Blueprint
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment
No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the
fiscal year ended December 31, 2017
|
Commission
File Number 1-13471
|
|
INSIGNIA SYSTEMS,
INC.
|
|
(Exact
name of registrant as specified in its charter)
|
|
Minnesota
|
41-1656308
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(IRS
Employer Identification No.)
|
|
8799
Brooklyn Blvd., Minneapolis, MN 55445
|
|
(Address
of principal executive offices; zip code)
|
|
(763)
392-6200
|
|
(Registrant’s
telephone number, including area code)
|
Securities
Registered Pursuant to Section 12(b) of the Act:
|
Title
of each class:
|
Name of
each exchange on which registered:
|
|
Common
Stock, $.01 par value
|
The
Nasdaq Stock Market LLC
|
Securities
Registered Pursuant to Section 12(g) of the Act: None
_____________________________________________________________________
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ☐ No
☑
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ☐ No
☑
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
☑ No ☐
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
☑
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer ☐ Accelerated filer ☐ Non-accelerated
filer ☐ Smaller reporting company ☑ Emerging growth
company ☐
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ☐ No ☑
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of the last business
day of the registrant’s most recently completed second fiscal
quarter (June 30, 2017) was approximately $7,344,000 based upon the
price of the registrant’s Common Stock on such
date.
Number
of shares outstanding of Common Stock, $.01 par value, as of March
12, 2018 was 11,962,996.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (this “Amendment”)
amends the Annual Report on Form 10-K of Insignia Systems, Inc. for
the year ended December 31, 2017 that was originally filed with the
Securities and Exchange Commission on March 15, 2018 (the
“Original Filing”) and is being filed primarily to
provide the information required by Items 10, 11, 12, 13, and
14 of Part III. This information was previously omitted from the
Original Filing in reliance on General Instruction G(3) to
Form 10-K, which permits the information in the above
referenced items to be incorporated in the Form 10-K by
reference from a definitive proxy statement if such statement is
filed no later than 120 days after our fiscal year end. We are
filing this Amendment to include Part III information in our
Form 10-K because we expect to file a definitive proxy
statement after that date. The reference on the cover of the
Original Filing to the incorporation by reference to portions of
our definitive proxy statement into Part III of the Original Filing
has been deleted. This Amendment does not amend or otherwise update
any other information in the Original Filing. Accordingly, this
Amendment should be read in conjunction with the Original Filing
and with our filings with the SEC made after the Original
Filing.
TABLE OF CONTENTS
|
|
|
|
|
PART
III.
|
|
|
|
|
|
3
|
|
|
|
6
|
|
|
|
12
|
|
Item 13.
|
|
13
|
|
|
|
15
|
|
|
|
|
PART
IV.
|
|
|
|
|
|
15
|
|
|
|
|
|
|
PART III.
Item 10. Directors, Executive
Officers and Corporate Governance
Directors of the Registrant
All
directors of the Company hold office until the next annual meeting
of the shareholders or until their successors have been elected and
qualified. Our Bylaws, as amended, provide that the Board shall
consist of between two and no more than nine members, as designated
by resolution of the Board from time to time.
The
following individuals are our current directors:
|
Name
|
|
Age
|
|
Position
|
|
Jacob
J. Berning
|
|
45
|
|
Director
|
|
Kristine
A. Glancy
|
|
40
|
|
Director,
President, Chief Executive Officer and Secretary
|
|
Rachael
B. Vegas
|
|
41
|
|
Director
|
|
F.
Peter Zaballos
|
|
59
|
|
Director,
Chairman of the Board
|
|
Steven
R. Zenz
|
|
64
|
|
Director
|
Jacob J. Berning, 45, has
served as Marketing Vice President at The Schwan Food Company since
September 2014. Mr. Berning has extensive leadership experience
across a diverse set of businesses and teams in the consumer
packaged goods industry. His 18 years of marketing experience
working with a variety of different brands also includes time as
Marketing Director of WhiteWave Foods Company from July 2011 to
September 2014 and Marketing Manager at General Mills, Inc. from
September 2003 to July 2011. These experiences provide knowledge
and understanding of the industry representing the majority of our
customer base. He served as a director of the Company from December
2014 until the conclusion of our 2016 Annual Meeting in June 2016.
He was originally elected to the Board in accordance with a
standstill arrangement among the Company and a shareholder group
composed of Nicholas J. Swenson, Air T, Inc., Groveland Capital LLC
and Groveland Hedged Credit Fund LLC. He did not stand for
re-election at the 2016 Annual Meeting. Mr. Berning was
re-elected to the Board at the 2017 Annual Meeting. He has a BA
degree from the University of Minnesota and an MBA (Finance and
Marketing) from New York University.
Kristine A. Glancy, 40, has been our President and Chief
Executive Officer since May 2016, and a Board member since June
2017. Prior to joining the Company, Ms. Glancy served in various
roles at The Kraft Heinz Company from 1999 to 2016, most recently
as Customer Vice President from May 2013 to April 2016. She held
the positions of Director of Sales from June 2012 to May 2013 and
National Customer Manager from November 2010 to June 2012. Her more
than 17 years as a sales and marketing executive provide the
necessary skills to the Board and Company in the areas of Sales,
Product Strategy, Customer Relations, Business and Brand
Development. Ms. Glancy holds a
Bachelor of Arts degree in Marketing and International Business
from Saint Mary’s University and an MBA from Fordham
University, New York City.
Rachael B. Vegas, 41, has served as a member of the Board
since June 2017. She has served as the Chief Merchant at Brandless,
Inc. since March 2016. She previously served in various roles at
Target Corporation, Food Lion and Hannaford Supermarkets from 1997
to 2016. Most recently, from February 2014 to February 2016 as Vice
President, General Merchandising Manager; Center Store, Grocery;
from February 2013 to February 2014 as Vice President Merchandising
Manager; Dry Grocery, Snacks, Candy; from February 2011 to February
2013 as Vice President Merchandising Manager; Snacks, Beverages,
Pet Care, Candy and Liquor. Ms. Vegas’ experience in retail
and consumer packaged goods industries are valuable to the Company.
Ms. Vegas holds Bachelor of Arts degree in International Relations
from Tufts University and an MBA from Kenan-Flagler Business
School, University of North Carolina.
F. Peter Zaballos, 59, has served as a
member of the Board since June 2015. He served as Co-Chairman of
the Board from January 2016 to March 1, 2017 and Chairman of the
Board since March 1, 2017. Mr. Zaballos served as the Vice
President of Marketing and Product at SPS Commerce from September
2012 until January 2018. Previously, he served as Vice President of
Marketing at SPS Commerce from April 2012 to September 2012. From
2010 to 2011, he held the positions of Vice President, Product and
Vice President, Marketing and Business Development at StudyBlue,
a
cloud service reaching more than a million high school and college
students. His more than 15 years as a marketing executive and board
experience provide knowledge and skills to the Board in the
areas of brand development and marketing,
product strategy, business development and innovation.
Mr. Zaballos has a Bachelor of Science degree from the
University of California, Berkeley, and a Master’s degree
(SM) in Management from the Massachusetts Institute of Technology
(MIT), Sloan School of Management.
Steven R. Zenz, 64, has served as a member of the Board
since October 2013. He is a former partner of the audit and
advisory firm KPMG, where he served in various capacities in his 34
years with the firm, including partner in charge of the audit group
and partner in charge of the firm’s SEC and technical
accounting practices in KPMG’s Minneapolis, Minnesota office
as well as lead audit partner for many publicly-held company
clients. Since his retirement from KPMG in 2010, Mr. Zenz has acted
as a consultant on merger and acquisition transactions providing
advice on valuations, SEC filings, technical accounting and
integration, which we believe will benefit the Company. He also
serves on the boards of directors of the William Blair Mutual
Funds, RedBrick Health Corporation and Frankly Inc. (Toronto Stock
Exchange). He holds a Bachelor of Science degree in Accounting and
a Masters of Business Taxation degree from the University of
Minnesota.
Executive Officers of the Registrant
The
following individuals are our current executive
officers:
|
Name
|
|
Position
|
|
Kristine A.
Glancy
|
40
|
Director,
President, Chief Executive Officer and Secretary
|
|
Jeffrey A.
Jagerson
|
51
|
Vice President of
Finance, Chief Financial Officer and Treasurer
|
Kristine A. Glancy’s background information is
disclosed above under “Directors of the
Registrant.”
Jeffrey A. Jagerson, has
been our Vice President of Finance, Chief Financial Officer and
Treasurer since July 2017. Prior to joining the Company, Mr.
Jagerson served as Chief Financial Officer at Christensen Farms
from March 2014 to March 2017. He previously served as Vice
President of Finance and Accounting at Digital River from July 2009
to March 2014 and served as the Corporate Controller from February
2008 to July 2009. Mr. Jagerson also served in various executive
and financial roles at ADC Telecommunications from May 1995 to
February 2008 and Honeywell from June 1988 to May 1995. His more
than 29 years as an Accounting and Finance professional and
executive provides the necessary skills to the Board and Company in
the areas public company financial reporting, tax, audit, and
treasury management. Mr. Jagerson holds a Bachelor of Science
degree in Accounting from Minnesota State University, Mankato and
an MBA from the Carlson School of Business at the University of
Minnesota.
Executive
officers are elected annually by the Board and serve for a one-year
period. There are no family relationships among any of the
executive officers and directors of the Company.
Committees of the Board of Directors
The
current membership of the Board’s standing committees is set
forth in the following table. The Nominating and Corporate
Governance Committee was chartered in April 2018.
|
Director
|
|
Audit
|
|
Compensation
|
|
Nominating and Corporate Governance
|
|
Independent Director
|
|
Jacob
J. Berning
|
|
Member
|
|
|
|
Chair
|
|
Yes
|
|
Kristine
A. Glancy
|
|
|
|
|
|
|
|
No
|
|
Rachael
B. Vegas
|
|
|
|
Member
|
|
Member
|
|
Yes
|
|
F.
Peter Zaballos
|
|
Member
|
|
Chair
|
|
|
|
Yes
|
|
Steven
R. Zenz
|
|
Chair
|
|
Member
|
|
Member
|
|
Yes
|
Audit Committee Financial Expert
Mr.
Zenz has been designated by the Board as an “audit committee
financial expert,” as that term is defined by the rules of
the SEC. Through his extensive experience as a former partner of
the audit and advisory firm KPMG LLP and his current consulting
roles, he possesses: (i) an understanding of generally accepted
accounting principles and financial statements; (ii) the ability to
assess the general application of such principles in connection
with the accounting for estimates, accruals and reserves; (iii)
experience preparing, auditing, analyzing or evaluating financial
statements with a breadth and level of complexity commensurate with
those presented by the Company’s financial statements; (iv)
an understanding of internal control over financial reporting; and
(v) an understanding of audit committee functions.
Compliance with Section 16(A) of the Securities Exchange Act of
1934
Section
16(a) of the Securities and Exchange Act of 1934 requires that our
directors and executive officers file initial reports of ownership
and reports of changes in ownership with the SEC. Directors and
executive officers are required to furnish us with copies of all
Section 16(a) forms they file. Based solely on a review of the
copies of such forms furnished to us and written representations
from our directors and executive officers, all Section 16(a) filing
requirements were met for 2017.
Code of Ethics/Code of Conduct
We have
in place a “code of ethics” within the meaning of Rule
406 of Regulation S-K, which is applicable to our senior financial
management, including specifically our principal executive officer
and principal financial officer. A copy of the Code of Ethics is
available on our website (www.insigniasystems.com)
under the “Investor Relations - Corporate Governance”
caption. We intend to satisfy our disclosure obligations regarding
any amendment to, or a waiver from, a provision of this code of
ethics by posting such information on the same
website.
Item 11. Executive
Compensation
Summary Compensation Table
The
following table sets forth information about all compensation (cash
and non-cash) awarded to, earned by or paid to our Chief Executive
Officer, the only other executive officer serving at the end of
fiscal 2017, and a former executive for whom disclosure would have
been required but for the fact that he did not serve as an
executive officer at the end of fiscal 2017 (collectively, our
“Named Executive Officers”) for the fiscal years ended
December 31, 2017 and 2016.
|
|
|
|
|
|
|
Non-Equity Incentive Plan
Compensation(3)
|
|
|
Kristine A. Glancy(4)
|
|
2017
|
$283,038
|
$80,000
|
$16,650(5)
|
$190,922
|
$570,610
|
|
President, Chief Executive Officer and
Secretary
|
|
2016
|
$169,231
|
$100,000
|
$233,000(6)
|
$–
|
$502,231
|
|
|
|
|
|
|
|
|
|
Jeffrey A. Jagerson(7)
|
|
2017
|
$99,423
|
$–
|
$65,400(8)
|
$71,101
|
$235,924
|
|
Vice President of Finance, Chief Financial Officer and
Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Cherrey(9)
|
|
2017
|
$64,669
|
$–
|
$–
|
$–
|
$64,669
|
|
Former Director of Finance and Controller
|
|
2016
|
$117,521
|
$15,000
|
$7,455(10)
|
$–
|
$139,976
|
______________________________
(1
As part of Ms.
Glancy’s initial employment agreement, she received a cash
signing bonus in the amount of $180,000, of which $100,000 was paid
in May 2016 and the remaining $80,000 was paid in May 2017.
Mr. Cherrey received a $15,000 cash bonus in 2016 at the discretion
of the Board of Directors, based on the recommendation of its
Compensation Committee, as recognition for his additional duties as
interim principal financial and accounting officer.
(2)
Amounts
shown in the Stock Awards column represent the aggregate grant date
fair value of restricted stock awards granted during the applicable
year. Grand date fair values are computed in accordance with FASB
AS Topic 718 using assumptions discussed in Note 7 to the financial
statements for the fiscal year ended December 31, 2017 included in
the Original Filing.
(3)
Represents
payments pursuant to the Executive Incentive Plan for the years
indicated, which were paid in the following year.
(4)
Ms.
Glancy joined the Company on May 9, 2016.
(5)
Amount
shown represents the aggregate grant date fair value of restricted
stock granted on September 19, 2017.
(6)
Amount
shown represents the aggregate grant date fair value of restricted
stock granted on May 13, 2016.
(7)
Mr.
Jagerson joined the Company on July 17, 2017.
(8)
Amount
shown represents the aggregate grant date fair value of restricted
stock granted on September 1, 2017.
(9)
Mr.
Cherrey resigned from all positions with the Company on June 30,
2017.
(10)
Amount
shown represents the aggregate grant date fair value of restricted
stock units granted on August 10, 2016. These stock awards expired
on the date Mr. Cherrey resigned from the Company.
Executive Compensation
The
principal components of compensation for the Named Executive
Officers are: (i) base salary; (ii) non-equity incentive
compensation in the form of an annual cash bonus under the
Executive Incentive Plan; and (iii) long-term, equity-based
incentive compensation in the form of restricted stock units. These
components of compensation are summarized below, followed by a
description of each Named Executive Officer’s individual
agreements with the Company and the compensation received
thereunder.
Executive Incentive Plan
The
Executive Incentive Plan was originally established in 2007 and
applies to future fiscal years until terminated or superseded. The
executive officers are eligible to earn annual cash bonus payments
if the Company meets pre-established financial performance
objectives. Ms. Glancy and Mr. Jagerson were eligible to
participate in the Executive Incentive Plan in 2017. Mr. Jagerson
participated on a pro-rated basis based on portion of the fiscal
year elapsed after his initial employment date.
For 2017, the Equity Incentive Plan provided that, for each of the
participants, (a) 70% of the bonus potential was allocated to the
Company’s performance against target operating income (loss),
and (b) the remaining 30% of the bonus potential was allocated to
individual performance against personal goals established by the
Board of Directors.
Company Performance-Based Payment
For
2017, the Compensation Committee established a target operating
loss of $1,557,000 and approved the following schedule of potential
payments under the Executive Incentive Plan:
|
Bonus Level
|
|
Operating Income (Loss)
|
|
Percent of Target Variable Compensation
|
|
Threshold
|
|
Less
than 80% of Target
|
|
None
|
|
|
|
80–89%
of Target
|
|
25–74.9%
|
|
|
|
90–99%
of Target
|
|
75–99.9%
|
|
Plan
|
|
100–109%
of Target
|
|
100–114.9%
|
|
|
|
110–129%
of Target
|
|
115–139.9%
|
|
|
|
130–149%
of Target
|
|
140–159.9%
|
|
Maximum
|
|
150% or
greater of Target
|
|
160%
|
Based
on an actual operating loss of $908,000 for 2017, as reported in
Part II, Item 8, of the Original Report, the Committee approved
payments representing 150% of target variable compensation,
representing payments of $150,150 to Ms. Glancy and $56,547 to Mr.
Jagerson.
Revenue-Based Multiplier
If
Insignia’s operating income (loss) for a fiscal year is at or
greater than 110% of the above-reference target performance level,
then participants are also eligible to have their payment based on
operating income (loss) increased based on a multiplier determined
by total net sales. For 2017, the Compensation Committee
established a total net sales target of $27,390,000 and approved
the following schedule of potential payments:
|
Operating Income (Loss)
|
|
Total Net Sales
|
|
Resulting Multiplier
|
|
110-129%
of Target
|
|
100% or
greater of Target
|
|
110%
|
|
130-149%
of Target
|
|
100% or
greater of Target
|
|
115%
|
|
150% or
greater of Target
|
|
100% or
greater of Target
|
|
120%
|
Participants
were only eligible to receive this supplemental bonus amount if
both (i) operating income (loss) exceeded 110% target performance
and (ii) total net sales revenue met or
exceeded the applicable target performance level. Because total net
sales were below target, no multiplier was applied for
2017.
Individual Performance
For
2017, the remaining 30% of the potential payments under the
Executive Incentive Plan was determined based on individual
performance against personal goals established by the Board of
Directors. Based on a variety of factors, including company-wide
business development performance under their leadership during
2017, the Compensation Committee approved a final payment of
$40,772 to Ms. Glancy and a pro-rated final payment of $14,554 to
Mr. Jagerson under this part of the program.
Actions Relating to Fiscal 2018 Incentive Compensation
In April 2018, our Board of Directors, as recommended by its
Compensation Committee, adopted the 2018 Executive Cash Incentive
Plan (the “2018 Cash Plan”), which replaced the
Executive Incentive Plan. The only employees currently eligible to
participate in the Plan are the Company’s two executive
officers: Ms. Glancy and Mr. Jagerson. The 2018 Cash Plan provides
that for each of the participants, (a) 70% of the bonus potential
has been allocated to the Company’s performance against
target operating income (loss), inclusive of all compensation
expenses (“Profit”), and (b) the remaining 30% of the
bonus potential has been allocated to individual performance
against personal goals established by the Board of Directors. The
total target bonuses under the 2018 Cash Plan
are
equal to 50% of each participant’s respective base salary and
payouts, if any, would range from 8.75% to 82.2%
of each participant’s base
salary.
The Committee plans to determine the level of each
participant’s satisfaction of their personal goals and the
resulting payout of up to a maximum of 30% of their respective
bonus potential, which determination will be independent of
achievement Company performance against the Profit target. All
bonus calculations under the 2018 Cash Plan will be subject to
review and final approval by the Committee prior to
payment.
Long-term, Equity-Based Incentive Compensation (Restricted Stock
Awards and Restricted Stock Units)
The
Compensation Committee has determined that restricted stock awards
and restricted stock units are each appropriate under certain
circumstances, based factors including market practices and our
overall compensation philosophy. During 2017, all restricted stock
and restricted stock units were granted under our 2013 Omnibus
Plan. Historically, each award of restricted stock or restricted
stock units is scheduled to vest in one-half increments on the
anniversary of the date of grant over two years.
On
September 1, 2017, Mr. Jagerson received an award of 60,000 shares
of restricted stock. On September 19, 2017, Ms. Glancy received an
award of 15,000 restricted stock units, each representing a
contingent right to receive one share of common stock.
Severance and Change in Control Arrangements with Named Executive
Officers
In
connection with Ms. Glancy’s election to serve as the
Company’s Chief Executive Officer, effective May 9, 2016, the
Company and Ms. Glancy have entered
into an Employment Agreement and a Change in Control Agreement,
each effective as of May 9, 2016. Her Employment Agreement provides
that Ms. Glancy will receive an established annual base salary,
subject to increase from time to time, target incentive
compensation awards beginning with 2016, a cash signing bonus, and
participation in customary benefit plans and programs, in addition
to a one-time equity award.
Pursuant to her Employment Agreement, in the event of Ms.
Glancy’s involuntary termination without cause or voluntary
termination with good reason, she will be eligible to receive
accrued and unpaid compensation as well as the following severance
pay and benefits: (1) the annual incentive compensation she would
have been entitled to receive for the year in which her termination
occurs as if she had continued until the end of that fiscal year,
determined based on the Company’s actual performance for that
year relative to the performance goals applicable to Ms. Glancy,
prorated for the number of days in the fiscal year through her
termination date and generally payable in a cash lump sum at the
time such incentive awards are payable to other participants; (2)
an applicable percentage of Ms. Glancy’s annual base salary
as in effect at the time of Termination, payable in a single lump
sum payment no later than 60 days following the termination date;
and (3) welfare benefit continuation for four months following
termination. In the event of Ms. Glancy’s death, disability,
involuntary termination for cause or voluntary termination without
good reason, Ms. Glancy will be entitled to accrued and unpaid
compensation as provided in the Employment Agreement. The
“applicable percentage” is 50% during the first year of
Ms. Glancy’s employment and 100% thereafter.
“Cause” is defined in Ms. Glancy’s Employment
Agreement as (a) the deliberate and continued failure to
substantially perform the duties and responsibilities; (b) the
criminal felony conviction of, or a plea of guilty or nolo
contendere; (c) the material violation of Company policy; (d) the
act of fraud or dishonesty resulting or intended to result in
personal enrichment at the expense of the Company; (e) the gross
misconduct in performance of duties that results in material
economic harm to the Company; or (f) the material breach of the
Employment Agreement by Ms. Glancy. “Good
reason” includes demotion, reduction in salary or benefits,
and certain other events.
Under Ms. Glancy’s Change in Control Agreement, as amended on
April 28, 2018, upon a qualifying termination, she would be
eligible to receive the following, subject to offset by the amount
of any severance previously paid to her under any employment
agreement with the Company: (1) a lump sum severance payment
equal to 200% of her base salary, (2) cash payment equal to
the sum of (x) unpaid incentive compensation that has been
allocated or awarded to Ms. Glancy for a completed fiscal year
preceding the date of the Qualifying Termination which is
contingent only upon the continued employment to a subsequent date
plus (y) a pro rata portion to the date of the Qualifying
Termination of her target bonus for the year calculated through the
date of the Qualifying Termination, (3) welfare benefit
continuation for a period of 12 months, (4) certain
post-retirement health care or life insurance benefits if
Ms.
Glancy would have become eligible for such benefits during the 24
months after the date of termination, (5) a lump sum payment equal
to all earned but unused paid time off days, and
(6) outplacement fees not to exceed $5,000. The Change in
Control Agreement defines “qualifying termination” as a
termination by the Company without cause or a termination by
Ms. Glancy with good reason, in each case either concurrent
with or within 24 months following a change in control or a
termination by the Company without cause within six months
prior to a change in control if termination is in connection with
or in anticipation of the change in control. “Change in
control” is defined as a sale of all or substantially all of
the assets of the Company, a merger in which the shareholders of
the Company own less than 50% of the surviving entity, the
acquisition of 40% or more of the Company’s outstanding stock
by a single person or a group, or the election of a majority of the
Company’s directors who consist of persons who were not
nominated by the Company’s prior Board.
“Cause” is defined as (i)
the deliberate and continued failure to devote substantially all
business time and best efforts to the performance of the Ms.
Glancy’s duties; (ii) the deliberate engaging in gross
misconduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise; or (iii) conviction of, or plea
of guilty or nolo contendere to, a felony or any criminal charge
involving moral turpitude. “Good reason” is defined in
the agreement, as amended, to include demotion, reduction in salary
or benefits, and certain other events.
In
connection with Mr. Jagerson’s election to serve as the
Company’s Chief Financial Officer, effective July 17, 2017,
the Company and Mr. Jagerson have
entered into an Employment Agreement and a Change in Control
Agreement, each effective as of July 17, 2017. His Employment
Agreement provides that Mr. Jagerson will receive an established
annual base salary, subject to increase from time to time, target
incentive compensation awards beginning with 2017, and
participation in customary benefit plans and programs, in addition
to a one-time equity award.
Pursuant to his Employment Agreement, in the event of Mr.
Jagerson’s involuntary termination without cause or voluntary
termination with good reason, he will be eligible to receive
accrued and unpaid compensation as well as the following severance
pay and benefits: (1) the annual incentive compensation he would
have been entitled to receive for the year in which his termination
occurs as if he had continued until the end of that fiscal year,
determined based on the Company’s actual performance for that
year relative to the performance goals applicable to Mr. Jagerson,
prorated for the number of days in the fiscal year through his
termination date and generally payable in a cash lump sum at the
time such incentive awards are payable to other participants; (2)
50% of Mr. Jagerson’s annual base salary as in effect at the
time of Termination, payable in a single lump sum payment no later
than 60 days following the termination date; and (3) welfare
benefit continuation for three months following termination. In the
event of Mr. Jagerson’s death, disability, involuntary
termination for cause or voluntary termination without good reason,
Mr. Jagerson will be entitled to accrued and unpaid compensation as
provided in the Employment Agreement. “Cause” is
defined in Mr. Jagerson’s Employment Agreement as
(a) the deliberate and continued failure to substantially
perform the duties and responsibilities; (b) the criminal felony
conviction of, or a plea of guilty or nolo contendere; (c) the
material violation of Company policy; (d) the act of fraud or
dishonesty resulting or intended to result in personal enrichment
at the expense of the Company; (e) the gross misconduct in
performance of duties that results in material economic harm to the
Company; or (f) the material breach of the Employment Agreement by
Mr. Jagerson. “Good reason” includes demotion,
reduction in salary or benefits, and certain other
events.
Under Mr. Jagerson’s Change in Control Agreement, upon a
qualifying termination, he would be eligible to receive the
following, subject to offset by the amount of any severance
previously paid to him under any employment agreement with the
Company: (1) a lump sum severance payment equal to
seventy-five percent of his base salary, (2) cash payment
equal to the sum of (x) unpaid incentive compensation that has been
allocated or awarded to Mr. Jagerson for a completed fiscal year
preceding the date of the Qualifying Termination which is
contingent only upon the continued employment to a subsequent date
plus (y) a pro rata portion to the date of the Qualifying
Termination of his target bonus for the year calculated through the
date of the Qualifying Termination, (3) welfare benefit
continuation for a period of 6 months, (4) certain
post-retirement health care or life insurance benefits if Mr.
Jagerson would have become eligible for such benefits during the 24
months after the date of termination, (5) a lump sum payment equal
to all earned but unused paid time off days, and
(6) outplacement fees not to exceed $5,000. The Change in
Control Agreement defines “qualifying termination” as a
termination by the Company without cause or a termination by Mr.
Jagerson with good reason, in each case either concurrent with or
within 24 months following a change in control or a
termination by the Company without cause within six months
prior to a change in control if termination is in connection with
or in anticipation of the change in control. “Change in
control” is defined as a sale of all or substantially all of
the assets of the Company, a merger in which the shareholders of
the Company own less than 50% of the surviving entity, the
acquisition of 40% or more of the Company’s outstanding stock
by a single
person or a group, or the election of a majority of the
Company’s directors who consist of persons who were not
nominated by the Company’s prior Board.
“Cause” is defined as (i)
the deliberate and continued failure to devote substantially all
business time and best efforts to the performance of the Mr.
Jagerson’s duties; (ii) the deliberate engaging in gross
misconduct which is demonstrably and materially injurious to the
Company, monetarily or otherwise; or (iii) conviction of, or plea
of guilty or nolo contendere to, a felony or any criminal charge
involving moral turpitude. “Good reason” is defined in
the agreement to include demotion, reduction in salary or benefits,
and certain other events.
Compensation of Non-Employee Directors
The
following table summarizes the compensation paid to our
non-employee directors for 2017.
|
Name
|
Fees Earned or Paid in Cash(1)
|
|
|
|
Jacob J.
Berning
|
$15,500
|
$15,000
|
$30,500
|
|
Sardar
Biglari(3)
|
$1,500
|
$–
|
$1,500
|
|
Philip A.
Cooley(3)
|
$500
|
$–
|
$500
|
|
Michael C.
Howe(4)
|
$3,000
|
$–
|
$3,000
|
|
Rachael B.
Vegas
|
$16,000
|
$15,000
|
$31,000
|
|
F. Peter
Zaballos
|
$25,750
|
$30,000
|
$55,750
|
|
Steven R.
Zenz
|
$21,500
|
$15,000
|
$36,500
|
_____________________________
(1) Reflects
annual board retainer and fees for attending Board, committee and
conference call meetings earned during 2017.
(2) On June
23, 2017, each non-employee director received a grant of
unrestricted shares of the Company’s common stock pursuant to
our 2013 Omnibus Stock and Incentive Plan worth $15,000 for
directors and $30,000 for Chairman based on the closing price of
the Company’s common stock on the date of grant.
(3) Mr.
Biglari and Mr. Cooley resigned from the Board on March 1,
2017.
(4) Mr. Howe
did not stand for re-election at the 2017 Annual Meeting of
Shareholders.
For
2017, non-employee directors were eligible to receive an annual
cash retainer of $10,000 per year and the Chairman of the Board was
eligible to receive an additional annual cash retainer of $5,000.
Each such retainer is allocated to a director for the portion of
the year served in each role.
All
non-employee directors were eligible to receive $1,000 for each
Board meeting ($250 for each conference call meeting) that they
attended. In addition, the chair of each committee was eligible to
receive $1,000 for each in-person meeting of the committee over
which they presided ($500 for each conference call meeting).
Members of committees were eligible to receive $500 for each
committee meeting they attended in person on days separate from
regular Board meetings ($250 for each conference call
meeting).
In
2017, each non-employee director received a grant of shares of
common stock based on a target grant date fair value of $15,000,
with the Chairman receiving a fair value of $30,000. These equity
grants were made on June 23, 2017 pursuant to the 2013 Omnibus
Stock and Incentive Plan. Each non-employee director was granted
14,423 vested shares, and the non-employee Chairman was granted
28,846 vested shares, based on a closing price of $1.04 for a share
of the Company’s common stock on the date of grant as
reported by The Nasdaq Stock Market.
Outstanding Equity Awards at Fiscal Year End
The
following table sets forth summary information regarding the
outstanding equity awards held by our Named Executive Officers at
December 31, 2017, excluding Mr. Cherrey, who resigned on June 30,
2017 and had no outstanding equity awards at December 31,
2017.
|
|
|
|
|
|
Name
|
|
Grant
Date
|
Number
of Units of Stock That Have Not Vested
|
Market
Value of Units of Stock That Have Not Vested(1)
|
|
Kristine A.
Glancy
|
|
5/13/2016
|
80,000(2)
|
$95,120
|
|
|
|
9/19/2017
|
15,000(3)
|
$17,835
|
|
Jeffrey A.
Jagerson
|
|
9/1/2017
|
60,000(4)
|
$71,340
|
________________________________
(1)
Based on closing
price as of December 29, 2017, which was $1.899 per
share.
(2) Shares of
restricted stock scheduled to vest in four equal annual
installments on each of the next four anniversaries of the grant
date.
(3)
Restricted stock units scheduled to vest in two equal installments
on the first and second anniversaries of the grant
date.
(4) Shares
of restricted stock scheduled to vest in two equal installments on
the first and second anniversaries of the grant date.
Tax and Accounting Considerations
Section 162(m) of the Internal Revenue Code as in effect
prior to the enactment of tax reform legislation in
December 2017 generally disallowed a tax deduction to public
companies for compensation of more than $1 million paid in any
taxable year to each “covered employee,” consisting of
the chief executive officer and the three other highest paid
executive officers employed at the end of the year (other than the
chief financial officer). Performance-based compensation was exempt
from this deduction limitation if the Company met specified
requirements set forth in the Code and applicable Treasury
Regulations.
Recent tax reform legislation retained the $1 million
deduction limit, but repealed the performance-based compensation
exemption from the deduction limit and expanded the definition of
“covered employees,” effective for taxable years
beginning after December 31, 2017. “Covered
employees” now also includes any person who served as chief
executive officer or chief financial officer at any time during a
taxable year, as well as any person who was ever identified as a
covered employee in 2017 or any subsequent year. Consequently,
compensation paid in 2018 and later years to our named executive
officers in excess of $1 million will not be deductible unless
it qualifies for transitional relief applicable to certain binding,
written performance-based compensation arrangements that were in
place as of November 2, 2017.
The deductibility of some types of compensation payments can depend
upon the timing of the vesting or an executive’s exercise of
previously granted equity awards. Interpretations of and changes to
applicable tax laws and regulations as well as other factors beyond
our control also can affect deductibility of compensation. The
Compensation Committee considers the anticipated tax treatment to
the Company when determining executive compensation and seeks to
preserve the deductibility of compensation payments and benefits to
the extent reasonably practicable, consistent with our compensation
policies and what we believe is in the best interests of our
shareholders. The Committee continues to believe that shareholder
interests are best served if its discretion and flexibility in
structuring and awarding compensation is not restricted, even
though some compensation awards may have resulted in the past, and
are expected to result in the future, in non-deductible
compensation expenses to the Company. The Committee’s ability
to continue to provide a competitive compensation package to
attract, motivate and retain the Company’s most senior
executives is considered critical to the Company’s success
and to advancing the interests of its shareholders.
Section 409A of the Internal Revenue Code also affects the
payments of certain types of deferred compensation to key employees
and includes requirements relating to when payments under such
arrangements can be made, acceleration of benefits, and timing of
elections under such arrangements. Failure to satisfy these
requirements will generally lead to an acceleration of the timing
for including deferred compensation in an employee’s income,
as well as certain penalties and interest. Our nonqualified
deferred compensation arrangements meet the effective requirements
of Section 409A as required by law or regulation.
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
The
following table presents certain information regarding our equity
compensation plans, the 2003 Stock Plan, the 2013 Omnibus Plan and
our Employee Stock Purchase Plan, as of December 31,
2017.
|
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
Number
of Securities Remaining Available for Future Issuance under Equity
Compensation Plans
|
|
Equity compensation
plans approved by security holders
|
366,346(1)
|
$2.41
|
382,721(2)
|
|
Equity compensation
plans not approved by security holders
|
–
|
–
|
–
|
|
Total
|
366,346
|
$2.41
|
382,721
|
________________________
(1)
Includes 130,464
outstanding common stock options under the 2013 Omnibus Plan and
235,882 outstanding common stock options under the 2003 Stock Plan.
We ceased issuing awards under the 2003 Stock Plan upon approval of
the 2013 Omnibus Plan in 2013.
(2)
Includes 85,721
shares available for issuance under our Employee Stock Purchase
Plan and 297,000 shares available for issuance pursuant to future
awards under the 2013 Omnibus Plan. The Company maintains the
Employee Stock Purchase Plan, pursuant to which eligible employees,
including named executive officers, can contribute up to ten
percent of their base pay per year to purchase shares of Common
Stock. The shares are issued by the Company at a price per share
equal to 85% of market value on the first day of the offering
period or the last day of the plan year, whichever is
lower.
Security Ownership of Certain Beneficial Owners and
Management
The
following table presents information provided to the Company as to
the beneficial ownership of common stock as of April 27, 2018, by:
(i) persons known to the Company to hold 5% or more of such stock;
(ii) each of the directors of the Company; (iii) each of the Named
Executive Officers; and (iv) by all directors and current executive
officers as a group. The address of each director and executive
officer is 8799 Brooklyn Boulevard, Minneapolis, Minnesota 55445.
Beneficial ownership includes shares available for purchase under
options and subject to settlement under restricted stock units
within 60 days after April 27, 2018. Unless otherwise indicated,
each person had sole voting power and sole investment power for all
such shares beneficially held.
Name and Address of Beneficial Owner
|
Amount and Nature of
Beneficial Ownership(1)
|
|
|
Shareholders / Shareholder Groups
|
|
|
|
Air
T, Inc., et al.
|
3,825,182(2)
|
32.0%
|
|
3524
Airport Road
|
|
|
|
Maiden,
NC 28650
|
|
|
|
|
|
|
|
Cable
Car Capital LLC
|
1,014,943(3)
|
8.5%
|
|
1449
Washington Street #6
|
|
|
|
San
Francisco, CA 94109
|
|
|
|
|
|
|
|
Renaissance
Technologies LLC
|
642,000(4)
|
5.4%
|
|
800
Third Avenue
|
|
|
|
New
York, NY 10022
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
Jacob
J. Berning
|
19,742
|
*
|
|
Kristine
A. Glancy
|
103,446
|
*
|
|
Rachael
B. Vegas
|
14,423
|
*
|
|
F.
Peter Zaballos
|
59,614(5)
|
*
|
|
Steven
R. Zenz
|
50,778(5)
|
*
|
|
Jeffrey
A. Jagerson
|
60,000
|
*
|
|
Mark
A. Cherrey
|
9,677
|
*
|
|
|
|
|
|
All
current directors and executive officers as a group (6
persons)
|
308,003(6)
|
2.6%
|
_________________________________
(1)
Does not include
1,266 and 949 common stock equivalents held by Mr. Berning and Mr.
Zenz, respectively, under the Insignia Systems Inc. Deferred
Compensation Plan for Directors. These common stock equivalents
carry no voting rights until settled. The common stock equivalents
are eligible to be settled (i) in shares of common stock upon a
separation from service or (ii) in cash upon an earlier change in
control.
(2)
Based on Amendment
No. 11 to Schedule 13D filed with the SEC on March 26, 2018 by Air
T, Inc., Groveland Capital LLC, and Nicholas J. Swenson,
reporting ownership as of March 23, 2018 and Form 4 filed April 5,
2018 on behalf of Air T, Inc., reporting changes in ownership
through April 4, 2018. Mr. Swenson is the Chief Executive Officer
and a director of Air T. Air T, Inc. has sole dispositive and
voting power over 3,391,014 shares and disclaims beneficial
ownership of the securities held by Groveland. Groveland owns
422,000 shares and each of Groveland and Mr. Swenson share
dispositive and voting power over all 422,000 shares. Mr. Swenson
personally owns 12,168 shares. Groveland disclaims beneficial
ownership of the securities held by Air T.
(3)
Based on Amendment
No. 4 to Schedule 13D filed with the SEC on January 18, 2018 by
Cable Car Capital LLC and Jacob Haft Ma-Weaver, reporting ownership
as of January 16, 2018. Mr. Ma-Weaver is the Managing Member and
investment advisor of Cable Car Capital LLC.
(4)
Based on Amendment
No. 1 to Schedule 13G filed with the SEC on February 14, 2018 by
Renaissance Technologies LLC and Renaissance Technologies Holdings
Corporation, reporting ownership as of December 29, 2017. Shares
are beneficially owned by Renaissance Technologies Holdings
Corporation, which is a majority ownership of Renaissance
Technologies LLC.
(5)
Includes 13,661
shares subject to options.
(6)
Includes 27,322
shares subject to options.
Item 13. Certain Relationships and Related Transactions and
Director Independence
The SEC
has specific disclosure requirements covering certain types of
transactions that we engage in with our directors, executive
officers or other specified parties. The Company receives an
informational questionnaire from each director and executive
officer that contains information about related-party transactions
between them and the Company. The Company’s Audit Committee
Charter assigns to the Audit Committee the responsibility to review
and approve all related-party transactions. The Audit Committee
reviews each related-party transaction to determine that it is fair
and reasonable to the Company, and that the price and other terms
included in any transaction are comparable to the terms that would
be included in an arms-length transaction between the Company and
an unrelated third party.
During
2017, we did not engage in any other transaction, or series of
similar transactions, to which we were a party, in which the amount
involved exceeded the lesser of $120,000 or one percent of the
average of our total assets at year-end for the last two completed
fiscal years in which any of our directors, executive officers,
beneficial owners of more than 5% of our common stock or members of
their immediate family had a direct or indirect material interest.
We do not have any currently proposed transaction or series of
similar transactions.
Director Independence
The
business and affairs of the Company are conducted under the
direction of the Board in accordance with the Company’s
Articles of Incorporation and Bylaws, the Minnesota Business
Corporations Act, federal securities laws and regulations,
applicable Nasdaq Rules, Board committee charters and the
Company’s Code of Ethics. Members of the Board are informed
of the Company’s business through discussions with
management, by reviewing Board meeting materials provided to them
and by participating in meetings of the Board and its committees,
among other activities. Our corporate governance practices are
summarized below.
Election to the Board of Directors
All of
the Company’s directors are elected annually. Our Bylaws, as
amended, provide that the Board shall consist of between two and no
more than nine members, as designated by resolution of the Board
from time to time.
Majority Independent Board
The
listing rules of the Nasdaq Stock Market (“Nasdaq
Rules”) require that a majority of our Board be
“independent directors” as that term is defined in the
rules. Our Board has determined each of our three current Board
members to be “independent directors.”
Meetings of the Board of Directors and Director
Attendance
The
Board held sixteen meetings during 2017. Each director attended
more than 75% of all meetings of the Board and committees of the
Board on which he served. Although the Board does not have a policy
regarding attendance at the Company’s annual meetings of
shareholders, all three directors then serving on the Board
attended the 2017 Annual Meeting of Shareholders. Directors are
expected to attend substantially all the meetings of the Board and
the committees on which they serve, as well as the annual meeting
of shareholders, except for good cause. Directors who have
excessive absences without good cause will not be nominated for
re-election or, in extreme cases, will be asked to resign or be
removed.
Leadership Structure of the Board of Directors
Our
Board does not have a policy regarding the separation of the roles
of Chief Executive Officer and Chairman of the Board. The Board
believes it is in the best interests of the Company to make such a
determination periodically, based on available information. The
positions of Chief Executive Officer and Chairman of the Board are
not currently held by the same person. Kristine Glancy serves as
our President and Chief Executive Officer and F. Peter Zaballos
serves as Chairman of the Board. Under this structure, our
President and Chief Executive Officer and other senior management
under her supervision are primarily responsible for setting the
strategic direction of the Company and managing the day-to-day
leadership and performance of the Company, while the Chairman
provides guidance to the President and Chief Executive Officer and
senior management, sets the agenda for meetings of the Board and
presides over meetings of the full Board. The Board believes the
current leadership structure strengthens the role of the Board in
fulfilling its oversight responsibility and fiduciary duties to the
Company’s shareholders while recognizing the day-to-day
management direction of the Company by Ms. Glancy and other senior
management.
Board Role in Risk Oversight
The
Company faces a number of risks, including financial,
technological, operational, strategic and competitive risks.
Management is responsible for the day-to-day management of risks we
face, while the Board has responsibility for the oversight of risk
management. In its risk oversight role, the Board ensures that the
processes for identification, management and mitigation of risk by
our management are adequate and functioning as
designed.
Our
Board is actively involved in overseeing risk management, and it
exercises its oversight both through the full Board and through its
standing committees. The standing committees exercise oversight of
the risks within their areas of responsibility, as disclosed in the
descriptions of each of the committees above and in the charters of
each of the committees.
The
Board and its standing committees receive information used in
fulfilling their oversight responsibilities through the
Company’s executive officers and its advisors, including our
legal counsel, our independent registered public accounting firm,
and the compensation consultants we have engaged from time to time.
At meetings of the Board, management makes presentations to the
Board regarding our business strategy, operations, financial
performance, fiscal year budgets, technology and other matters.
Many of these presentations include information relating to the
challenges and risks to our business and the Board and management
actively engage in discussion on these topics. Each of the
committees also receives reports from management regarding matters
relevant to the work of that committee. These management reports
are supplemented by information relating to risk from our advisors.
Additionally, the Board receives reports by each committee chair
regarding the committee’s considerations and actions. In this
way, the Board also receives additional information regarding the
risk oversight functions performed by each of these
committees.
Item 14. Principal Accountant
Fees and Services
Fees Paid to Independent Registered Public Accounting
Firm
The
following table shows the fees for services rendered by our
independent registered public accounting firm, Baker Tilly Virchow
Krause, LLP (“Baker Tilly”), for the years ended
December 31, 2017 and 2016.
|
|
|
|
|
Audit
Fees(1)
|
$120,600
|
$122,300
|
|
Audit-Related
Fees(2)
|
7,700
|
10,400
|
|
All Other
Fees(3)
|
–
|
6,000
|
|
Total
|
$128,300
|
$138,700
|
______________________________
(1)
Audit fees
represent fees for professional services provided in connection
with the audit of the Company’s financial statements, review
of quarterly financial statements, and filings of registration
statements related to shares reserved for issuance under the
Company’s stock plans.
(2)
Audit-related fees
represent fees for the audit of the Company’s 401(k)
plan.
(3) All
other fees represent fees for non-audit related services associated
with the one-time special dividend of $0.70 per share declared on
November 28, 2016.
Audit Committee Pre-Approval Policy
The
Company’s Audit Committee Charter states that before the
principal accountant is engaged by the Company to render audit or
non-audit services in any year, the engagement will be approved by
the Company’s Audit Committee. All of the fees paid in 2017
and 2016 were pre-approved by the Company’s Audit
Committee.
PART IV.
Item 15. Exhibits and Financial
Statement Schedules
|
|
|
|
|
|
|
Exhibit Number
|
|
Description
|
|
Incorporated by Reference To
|
|
|
|
|
|
|
|
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
|
|
|
|
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
|
|
|
+ Filed
herewith.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment
No. 1 to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Dated: April
30, 2018
|
Insignia
Systems, Inc.
|
|
|
|
|
|
|
By:
|
/s/
Kristine A. Glancy
|
|
|
|
Kristine
A. Glancy
|
|
|
|
President
and Chief Executive Officer
|
|