total compensation for each executive officer as well as each individual compensation component.
The
following table sets forth compensation for services rendered in all capacities to the Company: (i) for each person who served
as the Company’s Chief Executive Officer at any time during the past fiscal year, and (ii) for our two most highly compensated
executive officers, other than our Chief Executive Officer, who were employed with the Company on December 31, 2019 (the foregoing
executives are herein collectively referred to as the “named executive officers”).
Summary
Compensation Table
|
Name and Principal Position
|
|
Year
|
|
|
Salary ($)(1)
|
|
|
Bonus ($)
|
|
|
Stock Awards ($)
|
|
|
Option Awards ($)(2)
|
|
|
All Other Compensation ($)
|
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Rice - Former President, Chief Executive Officer (Principal Executive Officer), and Director
|
|
2019
|
|
|
|
155,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
210,347
|
(3)
|
|
|
—
|
|
|
|
365,347
|
|
|
(Chairman of the Board)
|
|
2018
|
|
|
|
125,625
|
|
|
|
—
|
|
|
|
—
|
|
|
|
280,617
|
(4)
|
|
|
|
|
|
|
406,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald Fisher - Vice President
|
|
2019
|
|
|
|
180,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,870
|
(5)
|
|
|
—
|
|
|
|
203,870
|
|
|
of Business Development
|
|
2018
|
|
|
|
180,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,927
|
(6)
|
|
|
—
|
|
|
|
208,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darren Beckett – Chief Technology
|
|
2019
|
|
|
|
180,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,100
|
(7)
|
|
|
—
|
|
|
|
216,100
|
|
|
Officer
|
|
2018
|
|
|
|
142,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,574
|
(8)
|
|
|
—
|
|
|
|
184,074
|
|
|
(1)
|
Actual
amounts paid or accrued.
|
|
|
|
|
(2)
|
The
Fair Value of option awards is calculated in accordance with FASB ASC Topic 718. The amount recognized for all awards is calculated
using the Black Scholes option-pricing model.
|
|
|
|
|
(3)
|
On
each of the first day of each month commencing January 1, 2019 and ending on August 1, 2019, we granted Mr. Rice an option
to purchase up to 2,292 shares of our common stock, under our 2013 Equity Incentive Plan in connection with his employment
arrangement. The options are fully vested and have the following exercise prices: $15.00, $19.30, $20.40, $14.70, $15.00,
$12.00, $14.00, and $7.40. The options had an aggregate grant date fair value of $26,630, $34,254, $36,418, $26,161, $26,642,
$21,291, $25,405, and $13,546, respectively
|
|
|
|
|
(4)
|
On
April 19, 2018, we granted Mr. Rice three options (the “Options”) to purchase up to 2,000 shares of our common
stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The Options have an exercise price
per share equal to $18.80, $15.40 and $14.80, respectively, and each is fully vested. The options had an aggregate grant date
fair value of $31,010, $25,402 and $24,412, respectively. The Company also granted Mr. Rice an option to purchase up to 2,000
shares on each of April 30, 2018, May 31, 2018, June 30, 2018 and July 31, 2018. Such options have an exercise price per share
equal to $11.00, $14.70, $11.90 and $8.70, respectively, and each is fully vested. The options had an aggregate grant date
fair value of $18,184, $24,248, $19,460 and $13,975, respectively. On November 1, 2018 the Company granted Mr. Rice a fully
vested option to purchase up to 6,875 shares at an exercise price of $17.90 The option had an aggregate grant day fair value
of $95,888. On December 1, 2018 the Company granted Mr. Rice a fully vested option to purchase up to 2,292 shares at an exercise
price of $15.70. The option had an aggregate grant day fair value of $28,038.
|
|
(5)
|
On
January 10, 2019, we granted Mr. Fisher an option to purchase 1,183 shares of our common stock under our 2013 Equity Incentive
Plan in connection with his employment arrangement. The option has an exercise price per share equal to $20.20 and is fully
vested. The option had a grant date fair value of $18,271. On November 1, 2019, we granted Mr. Fisher an option to purchase
100 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option
has an exercise price per share equal to $5.20 and is fully vested. The option had a grant date fair value of $420. On November
26, 2019, we granted Mr. Fisher an option to purchase 100 shares of our common stock under our 2013 Equity Incentive Plan
in connection with his employment arrangement. The option has an exercise price per share equal to $8.20 and is fully vested.
The option had a grant date fair value of $661. On December 3, 2019, we granted Mr. Fisher an option to purchase 500 shares
of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an
exercise price per share equal to $11.20 and is fully vested. The option had a grant date fair value of $4,518.
|
|
|
|
|
(6)
|
On
April 19, 2018, we granted Mr. Fisher an option to purchase 2,875 shares of our common stock under our 2013 Equity Incentive
Plan in connection with his employment arrangement. The option has an exercise price per share equal to $12.20, and is vested
as to 281 shares, and the balance of the shares under the stock option will vest in three additional annual installments as
follows: 410 shares will vest and become exercisable on April 19, 2020; 683 shares will vest and become exercisable April
19, 2021; and 1,501 shares will vest and become exercisable on April 19, 2022. The options had a grant date fair value of
$28,927.
|
|
|
|
|
(7)
|
On
January 1, 2019, we granted Mr. Beckett an option to purchase up to 375 shares of our common stock under our 2013 Equity Incentive
Plan in connection with his employment arrangement. The option has an exercise price per share equal to $15.00. The option
vests as follows: 94 shares vested and became exercisable on January 1, 2020; the remaining 281 shares will vest and become
exercisable equally on the second through the fourth anniversaries of the date of grant. The option has an aggregate grant
date fair value of $4,358. On July 18, 2019, we granted Mr. Beckett an option to purchase up to 500 shares of our common stock
under our 2013 Equity Incentive Plan. The option has an exercise price per share equal to $12.40. The option vests and will
become exercisable equally on the first through the fourth anniversaries of the date of grant. The option has an aggregate
grant date fair value of $4,885. On October 11, 2019, we granted Mr. Beckett an option to purchase up to 5,000 shares of our
common stock under our 2013 Equity Incentive Plan. The option has an exercise price per share equal to $6.70. The option is
fully vested and exercisable. The option has an aggregate grant date fair value of $26,857.
|
|
|
|
|
(8)
|
On
February 26, 2018 and October 18, 2018, we granted Mr. Beckett an option to purchase up to 1,500 and 2,000 shares of our common
stock, respectively, under our 2013 Equity Incentive Plan in connection with his employment arrangement. The options have
an exercise price per share equal to $15.60 and $12.10, respectively. The February 2018 option vests as follows: 75 shares
vested and became exercisable on October 13, 2018; 225 shares vested and became exercisable on October 13, 2019; 375 shares
will vest and become exercisable on October 13, 2020; and 825 shares will vest and become exercisable on October 13, 2021.
The October 2018 option vests in equal annual installment over four years from the date of grant. The options have an aggregate
grant date fair value of $22,790 and $18,784, respectively.
|
Named
Executive Officer Employment Agreements
Darren
P. Beckett
On
October 18, 2018, Darren Beckett’s title was changed from Vice President of Engineering to Chief Technology Officer of the
Company. On October 18, 2018, the Company also increased the annual base salary of Mr. Beckett from $135,000 to $180,000, effective
retroactive to September 16, 2018, and granted Mr. Beckett an option to purchase 2,000 shares of common stock under the 2013 Plan
at an exercise price of $12.10 per share. The option has a term of five years and vests in equal annual installment over four
years from the date of grant subject, in each case, to Mr. Beckett being in the continuous employ of the Company on the applicable
vesting date. Mr. Beckett has served as an employee of the Company since September 25, 2017, pursuant to an “at will”
employment agreement with the Company, under which he was engaged to serve as our Engineering Manager. Under the agreement, Mr.
Beckett was entitled to receive an annual base salary of $135,000 prior to the foregoing increase, and is eligible to receive
medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s
Section 125 cafeteria plan, vision plan and 401K plan. On January 1, 2019 the Company granted Mr. Beckett an option to purchase
up to 375 shares of common stock under the 2013 Plan at an exercise price of $15.00. The option has a term of five years and vests
in equal annual installments over four years form the date of grant. On April 10, 2020, the Company issued 1,125 shares of common
stock under the 2013 Plan to Mr. Beckett in connection with his employment with the Company, which shares will vest in full on
December 31, 2020, provided that Mr. Beckett remains in the Company’s continuous employ through such vesting date.
Ronald
Fisher
We
have entered into an “at will” employment agreement, effective as of August 10, 2015, with Mr. Fisher under which
he was engaged to serve as our Vice President of Business Development. Mr. Fisher is entitled to receive an annual base salary
of $180,000. Pursuant to the employment agreement, Mr. Fisher also was granted, as a signing bonus, a stock option to purchase
up to 2,375 shares of common stock of the Company, at an exercise price equal to $118.00 per share, which was the closing market
price of the Company’s common stock on August 10, 2015 (i.e., the date of grant), under the 2013 Equity Incentive Plan.
Such option vested and became exercisable as to 138 shares on the first anniversary of the grant date, as to 338 shares on the
second anniversary of the grant date, as to 638 shares on the third anniversary of the grant date, and will vest and become exercisable
as to 1,263 shares on the fourth anniversary of the grant date, provided that Mr. Fisher remains an employee of the Company through
such vesting date. The option has a ten-year term and is on such other terms set forth in the Company’s standard
form of non-qualified stock option agreement. Additionally, the Company granted Mr. Fisher under the 2013 Plan, effective as of
August 11, 2016, a stock option to purchase up to 500 shares of common stock of the Company. Such option has an exercise price
equal to the closing price of our common stock on the date of grant, and vests and becomes exercisable as to (i) 30 shares on
August 11, 2017, (ii) 70 shares on August 11, 2018, (iii) 135 shares on August 11, 2019, and (iv) 265 shares on August 11, 2020,
provided Mr. Fisher is in the employ of the Company on August 11, 2019 and 2020. Further, Mr. Fisher is eligible to participate
in the Company’s 2013 Equity Incentive Plan and is eligible to receive medical and dental benefits, life insurance, short
and long-term disability coverage, and to participate in the Company’s Section 125 cafeteria plan, vision plan and 401K
plan.
On
September 18, 2017, we and Mr. Fisher entered into Amendment No. 1 to Mr. Fisher’s employment agreement, effective August
10, 2015, pursuant to which, effective as of February 11, 2017, item 2, entitled “Performance Bonuses,” of Exhibit
A of Mr. Fisher’s employment agreement was deleted in its entirety and replaced with the new item 2 that was set forth in
the amendment to employment agreement. Such amendment provided that Mr. Fisher would become entitled to receive performance-based
stock and cash bonuses if certain milestones were satisfied by February 11, 2018, so long as Mr. Fisher remained an employee of
the Company as of the date the applicable milestone was satisfied.. On February 21, 2018, the Company and Mr. Fisher entered into
Amendment No. 2 to Mr. Fisher’s employment agreement, pursuant to which the foregoing February 11, 2018 date was extended
to December 31, 2018. On January 10, 2019, the Company granted Mr. Fisher an option to purchase up to 1,183 shares of common stock
in exchange for the cancellation of his accrued but unpaid vacation balance at December 31, 2018. On March 7, 2019, the Company
issued 150 shares of common stock under the 2013 Plan to Mr. Fisher connected with the satisfaction of a performance milestone.
On April 10, 2020, the Company issued 1,125 shares of common stock under the 2013 Plan to Mr. Fisher in connection with his employment
with the Company, which shares will vest in full on December 31, 2020, provided that Mr. Fisher remains in the Company’s
continuous employ through such vesting date.
Former
Executive Officer’s Employment Agreement
John
Rice
On
August 8, 2017, we entered into an “at will” unwritten employment arrangement with John Rice. Effective as of April
30, 2020, Mr. Rice resigned from his positions as President, Chief Executive Officer, and principal executive officer of the Company.
Mr. Rice will continue to serve as Chairman of the Board. As described in our Form 8-K filed with the SEC on May 4, 2020, Mr.
Rice and the Company have entered into a consulting agreement under which he will provide services to the Company on an as needed
basis.
Outstanding
Equity Awards at 2019 Fiscal Year-End
The
following table sets forth outstanding equity awards issued under our 2013 Equity Incentive Plan as of December 31, 2019 that
are held by our named executive officers.
|
Option Awards
|
|
|
|
Name
|
|
Number of securities underlying unexercised options (#) exercisable
|
|
|
Number of securities underlying unexercised options (#) unexercisable
|
|
|
Option
exercise
price ($)
|
|
|
Option
expiration
date
|
|
John Rice(1)
|
|
|
2,000
|
|
|
|
—
|
|
|
|
18.80
|
|
|
4/18/23
|
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
15.40
|
|
|
4/18/23
|
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
14.80
|
|
|
4/18/23
|
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
11.00
|
|
|
4/29/23
|
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
14.70
|
|
|
5/30/23
|
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
11.90
|
|
|
6/29/23
|
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
8.70
|
|
|
7/30/23
|
|
|
|
|
6,875
|
|
|
|
—
|
|
|
|
17.90
|
|
|
12/31/23
|
|
|
|
|
2,292
|
|
|
|
—
|
|
|
|
15.70
|
|
|
11/30/23
|
|
|
|
|
2,292
|
|
|
|
—
|
|
|
|
15.00
|
|
|
1/1/24
|
|
|
|
|
2,292
|
|
|
|
—
|
|
|
|
19.30
|
|
|
2/1/24
|
|
|
|
|
2,292
|
|
|
|
—
|
|
|
|
20.40
|
|
|
3/1/24
|
|
|
|
|
2,292
|
|
|
|
—
|
|
|
|
14.70
|
|
|
4/1/24
|
|
|
|
|
2,292
|
|
|
|
—
|
|
|
|
15.00
|
|
|
5/1/24
|
|
|
|
|
2,292
|
|
|
|
—
|
|
|
|
12.00
|
|
|
6/1/24
|
|
|
|
|
2,292
|
|
|
|
—
|
|
|
|
14.00
|
|
|
7/1/24
|
|
|
|
|
2,292
|
|
|
|
—
|
|
|
|
7.40
|
|
|
8/1/24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald Fisher(2)
|
|
|
281
|
|
|
|
2,594
|
|
|
|
12.20
|
|
|
4/18/23
|
|
|
|
|
1,183
|
|
|
|
—
|
|
|
|
20.20
|
|
|
1/10/24
|
|
|
|
|
100
|
|
|
|
—
|
|
|
|
5.20
|
|
|
11/1/24
|
|
|
|
|
100
|
|
|
|
—
|
|
|
|
8.20
|
|
|
11/26/24
|
|
|
|
|
500
|
|
|
|
—
|
|
|
|
11.20
|
|
|
12/3/24
|
|
|
|
|
2,375
|
|
|
|
—
|
|
|
|
118.00
|
|
|
8/10/25
|
|
|
|
|
235
|
|
|
|
265
|
|
|
|
105.60
|
|
|
8/11/26
|
|
Darren Beckett(3)
|
|
|
300
|
|
|
|
1,200
|
|
|
|
19.20
|
|
|
10/12/22
|
|
|
|
|
100
|
|
|
|
1,900
|
|
|
|
12.10
|
|
|
10/18/23
|
|
|
|
|
94
|
|
|
|
281
|
|
|
|
15.00
|
|
|
1/1/24
|
|
|
|
|
—
|
|
|
|
500
|
|
|
|
12.40
|
|
|
7/18/24
|
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
6.70
|
|
|
10/11/24
|
|
|
|
|
300
|
|
|
|
1,200
|
|
|
|
15.60
|
|
|
2/26/28
|
(1)
On April 19, 2018, we granted Mr. Rice three options (the “Options”) to purchase up to 2,000 shares of our common
stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The Options have an exercise price per
share equal to $18.80, $15.40 and $14.80, respectively, and each is fully vested. The Company also granted Mr. Rice an option
to purchase up to 2,000 shares on each of April 30, 2018, May 31, 2018, June 30, 2018 and July 31, 2018. Such options have an
exercise price per share equal to $11.00 $14.70, $11.90 and $8.70, respectively, and each is fully vested. On November 1, 2018
the Company granted Mr. Rice a fully vested option to purchase up to 6,875 shares at an exercise price of $17.90. On December
1, 2018 the Company granted Mr. Rice a fully vested option to purchase up to 2,292 shares at an exercise price of $15.70. On each
of the first day of each month commencing January 1, 2019 and ending on August 1, 2019, we granted Mr. Rice an option to purchase
up to 2,292 shares of our common stock, under our 2013 Equity Incentive Plan in connection with his employment arrangement. The
options are fully vested and have the following exercise prices: $15.00, $19.30, $20.40, $14.70, $15.00, $12.00, $14.00, and $7.40.
The options had an aggregate grant date fair value of $26,630, $34,254, $36,418, $26,161, $26,642, $21,291, $25,405, and $13,546,
respectively, calculated in accordance with FASB ASC Topic 718. The amount recognized for this award was calculated using the
Black Scholes option-pricing model.
(2)
In August 2015, in conjunction with the hiring of Ronald Fisher, the Company’s Vice President of Business Development, the
Company granted to Mr. Fisher a stock option (the “Option”) to purchase up to 2,375 shares of common stock of the
Company, at an exercise price equal to $118.00 per share, which was the closing market price of the Company’s common stock
on August 10, 2015 (i.e., the date of grant), under the 2013 Plan. The Option is fully vested. The Option has a ten-year term
and is on such other terms set forth in the Company’s standard form of non-qualified stock option agreement. The Company
granted Mr. Fisher under the 2013 Equity Incentive Plan, effective as of August 11, 2016, a stock option to purchase up to 500
shares of common stock of the Company. Such option has an exercise price equal to the closing price of our common stock on the
date of grant, and vested and became exercisable (i) as to 30 shares on August 11, 2017, as to (ii) 70 shares on August 11, 2018,
and (iii) as to 135 shares on August 11, 2019, and will vest and become exercisable as to 265 shares on August 11, 2020, provided
Mr. Fisher is in the employ of the Company on such date. On April 19, 2018, we granted to Mr. Fisher an option to purchase 2,875
shares of our common stock. Such option has a five-year term with an exercise price equal to the closing price of our common stock
on the date of the grant. The option is vested as to 281 shares and the remaining shares vest as follows: 410 shares will vest
on April 19, 2020, 683 shares will vest on April 19, 2021, and the remaining 1,501 shares will vest on April 19, 2022. On January
10, 2019, we granted Mr. Fisher an option to purchase 1,183 shares of our common stock. The option has an exercise price per share
equal to $20.20 and is fully vested. On November 1, 2019, we granted Mr. Fisher an option to purchase 100 shares of our common
stock. The option has an exercise price per share equal to $5.20 and is fully vested. On November 26, 2019, we granted Mr. Fisher
an option to purchase 100 shares of our common stock. The option has an exercise price per share equal to $8.20 and is fully vested.
On December 3, 2019, we granted Mr. Fisher an option to purchase 500 shares of our common stock. The option has an exercise price
per share equal to $11.20 and is fully vested.
(3)
On February 26, 2018 and October 18, 2018, we granted Mr. Beckett an option to purchase up to 1,500 and 2,000 shares of our common
stock, respectively, under our 2013 Equity Incentive Plan in connection with his employment arrangement. The options have an exercise
price per share equal to $15.60 and $12.10, respectively. The February 2018 option vests as follows: 75 shares vested and became
exercisable on October 13, 2018; 225 shares vested and became exercisable on October 13, 2019; 375 shares will vest and become
exercisable on October 13, 2020; and 825 shares will vest and become exercisable on October 13, 2021. The October 2018 option
vests in equal annual installment over four years from the date of grant. On October 13, 2017, we granted Mr. Beckett an option
to purchase up to 1,500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement.
The option has an exercise price per share equal to $19.20. The option vests as follows: 75 shares vested and became exercisable
on October 13, 2018; 225 shares vested and became exercisable on October 13, 2019; 375 shares will vest and become exercisable
on October 13, 2020; and 825 shares will vest and become exercisable on October 13, 2021. On January 1, 2019, we granted Mr. Beckett
an option to purchase up to 375 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment
arrangement. The option has an exercise price per share equal to $15.00. The option vests as follows: 94 shares vested and became
exercisable on January 1, 2020; the remaining 281 shares will vest and become exercisable in equal installments on the second
through the fourth anniversaries of the date of grant. On July 18, 2019, we granted Mr. Beckett an option to purchase up to 500
shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has
an exercise price per share equal to $12.40. The option vests and will become exercisable in equal installments on the first through
the fourth anniversaries of the date of grant. On October 11, 2019, we granted Mr. Beckett an option to purchase up to 5,000 shares
of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise
price per share equal to $6.70. The option is fully vested and exercisable.
Equity
Awards
We
offer stock options and stock awards to certain of our employees, including our executive officers, as the long-term incentive
component of our compensation program. We generally grant equity awards to new hires upon their commencing employment with us.
Our stock options allow employees to purchase shares of our common stock at a price per share equal to the fair market value of
our common stock on the date of grant and may or may not be intended to qualify as “incentive stock options” for U.S.
federal income tax purposes. We sometimes also offer stock options and stock awards to our consultants in lieu of cash. Our stock
options allow consultants to purchase shares of our common stock at a price per share equal to the fair market value of our common
stock on the date of grant and are not intended to qualify as “incentive stock options” for U.S. federal income tax
purposes. Stock options and stock awards granted to our executive officers may be subject to accelerated vesting in certain circumstances.
Retirement
Plans
We
maintain a qualified 401(k) plan, in which all eligible employees may participate. We have elected to match 100% of each participant’s
contribution up to 3% of salary, and 50% of the next 2% of salary contributed. We may also elect, on an annual basis, to make
a discretionary contribution to the plan, but have not done so to date. Our matches and elective contributions vest to participant
accounts as follows: 20% after two years of service, and 20% per year thereafter until the participant reaches 6 years of service,
at which time, employer contributions vest 100%. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings
on those contributions are not taxable to the employees until distributed from the 401(k) plan.
No
Tax Gross-Ups
We
do not make gross-up payments to cover our executive officers’ personal income taxes that may pertain to any of the compensation
paid or provided by our company.
2011
Equity Incentive Plan
On
August 23, 2019, our Board of Directors terminated the 2011 Equity Incentive Plan.
2013
Equity Incentive Plan
A
summary of the Sigma Labs, Inc. 2013 Equity Incentive Plan, which we refer to as the 2013 Plan, is set forth below under Proposal
2 - Approval of Amendment to the Sigma Labs, Inc. 2013 Equity Incentive Plan.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership of our common stock as of May 8, 2020 (a) by each
person known by us to own beneficially 5% or more of any class of our common stock, (b) by our named executive officers and each
of our directors (and director nominees) and (c) by all executive officers and directors of the Company as a group.
The
number of shares beneficially owned by each stockholder is determined in accordance with SEC rules. Under these rules, beneficial
ownership includes any shares as to which a person has sole or shared voting power or investment power. Percentage ownership is
based on 3,086,151 shares of our common stock outstanding on May 8, 2020. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, shares of common stock subject to stock options, warrants or other rights
held by such person that are currently convertible or exercisable or will become convertible or exercisable within 60 days of
May 8, 2020 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage
ownership of any other person.
Unless
otherwise stated, the address of each 5% or greater beneficial holder is c/o Sigma Labs, Inc., 3900 Paseo del Sol, Santa Fe, New
Mexico 87507. We believe, based on information provided to us, that each of the stockholders listed below has sole voting and
investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community
property laws where applicable.
|
Name and Address of Beneficial Owner
|
|
Number of Shares Beneficially Owned
|
|
|
Percentage of Shares Beneficially Owned
|
|
|
Named Executive Officers and Directors
|
|
|
|
|
|
|
|
|
|
John Rice(1)
|
|
|
58,072
|
|
|
|
1.9
|
%
|
|
Ronald Fisher(2)
|
|
|
6,510
|
|
|
|
|
*
|
|
Darren Beckett(3)
|
|
|
6,919
|
|
|
|
|
*
|
|
Salvatore Battinelli(4)
|
|
|
13,906
|
|
|
|
|
*
|
|
Dennis Duitch
|
|
|
10,749
|
|
|
|
|
*
|
|
Kent J. Summers
|
|
|
10,000
|
|
|
|
|
*
|
|
Mark K Ruport(5)
|
|
|
25,783
|
|
|
|
|
*
|
|
All executive officers and directors as a group (9 persons)(6)
|
|
|
147,629
|
|
|
|
4.6
|
%
|
|
5% or Greater Stockholders
Carl I. Schwartz(7)
|
|
|
289,321
|
|
|
|
8.6
|
%
|
*Less
than 1%.
|
(1)
|
Includes
57,548 shares that may be acquired now or within 60 days of May 8, 2020 upon the exercise of outstanding stock options.
|
|
(2)
|
Includes
5,185 shares that may be acquired now or within 60 days of May 8, 2020 upon the exercise of outstanding stock options.
|
|
(3)
|
Includes
5,794 shares that may be acquired now or within 60 days of May 8, 2020 upon the exercise of outstanding stock options
|
|
(4)
|
Includes
3,084 shares that may be acquired now or within 60 days of May 8, 2020 pursuant to the conversion of shares of the Company’s
Series E Preferred Stock.
|
|
(5)
|
Includes
(a) 18,648 shares that may be acquired now or within 60 days of May 8, 2020 upon the exercise of outstanding stock options;
and (b) 6,166 shares that may be acquired now or within 60 days of March 20, 2020 pursuant to the conversion of the shares
of the Company’s Series E Preferred Stock.
|
|
(6)
|
Includes
87,812 shares that may be acquired now or within 60 days of March 20, 2020 upon the exercise of outstanding stock options
and 12,334 shares that may be acquired now or within 60 days of May 8, 2020 pursuant to the conversion of the shares of the
Company’s Series E Preferred Stock.
|
|
(7)
|
Includes
49,321 shares that may be acquired now or within 60 days of May 8, 2020 pursuant to the conversion of the Company’s
Series E Preferred Stock The address of Carl I. Schwartz is 3750 Las Vegas Blvd. South, Apartment 4303, Las Vegas, Nevada,
89518.
|
RELATED
PERSON TRANSACTIONS
The
following summarizes transactions by us in which any of our directors, director nominees, executive officers or, to our knowledge,
beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had
or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control
and other arrangements, which are described under “Executive Compensation” and “Director Compensation”
above.
Transactions
with Directors, Director Nominees and Officers
On
December 3, 2019, we entered into an employment letter agreement with Mark Ruport, effective as of December 3, 2019 (the “Effective
Date”), pursuant to which Mr. Ruport agreed to serve as our Executive Chairman on an “at-will” basis. Additionally,
Mr. Ruport was appointed to serve as a member of our Board of Directors, effective as of December 3, 2019, with a term expiring
at the 2021 annual meeting of stockholders.
Under
the employment letter agreement, Mr. Ruport is entitled to (i) an annual base salary of $155,000 (such base salary is not subject
to decrease, but may be increased in the discretion of the Company’s Compensation Committee of the Board of Directors based
on annual or special case assessments of Mr. Ruport’s performance and other factors), (ii) all benefits that we elect in
our sole discretion to provide from time to time to our other executive officers, and (iii) a grant of (1) a five-year stock option
to purchase up to 10,000 shares of common stock of the Company, which will have an exercise price equal to the closing price of
the Company’s common stock on the Effective Date, and will vest and become exercisable in full on the first month’s
anniversary of the Effective Date, and (2) a five-year stock option to purchase up to 40,000 shares of common stock of the Company,
which will have an exercise price equal to the closing price of the Company’s common stock on the Effective Date, and will
vest and become exercisable in equal (as closely as possible) monthly installments over three years from the Effective Date, provided,
in each case, that Mr. Ruport remains an employee of the Company through such vesting date.
Such
options will be on such other terms and provisions as are contained in the Company’s standard form nonqualified stock option
agreement; provided, however, that (x) upon the occurrence of a Change of Control (as defined in the employment letter agreement),
any unvested portion of the options as of the date of such Change of Control will immediately and automatically vest; provided,
however, that, the options may be assumed or, in the discretion of the Board of Directors, an equivalent option may be substituted
by an applicable successor corporation or any subsidiary of the successor corporation in connection with a Change of Control),
and (y) in the event that the Board of Directors determines that Mr. Ruport is unable to perform his duties as the Company’s
Executive Chairman due to an accident, illness or other event or condition which physically or mentally incapacitates him for
a period of 45 consecutive days (“Disability”), if he ceases to be employed by the Company as a result of a Disability,
the options will continue to vest and remain exercisable for the 5-year term of the options in accordance with the terms of the
option agreements.
Additionally,
during the term of his employment, Mr. Ruport will be eligible to receive one or more bonuses relating to each fiscal year in
recognition of his achievement of individual and Company goals established by the Board of Directors from time to time. However,
the decision to provide any such bonuses and the amount and terms of any such bonuses will be in the sole discretion of the Board
of Directors. On April 10, 2020, the Company issued 969 shares of common stock under the 2013 Plan to Mr. Ruport in connection
with his employment with the Company, which shares will vest in full on December 31, 2020, provided that Mr. Ruport remains in
the Company’s continuous employ through such vesting date.
Effective
as of April 30, 2020, Mr. Ruport was appointed as President, Chief Executive Officer and principal executive officer of the Company.
He will no longer serve as Executive Chairman, but will remain a director on the Board of Directors. Mr. Ruport’s employment
letter agreement with the Company remains in place in accordance with its terms except for the changes in Mr. Ruport’s position.
We
have entered into an “at will” employment agreement, effective as of July 1, 2019, with Frank Orzechowski under which
he was engaged to serve as our Chief Financial Officer, Treasurer, Principal Accounting Officer and Corporate Secretary of the
Company. Mr. Orzechowski is entitled to receive an annual base salary of $135,000. Pursuant to the employment agreement, Mr. Orzechowski
was granted (1) a stock option to purchase up to 250 shares of common stock of the Company, at an exercise price equal to $14.00
per share, which was the closing market price of the Company’s common stock on July 1, 2019 (i.e., the Effective Date),
and (2) to purchase up to 6,000 shares of common stock of the Company, with an exercise price of $14.00, and will vest and become
exercisable as follows: 387 shares will vest and become exercisable on the one-year anniversary of the Effective Date, 900 shares
will vest and become exercisable on the second-year anniversary of the Effective Date, 1,413 shares will vest and become exercisable
on the third-year anniversary of the Effective Date, and 3,300 shares will vest and become exercisable on the fourth-year anniversary
of the Effective Date, provided, in each case, that Mr. Orzechowski remains an employee of the Company through such vesting dates.
Further, Mr. Orzechowski is eligible to participate in the Company’s 2013 Equity Incentive Plan, and is eligible to receive
medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s
Section 125 cafeteria plan, vision plan and 401K plan. On February 19, 2020 the Company increased Mr. Orzechowski’s annual
base salary to $155,000 effective March 1, 2020. On April 10, 2020, the Company issued 969 shares of common stock under the 2013
Plan to Mr. Orzechowski in connection with his employment with the Company, which shares will vest in full on December 31, 2020,
provided that Mr. Orzechowski remains in the Company’s continuous employ through such vesting date.
On
January 27, 2020 the Company entered into a Securities Purchase Agreement (the “SPA”) with certain of its directors
(Mark K. Ruport, Salvatore Battinelli and Frank Garofalo, a former director) and Carl Schwartz, the Company’s largest shareholder.
Pursuant to the SPA, the Company issued and sold 333.33 shares of the Company’s Series E Convertible Preferred Stock (the
“Series E Preferred Stock”), and Class A Warrants to purchase 48,544 shares of the Company’s Common Stock (the
“Common Warrants”) for a total gross purchase price of $500,000. The Series E Preferred Stock is initially convertible
into 48,544 shares of Common Stock, and the Class A Warrants have an initial exercise price of $11.30 per share.
Indemnification
Agreements
We
have entered into indemnification agreements with each of our directors and executive officers. These agreements, among other
things, require us to indemnify each director and executive officer to the fullest extent permitted by Nevada law, including indemnification
of expenses such as attorneys’ fees, judgments, fines and settlement amounts incurred by the director or executive officer
in any action or proceeding, including any action or proceeding by or in the right of us, arising out of the person’s services
as a director or executive officer.
Policies
and Procedures for Related Person Transactions
Our
Audit Committee is responsible for reviewing and approving, as appropriate, all transactions with related persons (other than
compensation-related matters, which should be reviewed by our Compensation Committee), in accordance with its Charter and the
Nasdaq marketplace rules. In reviewing and approving any such transactions, our Audit Committee is tasked to consider all relevant
facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be
obtained in an arm’s length transaction and the extent of the related person’s interest in the transaction.
PROPOSAL
NO. 2 - APPROVAL OF AMENDMENT TO THE SIGMA LABS, INC. 2013 EQUITY INCENTIVE PLAN
In
March 2013, our Board of Directors adopted the Sigma Labs, Inc. 2013 Equity Incentive Plan, which we refer to as the “2013
Plan.” The adoption of the 2013 Plan was approved by our stockholders on October 10, 2013. In March 2016, our Board of Directors
adopted an amendment to the 2013 Plan to fix the aggregate number of shares of our common stock which may be offered or issued
under the 2013 Plan at 37,500 shares. The adoption of the amendment was approved by our stockholders on April 28, 2016. In March
2017, our Board of Directors adopted an amendment to the 2013 Plan to fix the aggregate number of shares of our common stock which
may be offered or issued under the 2013 Plan at 75,000 shares. The adoption of the amendment was approved by our stockholders
on October 2, 2017. On August 24, 2018, our Board of Directors adopted an amendment to the 2013 Plan to fix the aggregate number
of shares of our common stock issued or issuable under the 2013 Plan at 165,000 shares. The adoption of the amendment was approved
by our stockholders on October 18, 2018.
On
June 17, 2019, our Board of Directors adopted, subject to approval by our stockholders, an amendment to the 2013 Plan to increase
by 75,000 shares the aggregate number of shares of our common stock issued or issuable under the 2013 Plan, fixing the aggregate
number at 240,000 shares, including shares previously issued or subject to the outstanding awards under the 2013 Plan. On May
8, 2020, our Board of Directors adopted, subject to approval by our stockholders, an amendment to the 2013 Plan to increase by
650,000 shares the aggregate number of shares of our common stock issued or issuable under the 2013 Plan, fixing the aggregate
number at 890,000 shares, including shares previously issued or subject to the outstanding awards under the 2013 Plan. The purpose
of the amendment is to increase the shares available under the 2013 Plan commensurate with the growth of the Company, as the Company
has hired 9 new employees since 2017. However, all stock options that we grant to our employees and shares of common stock
or stock options that we grant to our non-employee directors will only be exercisable upon the approval of the Company’s
stockholders of an increase in the number of shares of our common stock issuable under the 2013 Plan. The Company anticipates
that it will need to hire additional employees as it continues to develop its technology, focus on commercializing its principal
product, PrintRite3D®, and increase its marketing efforts. We are not currently in the position to increase cash compensation
if we are unable to grant equity incentives, but even if we could, we believe that equity awards are a more effective compensation
vehicle than cash at a growth-oriented, entrepreneurial company because they deliver high potential value with a smaller impact
on current income and cash flow, and we seek to preserve our cash for working capital needs as we continue to work to grow the
Company.
We
are asking for your approval of this amendment.
A
copy of the 2013 Plan, as amended as described above, is included as Annex A to this Proxy Statement. The amendment makes no other
changes to the 2013 Plan.
Our
Board of Directors believes that the grant of options and other stock awards is an important incentive for the Company’s
employees, officers and directors. Our needs under the 2013 Plan over the next several years exceed the number of shares of common
stock currently available. As of May 8, 2020, there were 63,522 shares previously issued and 175,681 shares underlying outstanding
stock options under the 2013 Plan. Adding additional shares to the 2013 Plan is designed to enhance our ability to grant stock-based
incentives and other equity awards to our officers, employees, non-employee directors and other key persons, to ensure that we
can continue to grant stock options and other equity awards to eligible recipients at levels determined to be appropriate by our
Compensation Committee or our Board of Directors, including sustaining our current program of new hire and annual stock option
grants to our employees to help us attract and retain talented individuals. In February 2020, in light of the limited number of
shares available for issuance under the 2013 Plan, our directors agreed to defer the issuance of shares of common stock to them
as part of their director compensation.
Our
“adjusted burn rate” provides a measure of the potential dilutive impact of our equity awards, It is calculated by
dividing the total of the number of shares of common stock subject to stock option awards granted during the year and the number
of shares of common stock granted during the year multiplied by a factor of 1.5 by the basic weighted average number of shares
outstanding. Set forth below is a table that reflects our adjusted burn rate for the 2019, 2018 and 2017 calendar years as well
as an average over those years.
|
Calendar Year
|
|
Awards Granted
|
|
|
Basic Weighted Average
Number of Common Shares Outstanding
|
|
|
Adjusted Burn Rate
|
|
|
2019
|
|
|
115,485
|
|
|
|
1,176,278
|
|
|
|
14.7
|
%
|
|
2018
|
|
|
71,083
|
|
|
|
689,805
|
|
|
|
15.5
|
%
|
|
2017
|
|
|
26,765
|
|
|
|
440,348
|
|
|
|
9.1
|
%
|
|
Three-Year Average
|
|
|
71,111
|
|
|
|
768,810
|
|
|
|
13.9
|
%
|
In
the opinion of the Board, our future success depends in large part on our ability to maintain a competitive position in attracting,
retaining and motivating key employees with experience and ability. The Board believes that approval of the amendment to the 2013
Plan and the authorization of the additional shares for issuance thereunder is appropriate and in the best interests of our stockholders
given our current expectations on hiring, and the highly competitive environment in which we recruit and retain employees.
Our
compensation philosophy reflects broad-based eligibility for equity incentive awards for all of our employees. By doing so, we
put our employees’ interests directly into alignment with those of other stockholders, as such awards reward employees upon
improved stock price performance. Granting equity awards focuses our employees who receive grants on achieving strong corporate
performance, and we are embedding in our culture the necessity for employees to think and act as stockholders.
Because
only 797 shares of our common stock remain available for issuance as to new awards under the 2013 Plan, we will be unable to attract,
retain and motivate our employees, directors and consultants, including new employees that we will hire, without an increase in
the number of shares of common stock that are available for issuance under the 2013 Plan. This could significantly hamper our
plans for growth and adversely affect our ability to operate our business.
A
summary of the 2013 Plan is set forth below.
Purpose
Our
Board of Directors adopted the 2013 Plan to (1) encourage selected employees, officers, directors, consultants and advisers to
improve our operations and increase our profitability, (2) encourage selected employees, officers, directors, consultants and
advisers to accept or continue employment or association with us, and (3) increase the interest of selected employees, officers,
directors, consultants and advisers in our welfare through participation in the growth in value of our common stock. All of our
current employees, directors and consultants are eligible to participate in the 2013 Plan.
Administration
The
2013 Plan is to be administered by the Board or by a committee to which administration of the Plan, or of part of thereof, is
delegated by the Board. The 2013 Plan is currently administered by our Compensation Committee, which we refer to below as the
“Administrator.” The Administrator is responsible for selecting the officers, employees, directors, consultants and
advisers who will receive Options, Stock Appreciation Rights and Stock Awards. Subject to the requirements imposed by the 2013
Plan, the Administrator is also responsible for determining the terms and conditions of each Option and Stock Appreciation Right
award, including the number of shares subject to the Option, the exercise price, expiration date and vesting period of the Option
and whether the option is an Incentive Option or a Non-Qualified Option. Subject to the requirements imposed by the 2013 Plan,
the Administrator is also responsible for determining the terms and conditions of each Stock Award, including the number of shares
granted, the purchase price (if any), and the vesting, transfer and other restrictions imposed on the stock. The Administrator
has the power, authority and discretion to make all other determinations deemed necessary or advisable for the administration
of the 2013 Plan or of any award under the 2013 Plan.
Neither
the Board nor any committee of the Board to which administration of the 2013 Plan is delegated will provide advice to participants
about whether or not to accept or exercise their awards. Each participant must make his or her own decision about whether or not
to accept or exercise an award.
The
2013 Plan is not subject to the Employee Retirement Income Security Act of 1974 and is not a qualified pension, profit sharing
or bonus plan under Section 401(a) of the Internal Revenue Code
Stock
Subject to the 2013 Plan
If
the amendment to the 2013 Plan described in Proposal 2 is approved at the Annual Meeting, the aggregate number of shares of common
stock set aside and reserved for issuance under the 2013 Plan will be fixed at 890,000 shares, including shares previously issued
or subject to the outstanding awards under the 2013 Plan.
If
awards granted under the 2013 Plan expire or otherwise terminate or are cancelled without being exercised in full, the shares
of common stock not acquired pursuant to such awards will again become available for issuance under the 2013 Plan. If shares of
common stock issued pursuant to awards under the 2013 Plan are forfeited to or repurchased by us, the forfeited or repurchased
stock will again become available for issuance under the 2013 Plan.
If
shares of common stock subject to an award are not delivered to a participant because such shares are withheld for payment of
taxes incurred in connection with the exercise of an Option, or the issuance of shares under a Stock Award, or the award is exercised
through a reduction of shares subject to the award (“net exercised”), then the number of shares that are not delivered
will not again be available for issuance under the 2013 Plan. In addition, if the exercise price of any award is satisfied by
the tender of shares of common stock to us (whether by actual delivery or attestation), the shares tendered will not again be
available for issuance under the 2013 Plan.
Eligibility
All
directors, employees, consultants and advisors of the Company and its subsidiaries are eligible to receive awards under the 2013
Plan. Incentive Options may only be granted under the 2013 Plan to a person who is a full-time officer or employee of the Company
or a subsidiary. The Administrator will determine from time to time which directors, employees, consultants and advisers will
be granted awards under the 2013 Plan.
Terms
of Awards
Written
Agreement
Each
award under the 2013 Plan will be evidenced by an agreement in a form approved by the Administrator.
Exercise
Price; Base Value
The
exercise price for a Non-Qualified Option or an Incentive Option may not be less than 100% of the fair market value of the Common
Stock on the date of the grant of the Non-Qualified Option or Incentive Option. With respect to an Option holder who owns stock
possessing more than 10% of the total voting power of all classes of our stock, the exercise price for an Incentive Option may
not be less than 110% of the fair market value of the Common Stock on the date of the grant of the Incentive Option. The base
value of a Stock Appreciation Right shall also be no less than 100% of the Common Stock on the date of the grant of the Stock
Appreciation Right. The 2013 Plan does not specify a minimum exercise price for Stock Awards.
Vesting
Each
Option, Stock Appreciation Right or Stock Award will become exercisable or non-forfeitable (that is, “vest”) under
conditions specified by the Administrator at the time of grant. Vesting typically is based upon continued service as a director
or employee but may be based upon any performance criteria and other contingencies that are determined by the Administrator. Shares
subject to Stock Awards may be subject to specified restrictions concerning transferability, repurchase by the Company and forfeiture
of the shares issued, together with such other restrictions as may be determined by the Administrator.
Expiration
Date
Each
Option or Stock Appreciation Right must be exercised by a date specified in the award agreement, which may not be more than ten
years after the grant date. Except as otherwise provided in the relevant agreement, an Option or Stock Appreciation Right ceases
to be exercisable ninety days after the termination of the holder’s employment with us.
Transfers
of Options
Unless
otherwise determined by the Administrator, Options are not transferable except by will or the laws of descent and distribution.
Purchase
Price Payment
Unless
otherwise determined by the Administrator, the purchase price of Common Stock acquired under the 2013 Plan is payable by cash
or check at the time of an Option exercise or acquisition of a Stock Award. The Company does not charge participants any fees
or commissions in connection with their acquisition of Common Stock under the 2013 Plan. The Administrator also has discretion
to accept the following types of payment from participants:
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|
●
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A
secured or unsecured promissory note, provided that this method of payment is not available to a participant who is a director
or an executive officer;
|
|
|
●
|
Shares
of our Common Stock already owned by the Option or Stock Award holder as long as the surrendered shares have a fair market
value that is equal to the acquired stock and have been owned by the participant for at least six months;
|
|
|
●
|
The
surrender of shares of Common Stock then issuable upon exercise of an Option; and
|
|
|
●
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A
“cashless” option exercise in accordance with applicable regulations of the SEC and the Federal Reserve Board.
|
Withholding
Taxes
At
the time of his or her exercise of an Option or Stock Appreciation Right, an employee is responsible for paying all applicable
federal and state withholding taxes. A holder of Stock Awards is responsible for paying all applicable federal and state withholding
taxes once the shares covered by the award cease to be forfeitable or at any other time required by applicable law.
Securities
Law Compliance
Shares
of Common Stock will not be issued pursuant to the exercise of an Option or the receipt of a Stock Award unless the Administrator
determines that the exercise of the Option or receipt of the Stock Award and the issuance and delivery of such shares will comply
with all relevant provisions of law, including, without limitation, the Securities Act of 1933 (the “Securities Act”),
applicable state and foreign securities laws and the requirements of any stock exchange on which our Common Stock is traded.
Effects
of Certain Corporate Transactions
Except
as otherwise determined by the Administrator, in the event of a “corporate transaction,” all previously unexercised
Options and Stock Appreciation Rights will terminate immediately prior to the consummation of the corporate transaction and all
unvested Restricted Stock awards will be forfeited immediately prior to the consummation of the corporate transaction. The Administrator,
in its discretion, may permit exercise of any Options or Stock Appreciation Rights prior to their termination, even if those awards
would not otherwise have been exercisable, or provide that outstanding awards will be assumed or an equivalent Option or Stock
Appreciation Right substituted by a successor corporation. The Administrator, in its discretion, may remove any restrictions as
to any Restricted Stock awards or provide that all outstanding Restricted Stock awards will participate in the corporate transaction
with an equivalent stock substituted by the successor corporation subject to the restrictions. In general, a “corporate
transaction” means:
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●
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Our
liquidation or dissolution;
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●
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Our
merger or consolidation with or into another corporation as a result of which we are not the surviving corporation;
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●
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A
sale of all or substantially all of our assets; or
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|
|
●
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A
purchase or other acquisition of more than 50% of our outstanding stock by one person, or by more than one person acting in
concert.
|
Other
Adjustment Provisions
If
the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination
or reclassification, appropriate adjustments shall be made by the Administrator, in its discretion, in (1) the number and class
of shares of stock subject to the 2013 Plan and each Option and grant of Stock Awards outstanding under the 2013 Plan, and (2)
the purchase price of each outstanding Option and (if applicable) Stock Award. For example, if an Option is for 1,000 shares for
$20.00 per share and there is a 2-for-1 stock split, the Option would be adjusted to be exercisable for 2,000 shares at $10.00
per share.
Amendment
or Termination of the Plan
The
Board of Directors may at any time amend, discontinue or terminate the 2013 Plan. With specified exceptions, no amendment, suspension
or termination of the Plan may adversely affect outstanding Options or Stock Appreciation Rights or the terms that are applicable
to outstanding Stock Awards. No amendment, suspension or termination of the Plan requires stockholder approval unless such approval
is required under applicable law or under the rules of any stock exchange on which our Common Stock is traded. Unless terminated
earlier by the Board of Directors, the 2013 Plan will terminate automatically on March 15, 2023, which is the tenth anniversary
of the date of the 2013 Plan’s adoption by the Board.
As
of May 8, 2020, 797 shares were available for future issuance under the 2013 Plan.
Federal
Income Tax Consequences
The
following discussion is a summary of the federal income tax provisions relating to the grant and exercise of awards under the
2013 Plan and the subsequent sale of Common Stock acquired under the 2013 Plan. The tax effect of your awards may vary depending
upon particular circumstances, and the income tax laws and regulations change frequently. This summary is not intended to be exhaustive
and does not constitute legal or tax advice.
General.
A recipient of an award of Options or Stock Appreciation Rights under the 2013 Plan will realize no taxable income at the
time of grant if the exercise price is not less than the fair market value of our Common Stock on the date of the grant. The recipient
generally will realize no taxable income at the time of a grant of a Stock Award so long as the Stock Award is not vested (that
is, remains subject to forfeiture and is not transferable) and an election under Section 83(b) of the Internal Revenue Code is
not made.
Non-Qualified
Options. The holder of a Non-Qualified Option will recognize ordinary income at the time of the Non-Qualified Option exercise
in an amount equal to the excess of the fair market value of the shares on the date of exercise over the exercise price. This
taxable income will be subject to payroll tax withholding if the holder is an employee.
When
a holder disposes of shares acquired upon the exercise of a Non-Qualified Option, any amount received in excess of the fair market
value of the shares on the date of exercise will be treated as long-term or short-term capital gain, depending upon the holding
period of the shares, and if the amount received is less than the fair market value of the shares on the date of exercise, the
loss will be treated as long-term or short-term capital loss, depending upon on the holding period of the shares.
Incentive
Options. The holder of an Incentive Option will not recognize taxable income upon exercise of the Incentive Option. In order
to retain this tax benefit, the holder must make no disposition of the shares so received for at least one year from the date
of exercise and for at least two years from the date of grant of the Incentive Option. The holder’s compliance with the
holding period requirement and other applicable tax provisions will result in the realization of long-term capital gain or loss
when he or she disposes of the shares, measured by the difference between the exercise price and the amount received for the shares
at the time of disposition.
If
a holder disposes of shares acquired by exercise of an Incentive Option before the expiration of the required holding period,
the gain, if any, arising from such disqualifying disposition will be taxable as ordinary income in the year of disposition to
the extent of the lesser of (1) the excess of the fair market value of the shares over the exercise price on the date the Incentive
Option was exercised or (2) the excess of the amount realized over the exercise price upon such disposition. Any amount realized
in excess of the fair market value on the date of exercise is treated as long-term or short-term capital gain, depending upon
the holding period of the shares. If the amount realized upon such disposition is less than the exercise price, the loss will
be treated as long-term or short-term capital loss, depending upon the holding period of the shares.
For
purposes of the alternative minimum tax, the holder will recognize as an addition to his or her tax base, upon the exercise of
an Incentive Option, an amount equal to the excess of the fair market value of the shares at the time of exercise over the exercise
price. If the holder makes a disqualifying disposition in the year of exercise, the holder will recognize taxable income for purposes
of the regular income tax and the holder’s alternative minimum tax base will not be additionally increased.
Stock
Appreciation Rights. The holder of a Stock Appreciation Right will recognize ordinary income at the time that it is exercised
in an amount equal to the excess of the fair market value of the number of shares of Common Stock as to which it is exercised
on the date of exercise over their value at the date of grant. This taxable income will be subject to payroll tax withholding
if the holder is an employee.
Stock
Awards. The recipient of a Stock Award will recognize ordinary income when the stock vests in an amount equal to the excess
of the fair market value of the shares at the time of vesting over the purchase price for the shares, if any, subject to payroll
tax withholding if the holder is an employee. When the recipient sells a Stock Award that has vested, any amount received in excess
of the fair market value of the shares on the date of vesting will be treated as long-term or short-term capital gain, depending
upon the holding period of the shares (after vesting has occurred), and if the amount received is less than the fair market value
on the date of vesting, the loss will be treated as long-term or short-term capital loss, depending on the holding period of the
shares. Dividends paid on Stock Awards that have not vested and that have not been the subject of an election under Section 83(b)
of the Internal Revenue Code are treated as compensation income, subject to payroll tax withholding with respect to an employee.
Section
83(b) of the Internal Revenue Code permits the recipient to elect, not more than thirty days after the date of receipt of a Stock
Award, to include as ordinary income the difference between the fair market value of the Stock Award on the date of grant and
its purchase price (rather than being taxed as the shares vest). If such an election is made, the holding period for long-term
capital gain or loss treatment will commence on the day following the receipt of the Stock Award, dividends on the Stock Award
will be treated as such and not as compensation, and the tax basis of the shares will be their fair market value at the date of
grant.
Deduction
for the Company. The Company will be entitled to a deduction for federal income tax purposes at the same time and in the same
amount as the recipient of an award is considered to have realized ordinary income as a result of the award, assuming that the
limitation under Section 162(m) of the Internal Revenue Code is not applicable. Assuming that the holder of shares received on
exercise of an Incentive Option disposes of the shares after compliance with the holding period requirement described above, the
Company will not be entitled to a federal income tax deduction since the holder will not have realized any ordinary income in
the transaction.
Section
162(m) of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act of 2017, limits the U.S. federal income tax deductibility
of compensation paid by us to any covered employee to $1,000,000 per taxable year. A “covered employee” is any individual
who (1) is our principal executive officer or principal financial officer at any time during the taxable year, (2) is one of our
executive officers (other than the principal executive officer or principal financial officer) whose compensation is required
to be reported in our proxy statement’s summary compensation table by reason of such officer being among our highest compensated
officers during the taxable year, or (3) was a covered employee described in clause (1) or (2) in any prior fiscal year beginning
after December 31, 2016. Prior to 2018, an exception to the limitation on the deductibility of compensation applied for performance-based
compensation. The performance-based compensation exception to the limitation on the deductibility of compensation in excess of
$1,000,000 was repealed with respect to any compensation paid in any taxable year commencing on or after December 31, 2017.
New
Plan Benefits
Other
than with respect to certain awards to be made to our directors as described in “Board of Directors and Corporate Governance—Director
Compensation,” the amount and timing of awards under the 2013 Plan to executive officers, other employees, directors, consultants
and advisors will be determined in the sole discretion of the Administrator. Except for the awards and stock options referenced
in the immediately preceding sentence, future awards that will be received under the 2013 Plan by executive officers, other employees,
directors and consultants are discretionary and therefore are not determinable at this time, and, therefore, the table below shows
the aggregate number of awards granted under the 2013 Plan during 2019.
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Name and Position
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Shares Subject to Options
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Stock Awards
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Mark K. Ruport, President and Chief Executive(1) Officer
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-
|
|
|
|
-
|
|
|
Frank Orzechowski, Chief Financial Officer and Treasurer
|
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|
6,250
|
|
|
|
-
|
|
|
Ronald Fisher, VP of Business Development
|
|
|
1,884
|
|
|
|
150
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|
Darren Beckett, Vice President of Engineering
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5,875
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|
|
|
-
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|
Executive Group
|
|
|
14,009
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|
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|
150
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|
Non-Executive Director Group(2)
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|
18,337
|
|
|
|
15,000
|
|
|
Non-Executive Officer Employee Group
|
|
|
17,989
|
|
|
|
0
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(1)
The Company granted stock options to purchase up to 50,000 shares of common stock to Mr. Ruport as an inducement award outside
the 2013 Plan in accordance with NASDAQ Listing Rule 5635(c)(4).
(2)
Includes options to purchase 18,337 shares granted to Mr. Rice in his capacity as our President and Chief Executive Officer. Mr.
Rice resigned from such position on April 30, 2020, and continues to serve as Chairman of the Board of Directors.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table provides certain information with respect to our equity compensation plans as of December 31, 2019.
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(a)
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(b)
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(c)
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Plan Category
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Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
|
|
|
Weighted-average Exercise Price of Outstanding Options, Warrants and Rights
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Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
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|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Equity Incentive Plan(1)
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|
|
547,130
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|
|
$
|
23.14
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|
|
|
8,211
|
|
|
Equity compensation plans not approved by security holders
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|
|
-
|
|
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N/A
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|
|
|
|
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(1)
On March 15, 2013, the Company’s board of directors approved the Company’s 2013 Equity Incentive Plan. The 2013 Equity
Incentive Plan was approved by holders of at least a majority of the issued and outstanding shares of common stock of the Company
on October 10, 2013. Pursuant to the 2013 Equity Incentive Plan, the Company is authorized to grant “incentive stock options”
and “non-qualified stock options”, grant or sell common stock subject to restrictions or without restrictions, and
grant stock appreciation rights to employees, officers, directors, consultants and advisers of the Company and its subsidiaries.
Incentive stock options granted under the 2013 Equity Incentive Plan are intended to qualify as “incentive stock options”
within the meaning of Section 422 of the Internal Revenue Code (the “Code”). Non-qualified stock options granted under
the 2013 Equity Incentive Plan are not intended to qualify as incentive stock options under the Code. As of December 31, 2019,
the Company issued an aggregate of 50,886 shares of the Company’s common stock, as well as options to purchase up to 180,903
shares of the Company’s common stock, some of which are subject to vesting restrictions, pursuant to the Company’s
2013 Equity Incentive Plan. On July 18, 2018, an amendment to our 2013 Equity Incentive Plan was approved by holders of at least
a majority of the issued and outstanding shares of common stock of the Company, to increase the number of shares of our common
stock subject to the 2013 Equity Incentive Plan to 240,000.
The
affirmative vote of a majority of the shares of common stock present, in person or by proxy, and entitled to vote at the Annual
Meeting is required for approval of proposal 2.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE SIGMA LABS, INC. 2013 EQUITY
INCENTIVE PLAN DESCRIBED IN PROPOSAL 2.
PROPOSAL
3 - APPROVAL OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE OUR AUTHORIZED COMMON STOCK
Our
Board of Directors has determined that it is in our best interest, and in the best interest of our stockholders, to amend our
Amended and Restated Articles of Incorporation to increase the total number of authorized shares of common stock by 4,000,000
shares, from 8,000,000 shares to 12,000,000 shares. If approved by our stockholders, the amendment will become effective upon
the filing of the amendment with the Nevada Secretary of State, which filing is expected to occur promptly after the Annual Meeting.
Attached as Annex B is a copy of the proposed amendment.
The
affirmative vote of a majority of the outstanding shares present, in person, or represented by proxy and entitled to vote at the
Annual Meeting is required for approval of this proposal.
Purpose
and Background of the Amendment
As
of the date of this Proxy Statement, we have 3,086,151 shares of common stock outstanding, 1,420,393 shares of common stock issuable
upon exercise of outstanding options and common warrants, and 61,651 shares issuable upon conversion of our Series E Convertible
Preferred Stock. The foregoing amounts do not include the potential issuance of shares of common stock that may be issued upon
conversion of our Series D Convertible Preferred Stock, which in turn would be issuable upon exercise of our outstanding warrants
to purchase Series D Convertible Preferred Stock.
On
April 2, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors.
Pursuant to the SPA, on April 6, 2020 the Company issued and sold 493,027 shares of our common stock (the “Common Shares’)
and pre—funded Series B warrants to purchase up to 22,438 shares of our common stock (the Pre-funded Warrants”). Each
Pre-funded Warrant is immediately exercisable, expires five years from the date of issuance and has an unpaid exercise price of
$0.001 per share of our common stock. The Pre-funded Warrants may be exercised for cash or on a cashless basis. Additionally,
under the SPA, we sold and issued to the investors Series A Warrants (the “Private Warrants”) to purchase an aggregate
of 515,465 shares of our common stock in a private placement. Each Private Warrant is exercisable on the sixth month and one day
anniversary of the issuance and expires five years from the date of issuance and has an exercise price of $2.782 per share of
our common stock. The Private Warrants may be exercised for cash, provided that, if there is no effective registration statement
available, the Private Warrants may be exercised on a cashless basis. The Private Warrants contain price protection provisions
arising from the issuances of certain securities at below the effective exercise price and such provisions require the adjustment
of the exercise price on a full ratchet basis. The Pre-funded Warrant and Private Warrants prohibit us from entering into specified
transactions involving a change of control unless the successor entity assumes all of our obligations under the Warrants. The
Warrants are also subject to redemption by the Company in cash upon a fundamental transaction at the black-scholes value of the
Warrants, as applicable.
Under
the SPA, the Company has agreed to hold an annual or special meeting of stockholders by July 31, 2020 in order to seek to obtain
stockholder approval of an amendment to the Company’s articles of incorporation to increase the authorized shares of the
Company to at least 9,500,000 shares. Accordingly, by this Proposal, we are asking our shareholders to approve such amendment.
The
Board of Directors also believes that the additional shares of common stock could be used in a number of ways to improve the overall
value of the Company:
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●
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We
could use the shares for potential strategic transactions, including, among other things, acquisitions, strategic partnerships,
joint ventures, restructurings, business combinations and investments, although we have not entered into any binding agreements
regarding such strategic transactions.
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|
|
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●
|
These
shares could also be used for potential future financings, although we have not entered into any binding agreements regarding
such financings.
|
|
|
|
|
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●
|
These
shares could also be used as part of our equity compensation program in order to attract, retain and motivate talented employees,
advisors and non-employee directors. These equity grants provide these individuals with a direct stake in the future outcome
of the Company and serve to align the interests of our employees with our stockholders.
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|
|
|
|
|
|
●
|
These
shares could also be used for the acquisition of potential future product lines, although we have not entered into any binding
agreements for such acquisitions.
|
Our
Board of Directors believes the amendment is necessary and advisable in order to maintain our financing and capital raising flexibility
in connection with our working capital needs, to regain compliance with the Company’s obligations under the rules of the
NASDAQ Stock Market to maintain stockholders equity of at least $2,500,000 and to generally maintain our flexibility in today’s
competitive and fast-changing environment. Other possible business and financial uses for the additional shares of common stock
include, without limitation, future stock splits, acquiring other companies, businesses or products in exchange for shares of
common stock, attracting and retaining employees by the issuance of additional securities under our equity compensation plans
and other transactions and corporate purposes that our Board of Directors deems to be in the Company’s best interest. The
additional authorized shares would enable us to act quickly in response to opportunities that may arise for these types of transactions,
in most cases without the necessity of obtaining further stockholder approval and holding a special stockholders’ meeting
before such issuance could proceed, except as provided under Nevada law and the NASDAQ Stock Market.
Other
than pursuant to the conversion of the Series D and Series E Convertible Preferred Shares, the exercise of the Common Warrants
and possible issuances pursuant to the exercise of our currently outstanding warrants (including the Pre-funded Warrants and the
Private Warrants) and options we currently are not a party to any agreement that obligates us to issue additional shares of common
stock.
Possible
Effects of the Amendment
Upon
issuance, the additional shares of authorized common stock would have rights identical to the currently outstanding shares of
common stock. Adoption of the amendment would not have any immediate dilutive effect on the proportionate voting power or other
rights of our existing stockholders. As is true for shares presently authorized but unissued, the future issuance of common stock
authorized by the amendment may, among other things, decrease our existing stockholders’ percentage equity ownership and,
depending on the price at which they are issued, could be dilutive to our existing stockholders and have a negative effect on
the market price of the common stock. Current stockholders have no preemptive or similar rights, which means current stockholders
do not have a prior right to purchase any new issue of common stock in order to maintain their proportionate equity ownership
thereof.
We
have not proposed the increase in the number of authorized shares of common stock with the intention of using the additional authorized
shares for anti-takeover purposes, but the Company would be able to use the additional shares to oppose a hostile takeover attempt
or delay or prevent changes in control or management of the Company. For example, without further stockholder approval, our Board
of Directors could sell shares of common stock in a private transaction to purchasers who would oppose a takeover or favor our
current Board of Directors. Although this proposal to increase the authorized number of shares of common stock has been prompted
by business and financial considerations and our requirement to obtain shareholder approval as a result of the Institutional Private
Placement, and not by the threat of any known or threatened hostile takeover attempt, stockholders should be aware that approval
of this proposal could facilitate future attempts by the Company to oppose changes in control of the Company and perpetuate our
management, including transactions in which the stockholders might otherwise receive a premium for their shares over then current
market prices.
We
cannot provide assurances that any such transactions previously mentioned will be consummated on favorable terms or at all, that
they will enhance stockholder value or that they will not adversely affect our business or the trading price of the common stock.
Any such transactions may require the Company to incur nonrecurring or other charges and may pose significant integration challenges
or management and business disruptions, any of which could materially and adversely affect our business and financial results.
If
Proposal No. 3 is not approved, we will encounter greater difficulty in carrying out our business plans and achieving profitability
because we may be unable (1) to issue additional shares of common stock to attract new employees or to award current employees
for future performance, (2) to raise working capital by issuing shares of our common stock, and (3) to acquire other businesses
and products in exchange for shares of our common stock. Without shareholder approval, it is highly likely that the Company will
be unable to maintain its listing on the NASDAQ Stock Market. Also, we will be required to call an additional stockholder meeting
or meetings to not be in breach of the SPA.
Vote
Required
Approval
of Proposal No. 3 requires the affirmative vote of the holders of a majority of the outstanding shares of common stock.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” APPROVAL OF THE AMENDMENT TO OUR AMENDED AND
RESTATED ARTICLES OF INCORPORATION.
PROPOSAL
NO. 4 - ADVISORY VOTE ON EXECUTIVE COMPENSATION
Section
951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), as set forth
in Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), entitles our stockholders
to vote, on an advisory, non-binding basis, on the compensation of our named executive officers as disclosed in this Proxy Statement
in accordance with SEC rules. At the 2017 Annual Meeting of Stockholders, the stockholders approved an advisory measure that the
stockholders advisory vote on executive compensation be held on an annual basis. Our Board of Directors determined to follow the
stockholders’ recommendations and to include an annual stockholders advisory vote on the compensation of our executive officers
as described in this proposal. Please refer to the discussion under “Executive Compensation” for a description of
the compensation of our named executive officers.
We
are asking for stockholder approval of the compensation of our named executive officers as disclosed in this Proxy Statement in
accordance with SEC rules, which include the compensation disclosed under “Executive Compensation” in the compensation
tables and the related narrative discussion following the compensation tables. This vote is not intended to address any specific
item of compensation, but rather the overall compensation of our named executive officers and the compensation policies and practices
described in this Proxy Statement. Accordingly, we are asking for stockholder approval of the following resolution:
RESOLVED,
that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K,
including the compensation tables and narrative discussion is hereby APPROVED.
This
vote is advisory in nature and therefore not binding on us, our Compensation Committee or our Board of Directors. Our Board and
our Compensation Committee, however, value the opinions of our stockholders. To the extent there is any significant vote against
the named executive officer compensation as disclosed in this Proxy Statement, we will consider the stockholders’ concerns,
and our Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Vote
Required
The
affirmative vote of a majority of the shares of our common stock present in person or represented by proxy and entitled to be
voted on this proposal at the Annual Meeting is required for advisory approval of the proposal.
Recommendation
of the Board of Directors
THE
BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE
OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SEC.
PROPOSAL
NO. 5 - RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
Our
Audit Committee has approved Haynie & Company (“H&C”) to continue as our independent registered public accounting
firm to audit our financial statements for the fiscal year ending December 31, 2020.
During
the Company’s two most recent fiscal years, neither we nor anyone acting on our behalf consulted with H&C regarding
either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, and neither a written report nor oral advice was provided to the Company
that H&C concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing
or financial reporting issue, or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv)
of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v)
of Regulation S-K).
Notwithstanding
the appointment of H&C and even if our stockholders ratify the appointment, our Audit Committee, in its discretion, may appoint
another independent registered public accounting firm at any time during our fiscal year if our Audit Committee believes that
such a change would be in the best interests of the Company and its stockholders. At the Annual Meeting, our stockholders are
being asked to ratify the appointment of H&C as our independent registered public accounting firm for our fiscal year ending
December 31, 2020. Our Audit Committee is submitting the appointment of H&C to our stockholders because we value our stockholders’
views on our independent registered public accounting firm and as a matter of good corporate governance. Representatives of H&C
are not expected to be present at the Annual Meeting.
If
our stockholders do not ratify the appointment of H&C, our board of directors may reconsider the appointment.
Fees
Paid to the Independent Registered Public Accounting Firm
The
following table sets forth fees billed with respect to the years ended December 31, 2019 and 2018:
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|
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2019
|
|
|
2018
|
|
|
Audit Fees
|
|
$
|
71,300
|
|
|
$
|
85,270
|
|
|
Audit Related Fees
|
|
|
34,600
|
|
|
|
14,600
|
|
|
Tax Fees
|
|
|
2,500
|
|
|
|
4,000
|
|
|
|
|
$
|
108,400
|
|
|
$
|
103,870
|
|
In
the above table, in accordance with the SEC’s definitions and rules, “audit fees” are fees that Sigma Labs,
Inc. paid for professional services for the audit of our financial statements included in our Form 10-K and for services that
are normally provided by the registered public accounting firm in connection with statutory and regulatory filings or engagements;
“audit-related fees” are fees for assurance and related services that are reasonably related to the performance of
the audit or review of our financial statements; and “tax fees” are fees for tax compliance, tax advice and tax planning.
Our
Board of Directors established an Audit Committee written charter in February 2017. The Audit Committee’s pre-approval policies
and procedures and other protocols are discussed in its written charter which can be found at www.sigmalabsinc.com under the tab
“Investors.”
Auditor
Independence
In
our fiscal year ended December 31, 2019, there were no professional services provided, other than those listed above, that would
require our Audit Committee to consider their compatibility with maintaining the independence of H&C.
Vote
Required
Approval
of this proposal requires the affirmative vote of the holders of a majority of the shares of our common stock present in person
or by proxy at the Annual Meeting and entitled to vote on the proposal. Because brokers have discretionary authority to vote on
the ratification of the appointment of H&C, we do not expect any broker non-votes in connection with this proposal.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A
VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF
Haynie
& Company
REPORT
OF THE AUDIT COMMITTEE
The
Audit Committee provides assistance to our Board of Directors in fulfilling its oversight responsibility to the Company’s
stockholders, potential stockholders, the investment community, and others relating to our financial statements and the financial
reporting process, the systems of internal accounting and financial controls, the internal audit function, the annual independent
audit of our financial statements and the ethics programs when established by our management and our board of directors. The Audit
Committee has the sole authority (subject, if applicable, to stockholder ratification) to appoint or replace the outside auditors
and is directly responsible for determining the compensation of the independent auditors.
The
Audit Committee schedules its meetings with a view to ensuring that it devotes appropriate attention to all of its tasks. In discharging
its oversight role, the Audit Committee is empowered to investigate any matter brought to its attention, with full access to all
of our books, records, facilities and personnel, and to retain its own legal counsel and other advisers as it deems necessary
or appropriate.
Haynie
& Company (“H&C”) currently serves as our independent registered public accounting firm and audited our financial
statements for the year ended December 31, 2019. H&C does not have and has not had any financial interest, direct or indirect,
in our company, and does not have and has not had any connection with our company except in its professional capacity as our independent
auditors. The Audit Committee also has selected H&C as our independent registered public accountants for 2020.
The
Audit Committee has reviewed the Company’s audited financial statements for the fiscal year ended December 31, 2019 and
has discussed those financial statements with management and H&C. The Audit Committee has also received from, and discussed
with, H&C various communications that such independent registered public accounting firm is required to provide to the Audit
Committee, including the matters required to be discussed by statement on Auditing Standards No. 1301, as adopted by the Public
Company Accounting Oversight Board (“PCAOB”). The Audit Committee also discussed with H&C matters relating to
its independence, including a review of audit and non-audit fees and the letter and written disclosures made by H&C to the
Audit Committee pursuant to PCAOB Rule 3526 (Communications with Audit Committees Concerning Independence).
Audit
and non-audit services to be provided by H&C are subject to the prior approval of the Audit Committee. In general, the Audit
Committee’s policy is to grant such approval where it determines that the non-audit services are not incompatible with maintaining
the independent registered public accounting firm’s independence and there are cost or other efficiencies in obtaining such
services from the independent registered public accounting firm as compared to other possible providers.
In
addition, the Audit Committee reviewed initiatives aimed at strengthening the effectiveness of our internal control structure.
As part of this process, the Audit Committee continued to monitor and review staffing levels and steps taken to implement recommended
improvements in internal procedures and controls.
Based
on these reviews and discussions, the Audit Committee recommended to our Board of Directors that our audited financial statements
be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC.
Respectfully
submitted,
Audit
Committee:
Salvatore
Battinelli
Dennis
Duitch
Kent
Summers
PROPOSAL
NO. 6 - APPROVAL OF THE ISSUANCE OF MORE THAN 20% OF THE COMPANY’S ISSUED AND OUTSTANDING COMMON STOCK.
Overview
Our
common stock is currently listed on The NASDAQ Capital Market and we are subject to the marketplace rules of The NASDAQ Stock
Market LLC. NASDAQ Listing Rule 5635(d) (“Rule 5635(d)”) requires us to obtain stockholder approval prior to the issuance
of our common stock in connection with an offering involving the sale, issuance or potential issuance by the Company of common
stock equal to 20% or more of the common stock outstanding before the issuance at a price that is less than the Minimum Price
(as defined in Rule 5635(d)). Certain shares of our common stock issuable upon the exercise of warrants issued in such an offering
will be considered shares issued in such a transaction in determining whether the 20% limit has been reached.
As
discussed above in Proposal No. 3, on April 6, 2020 we issued, among other securities, the Private Warrants to purchase up to
an aggregate of 515,465 shares of common stock pursuant to a Securities Purchase Agreement with certain institutional investors
(the “SPA”), which equals more than 20% of the common stock outstanding before the issuance. The Private Warrants
contain price protection provisions that could result in a downward adjustment of the exercise price below the Minimum Price as
a result of certain issuances of securities for a per share price less than the exercise price of the Private Warrants. As a result
of the price protection provision, listing Rule 5635(d) is applicable. The Private Warrants contain a prohibition on the adjustment
of the exercise price of the Private Warrants of less than $2.782 (i.e., the Minimum Price). Such prohibition will not apply if
we obtain stockholder approval of the potential issuance of shares of common stock under the Private Warrants in excess of the
amount set forth in Listing Rule 5635(d) (20% or more of the outstanding shares of common stock).
In
addition to the obligation to seek stockholder approval of an increase in our authorized shares of common stock, under the SPA,
we are required to seek stockholder approval of the potential issuance of shares of common stock upon exercise of the Private
Warrants in excess of the amount set forth in Listing Rule 5635(d) (20% or more of the outstanding shares of common stock). In
this Proxy Statement, we are requesting such approval. Copies of the SPA and the Private Warrant have been filed as exhibits to
the Company’s Current Report on Form 8-K filed on April 3, 2020, and can be accessed on the SEC’s website at www.sec.gov
or may be obtained without charge by writing to our Chief Financial Officer at 3900 Paseo del Sol, Santa Fe, New Mexico 87507.
Vote
Required
Approval
of Proposal No. 6 requires the affirmative vote of a majority of shares of common stock that are cast affirmatively or negatively
(excluding abstentions and broker non-votes) on the proposal.
Effect
of Failure to Obtain Stockholder Approval
If
we are unable to obtain stockholder approval, we will be required to call another stockholders meeting for such approval with
attendant cost with respect thereto. Additionally, if we obtain stockholder approval, we will have the flexibility to reduce the
exercise price of the Private Warrants to induce the holder(s) thereof to exercise the Private Warrants on a cash basis. This
could result in our potentially receiving a significant infusion of cash which would otherwise not be available to us at no additional
out-of- pocket cost that we might be required to expend if we attempted to obtain such cash through other financing alternatives.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE ISSUANCE OF MORE THAN 20% OF THE COMPANY’S
ISSUED AND OUTSTANDING COMMON STOCK.
OTHER
MATTERS
Annual
Report
Accompanying
this Proxy Statement is a copy of our Annual Report on Form 10-K, without exhibits, for the year ended December 31, 2019 filed
with the SEC. These accompanying materials constitute our annual report to stockholders. We will provide, without charge upon
written request, a further copy of our Annual Report on Form 10-K, including the financial statements and the financial statement
schedules. Copies of the Form 10-K exhibits also are available without charge. Stockholders who would like such copies should
direct their requests in writing to: Corporate Secretary, 3900 Paseo del Sol, Santa Fe, New Mexico 87507.
*
* *
The
Board of Directors does not know of any other matters to be presented at the Annual Meeting. If any additional matters are properly
presented at the Annual Meeting, the persons named in the enclosed proxy card will have discretion to vote the shares of our common
stock they represent in accordance with their own judgment on such matters.
It
is important that your shares of our common stock be represented at the Annual Meeting, regardless of the number of shares that
you hold. You are, therefore, urged to vote by telephone or by using the Internet as instructed on the enclosed proxy card or
execute and return, at your earliest convenience, the enclosed proxy card in the envelope that has also been provided.
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THE
BOARD OF DIRECTORS
|
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|
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Santa
Fe, New Mexico
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May
____, 2020
|
ANNEX
A
Sigma
Labs, Inc. 2013 Equity Incentive Plan
(including
the amendment to Section 3 approved by the Board of Directors on May 8, 2020, subject to
stockholder
approval, and to be approved by the stockholders on June 15, 2020)
2013
EQUITY INCENTIVE PLAN
OF
SIGMA LABS, INC.
The
purposes of the 2013 Equity Incentive Plan (the “Plan”) of Sigma Labs, Inc., a Nevada corporation (the “Company”),
are to:
1.1
Encourage selected employees, directors, consultants and advisers to improve operations and increase the profitability of the
Company;
1.2
Encourage selected employees, directors, consultants and advisers to accept or continue employment or association with the Company
or its Affiliates; and
1.3
Increase the interest of selected employees, directors, consultants and advisers in the Company’s welfare through participation
in the growth in value of the common stock of the Company (the “Common Stock”). All references herein to stock or
shares, unless otherwise specified, shall mean Common Stock.
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2.
|
TYPES
OF AWARDS; ELIGIBLE PERSONS
|
2.1
The Administrator (as defined below) may, from time to time, take the following action, separately or in combination, under the
Plan: (i) grant “incentive stock options” (“ISOs”) intended to satisfy the requirements of Section 422
of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”); (ii) grant “non-qualified
options” (“NQOs,” and together with ISOs, “Options”); (iii) grant or sell Common Stock subject to
restrictions (“restricted stock”) or without restrictions, and (iv) grant stock appreciation rights (any such right
would permit the holder to receive the excess of the fair market value of Common Stock on the exercise date over its fair market
value (or a greater base value) on the grant date (“SARs”)), either in tandem with Options or as separate and independent
grants. Any such awards may be made to employees, including employees who are officers or directors, and to individuals described
in Section 1 of the Plan who the Administrator believes have made or will make a contribution to the Company or any Affiliate
(as defined below); provided, however, that only a person who is an employee of the Company or any Affiliate at
the date of the grant of an Option is eligible to receive ISOs under the Plan. The term “Affiliate” as used in the
Plan means a parent or subsidiary corporation as defined in the applicable provisions (currently Sections 424(e) and (f), respectively)
of the Code. The term “employee” includes an officer or director who is an employee of the Company. The term “consultant”
includes persons employed by, or otherwise affiliated with, a consultant. The term “adviser” includes persons employed
by, or otherwise affiliated with, an adviser.
2.2
Except as otherwise expressly set forth in the Plan, no right or benefit under the Plan shall be subject in any manner to anticipation,
alienation, hypothecation, or charge, and any such attempted action shall be void. No right or benefit under the Plan shall in
any manner be liable for or subject to debts, contracts, liabilities, or torts of any option holder or any other person except
as otherwise may be expressly required by applicable law.
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3.
|
STOCK
SUBJECT TO THE PLAN; MAXIMUM NUMBER OF GRANTS
|
Subject
to the provisions of Sections 6.1.1 and 8.2 of the Plan, the total number of shares of Common Stock which may be issued as restricted
stock or unrestricted stock or on the exercise of Options or SARs under the Plan shall not exceed 890,000 shares of Common Stock.
The shares subject to an Option or SAR or otherwise granted under the Plan which expire, terminate or are cancelled unexercised
shall become available again for grants under the Plan. If shares of restricted stock awarded under the Plan are forfeited to
the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan.
Where the exercise price of an Option is paid by means of the optionee’s surrender of previously owned shares of Common
Stock or the Company’s withholding of shares otherwise issuable upon exercise of the Option as may be permitted herein,
only the net number of shares issued and which remain outstanding in connection with such exercise shall be deemed “issued”
and no longer available for issuance under the Plan. No eligible person shall be granted Options and stock appreciation rights
during any twelve-month period covering more than 300,000 shares.
4.1
The Plan shall be administered by the Board of Directors of the Company (the “Board”) or by a committee (the “Committee”)
to which administration of the Plan, or of part of thereof, is delegated by the Board (in either case, the “Administrator”).
The Board shall appoint and remove members of the Committee in its discretion in accordance with applicable laws. At the Board’s
discretion, the Committee may be comprised solely of “non-employee directors” within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or “outside directors” within the
meaning of Section 162(m) of the Code. The Administrator may delegate non-discretionary administrative duties to such employees
of the Company as the Administrator deems proper and the Board, in its absolute discretion, may at any time and from time to time
exercise any and all rights and duties of the Administrator under the Plan.
4.2
Subject to the other provisions of the Plan, the Administrator shall have the authority, in its discretion: (i) to grant Options
and SARs and grant or sell restricted stock or unrestricted stock; (ii) to determine the fair market value of the Common Stock
subject to Options or other awards; (iii) to determine the exercise price of Options granted, which shall be no less than the
fair market value of the Common Stock on the date of grant, the economic terms of SARs granted, which shall provide for a benefit
of the appreciation on Common Stock over not less than the value of the Common Stock on the date of grant, or the offering price
of restricted stock; (iv) to determine the persons to whom, and the time or times at which, Options or SARs shall be granted or
restricted stock granted or sold, and the number of shares subject to each Option or SAR or the number of shares of restricted
stock or unrestricted stock granted or sold; (v) to construe and interpret the terms and provisions of the Plan, of any applicable
agreement and all Options and SARs granted under the Plan, and of any restricted unrestricted stock award under the Plan; (vi)
to prescribe, amend, and rescind rules and regulations relating to the Plan; (vii) to determine the terms and provisions of each
Option and SAR granted and award of restricted stock or unrestricted stock (which need not be identical), including but not limited
to, the time or times at which Options and SARs shall be exercisable or the time at which the restrictions on restricted stock
shall lapse; (viii) with the consent of the grantee, to rescind any award or exercise of an Option or SAR and to modify or amend
the terms of any Option, SAR or restricted stock; (ix) to reduce the purchase price of restricted stock or unrestricted stock;
(x) to accelerate or defer (with the consent of the grantee) the exercise date of any Option or SAR or the date on which the restrictions
on restricted stock lapse; (xi) to issue shares of restricted stock to an optionee in connection with the accelerated exercise
of an Option by such optionee; (xii) to authorize any person to execute on behalf of the Company any instrument evidencing the
grant of an Option. SAR or award of restricted stock or unrestricted stock; (xiii) to determine the duration and purposes of leaves
of absence which may be granted to participants without constituting a termination of their employment for the purposes of the
Plan; and (xiv) to make all other determinations deemed necessary or advisable for the administration of the Plan, any applicable
agreement, Option, SAR or award of restricted stock or unrestricted stock.
4.3
All questions of interpretation, implementation, and application of the Plan or any agreement or Option, SAR or award of restricted
stock shall be determined by the Administrator, which determination shall be final and binding on all persons.
|
5.
|
GRANTING
OF OPTIONS AND SARS; AGREEMENTS
|
5.1
No Options or SARs shall be granted under the Plan after ten (10) years from the date of adoption of the Plan by the Board.
5.2
Each Option and SAR shall be evidenced by a written agreement, in form satisfactory to the Administrator, executed by the Company
and the person to whom such grant is made. In the event of a conflict between the terms or conditions of an agreement and the
terms and conditions of the Plan, the terms and conditions of the Plan shall govern.
5.3
Each agreement shall specify whether the Option it evidences is an NQO or an ISO, provided, however, all Options
granted under the Plan to non-employee directors, consultants and advisers of the Company are intended to be NQOs.
5.4
Subject to Section 6.3.3 with respect to ISOs, the Administrator may approve the grant of Options or SARs under the Plan to persons
who are expected to become employees, directors, consultants or advisers of the Company, but are not employees, directors, consultants
or advisers at the date of approval.
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6.
|
TERMS
AND CONDITIONS OF OPTIONS AND SARS
|
Each
Option and SAR granted under the Plan shall be subject to the terms and conditions set forth in Section 6.1. NQOs and SARs shall
also be subject to the terms and conditions set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall also
be subject to the terms and conditions set forth in Section 6.3, but not those set forth in Section 6.2. SARs shall be subject
to the terms and conditions of Section 6.4.
6.1
Terms and Conditions to Which All Options and SARs Are Subject. All Options and SARs granted under the Plan shall be subject
to the following terms and conditions:
6.1.1
Changes in Capital Structure. Subject to Section 6.1.2, if the Common Stock of the Company is changed by reason of a stock
split, reverse stock split, stock dividend, recapitalization, combination or reclassification, or if the Company effects a spin-off
of the Company’s subsidiary, appropriate adjustments shall be made by the Administrator, in its sole discretion, in (a)
the number and class of shares of stock subject to the Plan and each Option and SAR outstanding under the Plan, and (b) the exercise
price of each outstanding Option; provided, that the Company shall not be required to issue fractional shares as a result
of any such adjustments. Any adjustment, however, in an outstanding Option shall be made without change in the total price applicable
to the unexercised portion of the Option but with a corresponding adjustment in the price for each share covered by the unexercised
portion of the Option. Adjustments under this Section 6.1.1 shall be made by the Administrator, whose determination as to the
nature of the adjustments that shall be made, and the extent thereof, shall be final, binding, and conclusive. If an adjustment
under this Section 6.1.1 would result in a fractional share interest under an option or any installment, the Administrator’s
decision as to inclusion or exclusion of that fractional share interest shall be final, but no fractional shares of stock shall
be issued under the Plan on account of any such adjustment.
6.1.2
Corporate Transactions. Except as otherwise provided in the applicable agreement, in the event of a Corporate Transaction
(as defined below), the Administrator shall notify each holder of an Option or SAR at least thirty (30) days prior thereto or
as soon as may be practicable. To the extent not then exercised all Options and SARs shall terminate immediately prior to the
consummation of such Corporate Transaction unless the Administrator determines otherwise in its sole discretion; provided.
however, that the Administrator, in its sole discretion, may (i) permit exercise of any Options or SARs prior to their
termination, even if such Options or SARs would not otherwise have been exercisable, and/or (ii) provide that all or certain of
the outstanding Options and SARs shall be assumed or an equivalent Option or SAR substituted by an applicable successor corporation
or entity or any Affiliate of the successor corporation or entity. A “Corporate Transaction” means (i) a liquidation
or dissolution of the Company; (ii) a merger or consolidation of the Company with or into another corporation or entity (other
than a merger with a wholly-owned subsidiary); (iii) a sale of all or substantially all of the assets of the Company; or (iv)
a purchase or other acquisition of more than 50% of the outstanding stock of the Company by one person or by more than one person
acting in concert.
6.1.3
Time of Option or SAR Exercise. Subject to Section 5 and Section 6.3.4, an Option or SAR granted under the Plan shall be
exercisable (a) immediately as of the effective date of the of the applicable agreement or (b) in accordance with a schedule or
performance criteria as may be set by the Administrator and specified in the applicable agreement. However, in no case may an
Option or SAR be exercisable until a written agreement in form and substance satisfactory to the Company is executed by the Company
and the grantee.
6.1.4
Grant Date. The date of grant of an Option or SAR under the Plan shall be the date approved or specified by the Administrator
and reflected as the effective date of the applicable agreement.
6.1.5
Non-Transferability of Rights. Except with the express written approval of the Administrator, which approval the Administrator
is authorized to give only with respect to NQOs and SARs, no Option or SAR granted under the Plan shall be assignable or otherwise
transferable by the grantee except by will or by the laws of descent and distribution. During the life of the grantee, an Option
or SAR shall be exercisable only by the grantee or permitted transferee.
6.1.6
Payment. Except as provided below, payment in full, in cash, shall be made for all Common Stock purchased at the time written
notice of exercise of an Option is given to the Company and the proceeds of any payment shall be considered general funds of the
Company. The Administrator, in the exercise of its absolute discretion after considering any tax, accounting and financial consequences,
may authorize any one or more of the following additional methods of payment:
(a)
Subject to the Sarbanes-Oxley Act of 2002, acceptance of the optionee’s full recourse promissory note for all or part of
the Option price, payable on such terms and bearing such interest rate as determined by the Administrator (but in no event less
than the minimum interest rate specified under the Code at which no additional interest or original issue discount would be imputed),
which promissory note may be either secured or unsecured in such manner as the Administrator shall approve (including, without
limitation, by a security interest in the shares of the Company);
(b)
Subject to the discretion of the Administrator and the terms of the stock option agreement granting the Option, delivery by the
optionee of shares of Common Stock already owned by the optionee for all or part of the Option price, provided the fair market
value (determined as set forth in Section 6.1.9) of such shares of Common Stock is equal on the date of exercise to the Option
price, or such portion thereof as the optionee is authorized to pay by delivery of such stock;
(c)
Subject to the discretion of the Administrator, through the surrender of shares of Common Stock then issuable upon exercise of
the Option, provided the fair market value (determined as set forth in Section 6.1.9) of such shares of Common Stock is equal
on the date of exercise to the Option price, or such portion thereof as the optionee is authorized to pay by surrender of such
stock; and
(d)
By means of so-called cashless exercises as permitted under applicable rules and regulations of the Securities and Exchange Commission
and the Federal Reserve Board.
6.1.7
Withholding and Employment Taxes. At the time of exercise and as a condition thereto, or at such other time as the amount
of such obligation becomes determinable, the grantee of an Option or SAR shall remit to the Company in cash all applicable federal
and state withholding and employment taxes. Such obligation to remit may be satisfied, if authorized by the Administrator in its
sole discretion, after considering any tax, accounting and financial consequences, by the holder’s (i) delivery of a promissory
note in the required amount on such terms as the Administrator deems appropriate, (ii) tendering to the Company previously owned
shares of Common Stock or other securities of the Company with a fair market value equal to the required amount, or (iii) agreeing
to have shares of Common Stock (with a fair market value equal to the required amount), which are acquired upon exercise of the
Option or SAR, withheld by the Company.
6.1.8
Other Provisions. Each Option and SAR granted under the Plan may contain such other terms, provisions, and conditions not
inconsistent with the Plan as may be determined by the Administrator, and each ISO granted under the Plan shall include such provisions
and conditions as are necessary to qualify the Option as an “incentive stock option” within the meaning of Section
422 of the Code.
6.1.9
Determination of Value. For purposes of the Plan, the fair market value of Common Stock or other securities of the Company
shall be determined as follows:
(a)
If the stock of the Company is listed on a securities exchange or is regularly quoted by a recognized securities dealer, and selling
prices are reported, its fair market value shall be the closing price of such stock on the date the value is to be determined,
but if selling prices are not reported, its fair market value shall be the mean between the high bid and low asked prices for
such stock on the date the value is to be determined (or if there are no quoted prices for the date of grant, then for the last
preceding business day on which there were quoted prices).
(b)
In the absence of an established market for the stock, the fair market value thereof shall be determined in good faith by the
Administrator, with reference to the Company’s net worth, prospective earning power, dividend-paying capacity, and other
relevant factors, including the goodwill of the Company, the economic outlook in the Company’s industry, the Company’s
position in the industry, the Company’s management, and the values of stock of other corporations in the same or a similar
line of business.
6.1.10
Option and SAR Term. No Option or SAR shall be exercisable more than 10 years after the date of grant, or such lesser period
of time as is set forth in the applicable agreement (the end of the maximum exercise period stated in the agreement is referred
to in the Plan as the “Expiration Date”).
6.2
Terms and Conditions to Which Only NQOs and SARs Are Subject. Options granted under the Plan which are designated as NQOs
and SARs shall be subject to the following terms and conditions:
6.2.1
Exercise Price. The exercise price of an NQO and the base value of an SAR shall be the amount determined by the Administrator
as specified in the option or SAR agreement, but shall not be less than the fair market value of the Common Stock on the date
of grant (determined under Section 6.1.9).
6.2.2
Termination of Employment. Except as otherwise provided in the applicable agreement, if for any reason a grantee ceases
to be employed by the Company or any of its Affiliates, Options that are NQOs and SARs held at the date of termination (to the
extent then exercisable) may be exercised in whole or in part at any time within ninety (90) days of the date of such termination
(but in no event after the Expiration Date). For purposes of this Section 6.2.2, “employment” includes service as
a director, consultant or adviser. For purposes of this Section 6.2.2, a grantee’s employment shall not be deemed to terminate
by reason of the grantee’s transfer from the Company to an Affiliate, or vice versa, or sick leave, military leave or other
leave of absence approved by the Administrator, if the period of any such leave does not exceed ninety (90) days or, if longer,
if the grantee’s right to reemployment by the Company or any Affiliate is guaranteed either contractually or by statute.
6.3
Terms and Conditions to Which Only ISOs Are Subject. Options granted under the Plan which are designated as ISOs shall
be subject to the following terms and conditions:
6.3.1
Exercise Price. The exercise price of an ISO shall not be less than the fair market value (determined in accordance with
Section 6.1.9) of the stock covered by the Option at the time the Option is granted. The exercise price of an ISO granted to any
person who owns, directly or by attribution under the Code (currently Section 424(d)), stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company or of any Affiliate (a “Ten Percent Stockholder”)
shall in no event be less than one hundred ten percent (110%) of the fair market value (determined in accordance with Section
6.1.9) of the stock covered by the Option at the time the Option is granted.
6.3.2
Disqualifying Dispositions. If stock acquired by exercise of an ISO granted pursuant to the Plan is disposed of in a “disqualifying
disposition” within the meaning of Section 422 of the Code (a disposition within two (2) years from the date of grant of
the Option or within one year after the issuance of such stock on exercise of the Option), the holder of the stock immediately
before the disposition shall promptly notify the Company in writing of the date and terms of the disposition and shall provide
such other information regarding the Option as the Company may reasonably require.
6.3.3
Grant Date. If an ISO is granted in anticipation of employment as provided in Section 5.4, the Option shall be deemed granted,
without further approval, on the date the grantee assumes the employment relationship forming the basis for such grant, and, in
addition, satisfies all requirements of the Plan for Options granted on that date.
6.3.4
Term. Notwithstanding Section 6.1.10, no ISO granted to any Ten Percent Stockholder shall be exercisable more than five
(5) years after the date of grant.
6.3.5
Termination of Employment. Except as otherwise provided in the stock option agreement, if for any reason an optionee ceases
to be employed by the Company or any of its Affiliates, Options that are ISOs held at the date of termination (to the extent then
exercisable) may be exercised in whole or in part at any time within 90 days of the date of termination (but in no event after
the Expiration Date). For purposes of this Section 6.3.5, an optionee’s employment shall not be deemed to terminate by reason
of the optionee’s transfer from the Company to an Affiliate, or vice versa, or sick leave, military leave or other leave
of absence approved by the Administrator, if the period of any such leave does not exceed ninety (90) days or, if longer, if the
optionee’s right to reemployment by the Company or any Affiliate is guaranteed either contractually or by statute.
6.4
Terms and Conditions Applicable Solely to SARs. In addition to the other terms and conditions applicable to SARs in this
Section 6, the holder shall be entitled to receive on exercise of an SAR only Common Stock at a fair market value equal to the
benefit to be received by the exercise.
7.1
An optionee wishing to exercise an Option or SAR shall give written notice to the Company at its principal executive office, to
the attention of the officer of the Company designated by the Administrator, accompanied by payment of the exercise price and/or
withholding taxes as provided in Sections 6.1.6 and 6.1.7. The date the Company receives written notice of an exercise hereunder
accompanied by the applicable payment will be considered as the date such Option or SAR was exercised.
7.2
Promptly after receipt of written notice of exercise and the applicable payments called for by Section 7.1, the Company shall,
without stock issue or transfer taxes to the holder or other person entitled to exercise the Option or SAR, deliver to the holder
or such other person a certificate or certificates for the requisite number of shares of Common Stock. A holder or permitted transferee
of an Option or SAR shall not have any privileges as a stockholder with respect to any shares of Common Stock to be issued until
the date of issuance (as evidenced by the appropriate entry on the books of the Company or a duly authorized transfer agent) of
such shares.
8.1
Grant or Sale of Stock.
8.1.1
No awards of Common Stock shall be granted under the Plan after ten (10) years from the date of adoption of the Plan by the Board.
8.1.2
The Administrator may issue Common Stock under the Plan as a grant or for such consideration (including services, and, subject
to the Sarbanes-Oxley Act of 2002, promissory notes) as determined by the Administrator. Common Stock issued under the Plan shall
be subject to the terms, conditions and restrictions determined by the Administrator. The restrictions, if any, may include restrictions
concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions
as may be determined by the Administrator. If shares are subject to forfeiture or repurchase by the Company, all dividends or
other distributions paid by the Company with respect to the shares may be retained by the Company until the shares are no longer
subject to forfeiture or repurchase, at which time all accumulated amounts shall be paid to the recipient. All Common Stock issued
pursuant to this Section 8 shall be subject to a purchase or grant agreement, which shall be executed by the Company and the prospective
recipient of the Common Stock prior to the delivery of certificates representing such stock to the recipient. The purchase or
grant agreement may contain any terms, conditions, restrictions, representations and warranties required by the Administrator.
The certificates representing the shares shall bear any legends required by the Administrator. The Administrator may require any
purchaser or grantee of Common Stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal,
state or local tax withholding requirements. If the purchaser or grantee fails to pay the amount demanded, the Administrator may
withhold that amount from other amounts payable by the Company to the purchaser or grantee, including salary, subject to applicable
law. With the consent of the Administrator in its sole discretion, a purchaser or grantee may deliver Common Stock to the Company
to satisfy this withholding obligation. Upon the issuance of Common Stock, the number of shares reserved for issuance under the
Plan shall be reduced by the number of shares issued.
8.2
Changes in Capital Structure. In the event of a change in the Company’s capital structure, as described in Section
6.1.1, appropriate adjustments shall be made by the Administrator, in its sole discretion, in the number and class of restricted
stock subject to the Plan and the restricted stock outstanding under the Plan; provided, however, that the Company
shall not be required to issue fractional shares as a result of any such adjustments.
8.3
Corporate Transactions. In the event of a Corporate Transaction, as defined in Section 6.1.2 hereof, to the extent not
previously forfeited, all restricted stock shall be forfeited immediately prior to the consummation of such Corporate Transaction
unless the Administrator determines otherwise in its sole discretion; provided, however, that the Administrator,
in its sole discretion, may remove any restrictions as to any restricted stock. The Administrator may, in its sole discretion,
provide that all outstanding restricted stock participate in the Corporate Transaction with an equivalent stock substituted by
an applicable successor corporation subject to the restriction.
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9.
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EMPLOYMENT
OR CONSULTING RELATIONSHIP
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Nothing
in the Plan or any Option or award of Common Stock granted under the Plan shall interfere with or limit in any way the right of
the Company or of any of its Affiliates to terminate the employment, consulting or advising of any recipient thereof or restricted
stock holder at any time, nor confer upon any recipient, optionee or restricted stock holder any right to continue in the employ
of, or consult with, or advise, the Company or any of its Affiliates.
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10.
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CONDITIONS
UPON ISSUANCE OF SHARES
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10.1
Securities Act. Shares of Common Stock shall not be issued pursuant to the exercise of an Option or other award under the
Plan unless the exercise of such Option or payment under the awards, the receipt of Common Stock and the issuance and delivery
of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended (the “Securities Act”).
10.2
Non-Compete Agreement. As a further condition to the receipt of Common Stock pursuant to the exercise of an Option or any
other award under the Plan, the optionee or recipient may be required not to render services for any organization, or engage directly
or indirectly in any business, competitive with the Company at any time during which (i) an Option is outstanding to such Optionee
and for six (6) months after any exercise of an Option or the receipt of Common Stock pursuant to the exercise of an Option or
other award and (ii) restricted stock is owned by such recipient and for six (6) months after the restrictions on such restricted
stock lapse. Failure to comply with this condition shall cause such Option and the exercise or issuance of shares thereunder and/or
any other award under the Plan to be rescinded and the benefit of such exercise, issuance or award to be repaid to the Company.
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11.
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NON-EXCLUSIVITY
OF THE PLAN
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The
adoption of the Plan shall not be construed as creating any limitations on the power of the Company to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the granting of stock options other than under the Plan.
Each
optionee, holder of an SAR or recipient of Common Stock under the Plan, if so requested by the Company or any representative of
the underwriters in connection with any registration of the offering of any securities of the Company under the Securities Act,
shall not sell or otherwise transfer any shares of Common Stock so acquired during the 180-day period following the effective
date of a registration statement of the Company filed under the Securities Act; provided, however, that such restriction
shall apply only to a registration statement of the Company which includes securities to be sold on behalf of the Company to the
public in an underwritten public offering under the Securities Act and the restriction period shall not exceed 90 days after the
registration statement becomes effective.
The
Board may at any time amend, alter, suspend or discontinue the Plan. Without the consent of an optionee, holder of an SAR or holder
of restricted stock, no amendment, alteration, suspension or discontinuance may adversely affect such person’s outstanding
Option(s), SAR(s) or the terms applicable to restricted stock except to conform the Plan and ISOs granted under the Plan to the
requirements of federal or other tax laws relating to ISOs. No amendment, alteration, suspension or discontinuance shall require
stockholder approval unless (a) stockholder approval is required to preserve incentive stock option treatment for federal income
tax purposes or (b) the Board otherwise concludes that stockholder approval is advisable.
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14.
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EFFECTIVE
DATE OF PLAN; TERMINATION
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The
Plan shall become effective upon adoption by the Board; provided, however, that no Option or SAR or other award
under the Plan shall be exercisable unless and until written consent of the stockholders of the Company, or approval of stockholders
of the Company voting at a validly called stockholders’ meeting, is obtained within twelve (12) months after adoption by
the Board. If any Options, SARs or other awards are so granted and stockholder approval shall not have been obtained within twelve
(12) months of the date of adoption of the Plan by the Board, such Options, SARs or other awards shall terminate retroactively
as of the date they were granted. Awards may be made under the Plan and exercise of Options, SARs or other awards shall occur
only after there has been compliance with all applicable federal and state securities laws. The Plan (but not Options and SARs
previously granted under the Plan) shall terminate ten (10) years from the date of its adoption by the Board. Termination shall
not affect any outstanding Options or SARs or the terms applicable to other previously made awards under the Plan.
ANNEX
B
Amendment
to Amended and Restated Articles of Incorporation of Sigma Labs, Inc.
The
first two paragraphs of ARTICLE IV of the Amended and Restated Articles of Incorporation of Sigma Labs, Inc. shall be amended
to read in their entirety as follows:
“The
total number of shares of all classes of capital stock which the corporation shall have authority to issue is 22,000,000 shares.
Stockholders shall not have any preemptive rights, nor shall stockholders have the right to cumulative voting in the election
of directors or for any other purpose.
The
classes and the aggregate number of shares of stock of each class which the corporation shall have authority to issue are as follows:
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(a)
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12,000,000
shares of common stock, $0.001 par value (“Common Stock”);
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(b)
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10,000,000
shares of preferred stock, $0.001 par value (“Preferred Stock”).
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