Schedule 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
Filed by
the Registrant þ
Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement |
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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 |
DIGITILITI, 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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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
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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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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
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TABLE OF CONTENTS
September 3, 2010
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of Digitiliti, Inc.
(Digitiliti), to be held on October 14, 2010, at 1:00 p.m., Central Daylight Time, at the offices
of Digitiliti, Inc., located at 266 East 7th Street, St. Paul, Minnesota 55101. The
enclosed Notice of Annual Meeting of Stockholders and the Proxy Statement describe the matters to
be acted upon at the meeting. During the meeting, we will also review status of current operations
and provide an opportunity for you to ask questions.
The Proxy Statement contains a more extensive discussion of each proposal, and therefore you
should read the Proxy Statement carefully. The Board of Directors unanimously recommends that you
vote FOR all proposals. Only stockholders of record at the close of business on August 16,
2010, are entitled to receive notice of and vote at the meeting.
The Board encourages stockholders to attend the meeting in person. Whether or not you plan to
attend the meeting, you are urged to execute your proxy card. If you attend the meeting, you may
vote in person even if you have previously returned a proxy to us by mail.
Please see the Notice of Annual Meeting of Stockholders, the Important Notice Regarding
Availability of Proxy Materials for the Shareholder Meeting to be Held on October 14, 2010, the
Proxy Statement and form of Proxy (collectively, the Proxy Materials) which follow this letter,
as well as the 2009 Annual Report.
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Sincerely, |
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/s/ Roy A. Bauer
ROY A. BAUER
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Chairman, President and Chief Executive Officer |
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 14, 2010
To the Stockholders of Digitiliti Inc.:
The 2010 Annual Meeting of Stockholders of Digitiliti, Inc. a Delaware corporation
(Digitiliti), will be held on October 14, 2010, starting at 1:00 p.m., Central Daylight Time, at
our office located at 266 East 7th Street, St. Paul, MN 55101, for the following
purposes:
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To elect five directors to serve until the next annual meeting of stockholders, and
until their successors are duly elected and qualified; |
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To approve the 2010 long-term incentive plan; |
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To approve an amendment to our Certificate of Incorporation to increase the number
of authorized shares from 110,000,000 to 135,000,000 shares and allocate the additional
shares as common stock; |
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To ratify the appointment of Malone and Bailey, LP to serve as independent
registered public accounting firm for the year ending December 31, 2010; and |
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To transact such other business as may properly come before the annual meeting and
any and all adjournments or postponements thereof, all in accordance with the
accompanying Proxy Statement. |
Our Board of Directors has chosen the close of business on August 16, 2010, as the record date
for determining the stockholders entitled to notice of, and to vote at, the annual meeting and any
adjournments or postponements thereof, all in accordance with the accompanying Proxy Statement.
A form of photo identification and, if not a record holder, proof of ownership of common stock
or Series A Preferred Stock of Digitiliti, or its predecessor, will be requested for admission to
the 2010 annual meeting.
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By Order of the Board of Directors, |
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/s/ William M. McDonald
WILLIAM M. McDONALD
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Secretary |
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St. Paul, Minnesota
September 3, 2010
IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON OCTOBER 14, 2010
In accordance with the Securities and Exchange Commission rules, we are using the Internet as our
primary means of furnishing our proxy materials to our stockholders. Rather than sending
stockholders a paper copy of our proxy materials, we are sending them a notice with instructions
for accessing the materials via the Internet and voting via mail. We believe this method of
distribution will make the proxy distribution process more efficient and less costly.
The Notice of Annual Meeting of Stockholders, the Important Notice Regarding Availability of Proxy
Materials for the Shareholder Meeting to be Held on October 14, 2010, this Proxy Statement, the
form of proxy, and our 2009 Annual Report will be available on or about September 3, 2010 at
www.digitiliti.com/proxy2010. References to our company website are not intended to and do not
incorporate information found generally on our company website into the Proxy Statement.
To receive a paper copy of our proxy statement, form of proxy, and our 2009 Annual Report,
stockholders must submit the request through one of the following methods on or before October 1,
2010:
By Internet: www.digitiliti.com/proxy2010
By telephone: 1-888-292-3396
By email: proxy2010@digitiliti.com if requesting materials by email, please clearly
identify the reports you are requesting and the name and address to which the materials
should be sent.
There is no charge to request a paper copy of materials.
DIGITILITI, INC.
PROXY STATEMENT
FOR THE 2010 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 14, 2010
This Proxy Statement and related documents are furnished by our Board of Directors for the
solicitation of proxies from the holders of our common stock and Series A Convertible Preferred
Stock in connection with the annual meeting of stockholders to be held at our offices located at
266 East 7th Street, St. Paul, MN 55101, on October 14, 2010, at 1:00 p.m. CDT, subject
to any adjournment or postponement thereof. The Important Notice Regarding Availability of Proxy
Materials for the Shareholder Meeting to be Held on October 14, 2010 and Notice of Annual Meeting
of Stockholders will be mailed to stockholders starting on or about September 3, 2010. A form of
photo identification and, if not a record holder, proof of ownership of common stock or Series A
Convertible Preferred Stock of Digitiliti, Inc., or our predecessor Storage Elements, Inc., will be
requested for admission to the 2010 annual meeting.
Householding of Proxy Materials
We may send only one copy of the Important Notice Regarding Availability of Proxy Materials for the
Shareholder Meeting to be Held on October 14, 2010 to eligible stockholders who share a single
address unless we have instructions to the contrary from any stockholder at that address. This
practice, known as householding, reduces printing and mailing costs. If you or another
stockholder of record sharing your address would like to receive an additional copy of the Notice
Regarding the Availability of Proxy Materials, we will promptly deliver it to you upon your request
in one of the following manners:
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By sending a written request by mail to: |
William M. McDonald, Secretary
Digitiliti, Inc.
266 East 7th Street
St. Paul, MN 55101
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By calling William M. McDonald, Secretary, at (651) 925-3220 |
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By emailing a request to proxy2010@digitiliti.com |
If you are receiving multiple mailings at one address and would like to request householded
mailings, you may do so by contacting William McDonald at (651) 925-3220.
VOTING AND REVOCABILITY OF PROXIES
Record Date and Share Ownership
Owners of record of shares of our common stock and Series A Convertible Preferred Stock at the
close of business on August 16, 2010 will be entitled to vote at the annual meeting or adjournments
or postponements thereof. As of the close of business on August 16, 2010, there were outstanding
64,745,000 shares of common stock and 752,262 shares of Series A Convertible Preferred Stock, which
are the only classes of securities of the Company entitled to vote at the annual meeting (all such
shares being referred to herein as the shares and all holders thereof being referred to as our
stockholders). Each share of common stock is entitled to one vote. Each share of Series A
Convertible Preferred Stock is entitled to five votes, and will vote together as a single class
with the holders of common stock. There is no cumulative voting for the election of directors.
We will make available a list of holders of record of our common stock and Series A Convertible
Preferred Stock as of the close of business on August 16, 2010 for inspection during normal
business hours at our offices, 266 East 7th Street, St. Paul, MN 55101, for ten business days
prior to the annual meeting. This list will also be available at the annual meeting. For
information regarding security ownership by management and by the beneficial owners of more
than 5% of our securities, see Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
1
Important Notice Regarding Availability of Proxy Materials for the Shareholder Meeting to be Held
on October 14, 2010
The Company is making proxy materials for the annual meeting available over the Internet.
Therefore, the Company is mailing to its stockholders a notice about the Internet availability of
the proxy materials instead of a paper copy of the proxy materials. The notice is entitled
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be
Held on October 14, 2010. All stockholders receiving the notice will have the ability to access
the proxy materials over the Internet and request to receive a paper copy of the proxy materials by
mail. Instructions on how to access the proxy materials over the Internet or to request a paper
copy may be found on this notice.
Voting Shares
At least ten (10) days following the Important Notice Regarding Availability of Proxy Materials for
the Shareholder Meeting to be Held on October 14, 2010, stockholders will receive a Proxy card and
postage-paid return envelope. Stockholders can ensure that their shares are voted at the annual
meeting by signing, dating and returning the Proxy in the return envelope. All proxies are to be
submitted either by mail or in person at the annual meeting. If shares are held in street name,
such stockholders will receive instructions from their broker, bank or other nominee that they must
follow to have their shares voted.
All properly executed written proxies delivered pursuant to this solicitation (and not revoked
later) will be voted at the annual meeting in accordance with the instructions of the stockholder.
Below is a list of the different votes stockholders may cast at the annual meeting pursuant to this
solicitation.
In voting on the election of directors to serve until the next annual meeting of stockholders, or
until their successors are duly elected and qualified, stockholders may vote in one of the
following ways:
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in favor of a nominee, or |
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withhold vote as to a nominee. |
In voting on (i) approval of the 2010 Long-Term Incentive Plan, (ii) approval of an amendment to
the Certificate of Incorporation to increase the number of authorized shares from 110,000,000 to
135,000,000 shares and allocate such additional shares as common stock, and (ii) the ratification
of the appointment of Malone and Bailey, LP as our independent registered public accounting firm
for the year ending December 31, 2010, stockholders may vote in one of the following ways:
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in favor of the proposal, |
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against the proposal, or |
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abstain from voting on the proposal. |
Stockholders should specify their choice for each matter on the proxy. If no specific instructions
are given, proxies which are signed and returned will be voted FOR the election of the directors as
set forth herein, FOR the approval of the 2010 Long-Term Incentive Plan, FOR the approval of the
amendment to the Certificate of Incorporation to increase the number of authorized shares from
110,000,000 to 135,000,000 shares and allocate such additional shares as common stock, and FOR the
ratification of the appointment of Malone and Bailey, LP as our independent registered public
accounting firm for the year ending December 31, 2010.
In addition, if other matters not described in this proxy statement are properly presented at the
annual meeting, the persons named in the proxy will vote in accordance with their best judgment
with respect to such matters. This includes a motion to adjourn or postpone the annual meeting to
solicit additional proxies. We do not currently know of any other matters to be presented at the
annual meeting.
2
Revocability
A stockholder submitting a proxy has the power to revoke it at any time prior to its exercise by
voting in person at the annual meeting, by giving our Secretary a written notice bearing a later
date than the proxy or by giving a later dated proxy. Attendance at the annual meeting will not in
itself constitute a revocation of a proxy. Any written notice revoking a proxy should be sent to
our Secretary, William McDonald, at Digitiliti, Inc., 266 East 7th Street, St. Paul, MN 55101.
Quorum
A quorum must be present at the annual meeting. According to our bylaws, the holders of a majority
of the outstanding shares entitled to vote at the annual meeting, represented in person or by
proxy, constitute a quorum. If a stockholder has returned valid proxy instructions or attends the
annual meeting in person, that stockholders shares will be counted for the purpose of determining
whether there is a quorum, even if the stockholder wishes to abstain from voting on some or all
matters introduced at the annual meeting. Abstentions and broker non-votes (shares held by a
broker, bank or other nominee that does not have authority, either express or discretionary, to
vote on a particular matter) are counted for determining whether there is a quorum. If a quorum is
not present, the annual meeting may be adjourned from time to time until a quorum is present.
Required Vote
A plurality of the votes cast is required for the election of the directors to serve until the next
annual meeting of stockholders, or until their successors are duly elected and qualified. This
means that the director nominee with the most votes for a particular slot is elected for that slot.
Only votes for or withheld affect the outcome. Abstentions are not counted for purposes of the
election of directors.
Approval of the 2010 Long-Term Incentive Plan will require the affirmative vote of a majority of
the votes cast on this proposal, either in person or by proxy, assuming a quorum is present. For
this proposal, abstentions and broker non-votes will not be counted as votes for or against this
proposal and will have no effect on the outcome of the vote.
Approval of the amendment to our Certificate of Incorporation to increase the number of authorized
shares from 110,000,000 to 135,000,000 shares and allocate such additional shares as common stock
will require the affirmative vote of a majority of the voting power of our common stock and Series
A Convertible Preferred Stock entitled to vote at the annual meeting of stockholders. For this
proposal, abstentions and broker non-votes will have the effect of a vote against this proposal.
Approval of the ratification of the appointment of Malone and Bailey, LP as our independent
registered public accounting firm for the year ending December 31, 2010 will require the
affirmative vote of a majority of the votes cast at the annual meeting, either in person or by
proxy, assuming a quorum is present. For this proposal, abstentions and broker non-votes will not
be counted as votes for or against this proposal and will have no effect on the outcome of the
vote.
Attending the Meeting
If you were a stockholder as of the close of business on August 16, 2010, you may attend the annual
meeting in person. However, if your shares are held by a broker, bank or other nominee (i.e., in
street name), you will need proof of ownership to be admitted to the meeting. A recent brokerage
statement or a letter from a bank or broker are examples of proof of ownership. If you want to
vote your shares held in street name in person at the annual meeting, you will have to get a
written proxy in your name from the broker, bank or other nominee who holds your shares.
Expenses of Solicitation
The expense of solicitation of proxies will be borne by us. We have not retained a proxy solicitor
to solicit proxies; however, we may choose to do so prior to the annual meeting. Proxies may also
be solicited by certain of our directors, officers and other employees, without additional
compensation, personally or by written communication, telephone or other electronic means. We are
required to request brokers, banks and nominees who hold shares in their name to furnish our proxy
material to beneficial owners of the shares and will reimburse such brokers, banks and nominees for
their reasonable out-of-pocket expenses in so doing.
3
OTHER MATTERS
The Board of Directors is not aware of any business other than the aforementioned matters that will
be presented for consideration at the annual meeting. If other matters properly come before the
annual meeting, it is the intention of the person(s) named in the enclosed Proxy to vote thereon in
accordance with his/their best judgment.
FINANCIAL STATEMENTS
Our consolidated financial statements for the year ended December 31, 2009 are included in our 2009
Annual Report to stockholders. Copies of the 2009 Annual Report will be available on our website on
or about September 1, 2010 and will be sent to our stockholders upon request. The annual report
does not form any part of the material for the solicitation of proxies.
STOCKHOLDER PROPOSALS FOR 2011 ANNUAL MEETING
Pursuant to the applicable rules under the Exchange Act, some stockholder proposals may be
eligible for inclusion in our 2011 proxy statement. Proposals by stockholders intended to be
included in our 2011 proxy statement must comply with all applicable requirements of Rule 14a-8
promulgated under the Exchange Act and must be submitted in writing to our Secretary no later than
April 11, 2011, or a reasonable time before we begin to print and mail our proxy materials.
Stockholders interested in submitting such a proposal are advised to contact knowledgeable counsel
with regard to the detailed requirements of such securities rules and to review applicable
provisions in our bylaws.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of August 16, 2010 regarding beneficial
ownership of our common stock and Series A Convertible Preferred Stock by (i) each person known to
us to beneficially own more than 5% of our common stock or Series A Convertible Preferred Stock,
(ii) each of our directors and, (iii) each of our named executive officers and (iv) all the
directors and named executive officers as a group. Except as otherwise indicated, each stockholder
named has sole voting and investment power with respect to such stockholders shares.
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Aggregate Number of |
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Combined Percent |
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Name and Address of |
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Beneficially Owned |
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Percent of |
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of Voting |
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Beneficial Owner(1) |
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Title of Class |
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Shares(2)(3) |
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Class(2)(3)(4) |
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Power(4)(5) |
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Common(4) |
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Preferred |
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Roy A. Bauer, Director, President, CEO |
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Common Stock |
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1,836,991 |
(6) |
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2.8 |
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2.65 |
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Convertible |
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William McDonald, CFO |
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Common Stock |
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338,271 |
(7) |
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* |
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Series A |
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Convertible |
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Preferred Stock |
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Karen Gilles Larson, Director |
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Common Stock |
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106,250 |
(8)(11) |
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* |
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* |
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Series A |
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Convertible |
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Kedar R. Belhe, Director |
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Common Stock |
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1,466,964 |
(9)(11) |
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2.25 |
% |
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2.33 |
% |
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Series A |
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28,367 |
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3.77 |
% |
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Convertible |
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Aggregate Number of |
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Combined Percent |
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Name and Address of |
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Beneficially Owned |
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Percent of |
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of Voting |
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Beneficial Owner(1) |
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Title of Class |
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Shares(2)(3) |
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Class(2)(3)(4) |
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Power(4)(5) |
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Common(4) |
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Preferred |
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R.M. Rickenbach, Director |
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Common Stock |
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81,250 |
(10)(11) |
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* |
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* |
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Series A |
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0 |
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Convertible |
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Preferred Stock |
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Benno G. Sand, Director |
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Common Stock |
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81,250 |
(10)(11) |
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* |
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* |
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Series A |
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0 |
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Convertible |
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Preferred Stock |
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All Directors and Executive Officers |
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Common Stock |
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3,910,976 |
(11)(12) |
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5.90 |
% |
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5.79 |
% |
as a group (6 people) |
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Series A |
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28,367 |
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3.77 |
% |
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Convertible |
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Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Indicates less than 1% |
|
(1) |
|
All of these individuals share the same business address: 266 East 7th Street, St.
Paul, MN 55101. |
|
(2) |
|
Based on 64,745,000 shares of our common stock outstanding and 752,262 shares of our Series A
Convertible Preferred Stock outstanding as of August 16, 2010. |
|
(3) |
|
The number of outstanding shares of common stock in footnote 2 excludes shares of our common
stock underlying outstanding convertible securities, including outstanding convertible debt and
Series A Convertible Preferred Stock, and underlying outstanding options, warrants and other rights
to purchase shares of common stock. In addition, the number of shares of common stock assumes that
all of the stockholders of our predecessor, Storage Elements, Inc. have exchanged their respective
shares of Storage Elements for shares of our common stock pursuant to the merger between Digitiliti
and Storage Elements effective August 17, 2007 (the Storage Merger). |
|
(4) |
|
Includes outstanding stock options and warrants that are exercisable within sixty days of
August 16, 2010, in accordance with Rule 13d-3(d) under the Exchange Act. |
|
(5) |
|
Based on one vote per share of common stock and five votes per share of Series A Convertible
Preferred Stock. |
|
(6) |
|
Includes: (a) 156,250 shares of common stock issuable upon exercise of an outstanding option,
to the extent exercisable within 60 days of August 16, 2010; (b) 500,000 shares of common stock
issuable upon exercise of an outstanding and fully-vested warrant; (c) 332,286 shares held jointly
by Mr. Bauer and his spouse; and (d) 192,206 shares of common stock earned by Mr. Bauer pursuant to
his employment agreement, but which have not yet been issued. |
|
(7) |
|
Includes 275,006 shares of common stock issuable upon exercise of two outstanding options, to
the extent exercisable within 60 days of August 16, 2010. |
|
(8) |
|
Consists of 106,250 shares of common stock issuable upon exercise of an outstanding option, to
the extent exercisable within 60 days of August 16, 2010. |
|
(9) |
|
Includes: (a) 106,250 shares of common stock issuable upon exercise of an outstanding option,
to the extent exercisable within 60 days of August 16, 2010; and (b) 325,000 shares of common stock
issuable upon exercise of outstanding and fully-vested warrants. |
|
(10) |
|
Consists of 81,250 shares of common stock issuable upon exercise of an outstanding option, to
the extent exercisable within 60 days of August 16, 2010. |
|
(11) |
|
Does not account for any automatic grants of options to non-employee directors pursuant to the
proposed 2010 Long-Term Incentive Plan if such plan is approved by stockholders under Proposal 2. |
5
PROPOSAL 1
ELECTION OF DIRECTORS
Our stockholders are asked to act upon a proposal to elect the director nominees. Our Board of
Directors is presently composed of five directors. The term of the current directors will expire at
the annual meeting. The five nominees for election to the Board of Directors are the current
members of our Board of Director: Roy A. Bauer, Kedar R. Belhe, Karen Gilles Larson, R. M.
Rickenbach and Benno G. Sand. Each director is to serve until the next annual meeting of our
stockholders and until his or her successor has been duly elected and qualified, or until the
directors earlier death, resignation or termination. All the nominees have indicated a
willingness to serve if elected.
Should a nominee become unable to serve for any reason, or for good cause will not serve, our Board
of Directors may, unless the Board of Directors by resolution provides for a lesser number of
directors, designate a substitute nominee, in which event the persons named in the enclosed proxy
will vote proxies that would otherwise be voted for all named nominees for the election of such
substitute nominee or nominees.
Vote Required
In order to approve this proposal, the affirmative vote of a plurality of the shares represented at
the annual meeting, in person or by proxy, assuming a quorum is present, must be received in favor
of this proposal.
Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted
FOR approval of the election of the director nominees.
Cumulative voting does not apply in the election of directors. Proxies may not be voted for a
greater number of persons than the director nominees.
Recommendation of our Board of Directors
Our Board of Directors recommends a vote FOR the director nominees to hold office until the next
annual meeting of stockholders and until their successors have been duly elected and qualified.
Nominees for Director
Biographical and other information concerning our directors and the director nominees for election
at the annual meeting is set forth below.
|
|
|
|
|
|
|
Name |
|
Age |
|
Positions |
|
Board Member Since |
Roy A. Bauer |
|
65 |
|
Chairman of the Board, President and Chief
Executive Officer, Member Corporate
Governance and Nominating Committee |
|
Joined Board August 7, 2008
|
|
|
|
|
|
Elected Chairman October 2008
|
|
|
|
|
|
|
February 2009 President & CEO
|
|
|
|
|
|
|
September 2009 Corporate Governance and Nominating Committee |
Kedar R. Belhe |
|
48 |
|
Director, Member Audit and Finance Committee,
Chair of Compensation Committee |
|
May 2009 |
Karen Gilles Larson |
|
68 |
|
Director, Chair of the Governance and
Nominating Committee, Member Audit and
Finance Committee, Member Compensation Committee |
|
May 2009 |
|
|
|
|
Former Chair of the Audit and Finance
Committee May 2009 until September 2009 |
|
|
R.M. Rickenbach |
|
70 |
|
Lead Director, Member Compensation
Committee, Member Corporate Governance and
Nominating Committee |
|
September 10, 2009 |
Benno G. Sand |
|
56 |
|
Director, Chair of the Audit and Finance Committee |
|
September 10, 2009, and between October 2008 to April 2009 |
6
Roy A. Bauer. From January 2007 to February 2009, Mr. Bauer was the CEO of Key Teknowledgy, a
management consulting firm based in Wisconsin specializing in strategy, business transformation,
and management development services for international clients. From May 2001 to January 2007, Mr.
Bauer held positions of Vice President and General Manager, Rochester Pemstar manufacturing Site;
Executive Vice President, Pemstar United States Operations; Executive Vice President, WW
Operations; Executive Vice President, Chief Operating Officer, and, ultimately, President and Chief
Operating Officer of Pemstar Corporation, a WW contract manufacturing and product development
company specializing in precision electro-mechanical devices, optical devices and computer systems.
Prior to that time, Mr. Bauer worked for IBM for 24 years and held various positions up to
executive level positions in both product development and manufacturing.
Mr. Bauer was nominated for election to our Board of Directors because of his specific experience
and proven expertise in the computer and storage industry and software development, as well as his
prior management experience in turning around distressed companies.
Kedar R. Belhe. Mr. Belhe was Senior Director of Business Development at St. Jude Medical (NYSE:
STJ), a medical device company, at its AF Division from 2004 to 2007 and at the CV Division from
2007 to 2008. At the
CV Division, Mr. Belhe was responsible for mergers and acquisitions and technology licensing
transactions. At the AF Division, he was responsible for technology strategy planning. He led
several initiatives of technology integration within the acquired businesses, as well as technology
partnerships with major external companies. Mr. Belhe was Senior Director of Technology
Development at St. Judes Daig Division from 1999 to 2004. Mr. Belhe is founder and current
President of Metamodix, a medical device startup company focused on metabolic disorders. He has
expertise in technical, financial and strategic assessment of high-technology value opportunities.
He earned a Bachelor of Science degree in Chemical Engineering from the University of Bombay, India
and a PhD in Chemical Engineering from Washington University in St. Louis. He also earned a Master
of Business Administration degree from Washington University in St. Louis. Mr. Belhe also serves on
the boards of Metamodix, Inc. and WF Industries, Inc., both private companies.
Mr. Belhe was nominated for election to our Board of Directors because of his specific experience
and proven expertise in product development and in raising capital.
Karen Gilles Larson. After nearly ten years as President and Chief Executive Officer of Synovis
Life Technologies (NASDAQ: SYNO), a publicly held medical device company, she retired in 2007. Ms.
Larson joined Synovis (at the time called Bio-Vascular, Inc.) in 1989 as its director of finance
and administration. She was promoted to the positions of Vice President of Finance, Chief
Financial Officer and Corporate Secretary. Ms. Larson filled those capacities until July of 1997,
when she was named President and Chief Executive Officer of Synovis. In August of 1997, Ms. Larson
was appointed to Synovis board of directors. She continues to serve as a Director of Synovis Life
Technologies. During her tenure at Synovis, Ms. Larson developed and executed a growth and
diversification strategy, built and mentored an executive team, and moved the Synovis stock listing
from the OTCBB to NASDAQ. Prior to joining Synovis, Ms. Larson was the Controller at VEE
Corporation and was an accountant with the firm of McGladrey, Hendrickson and Pullen (now called
RSM McGladrey). She earned a Bachelor of Arts Degree in Economics with a minor in Chemistry from
the University of Minnesota. Mr. Larson is also a graduate of the University of Minnesota, Carlson
School of Management Executive Development Center, Minnesota Executive program. The University of
Minnesota College of Liberal Arts has name her an Alumni of Notable Achievement. Between 1982 and
1983, she completed additional classes in accounting at the University of St. Thomas, the
equivalent of a major in accounting.
7
Ms. Gilles Larson was nominated for election to our Board of Directors because of her background in
financial management and her experience on other boards, as a former CEO of a publicly-held medical
technology company, in investor relations, taking companies from private to public, and SEC
reporting requirements.
R.M. Rickenbach. Mr. Rickenbach has executive experience managing businesses, start-up to large,
involved in technology products and services with a track record in both growth and turn-around
business situations. His background includes business strategy, optimizing operations and all
aspects of marketing. He is an experienced member of boards of directors involved with start-up
business, leading an IPO process, international operations, strategic partnering and merger and
acquisition activity. Until January 2009, he served as Chairman of the board of directors for
Comtrol Corporation, which designs, manufactures and markets a wide range of connectivity products.
Mr. Rickenbach served as Chairman and Chief Executive Officer of Applied Technology Consultants
(ATC), an emerging Learning Management Systems software developer. In 2005, ATC merged with
Compendium Corporation, and he served as a member of the board of directors of the combined
companies. He also led the Corporate Business Development for Fourth Shift Corporation, an ERP
software company. Mr. Rickenbach was Chairman and Chief Executive Officer of Government Technology
Services, Inc. (GTSI), Chantilly, Virginia. GTSI is a personal computer marketing company focused
in the Government sector. Prior to the tenure at GTSI, he held several executive and management
positions with Control Data Corporation. Mr. Rickenbach currently serves as a member of the board
of directors for Cyber Security Technologies, which develops and markets software that detects
illegal use of desktop computer networks. In addition, he is actively involved with family business
operations, MLR Ranch, a cattle ranching operation.
Mr. Rickenbach was nominated for election to our Board of Directors because of his specific
experience and proven expertise in the management of start up companies and as CEO of his own
company. Further, Mr. Rickenbach has had experience as chairman of other boards, has a strong
sales and marketing background, and strong experience in board process and procedure.
Benno G. Sand. Mr. Sand currently serves as Executive Vice President, Business Development and
Investor Relations and Secretary of FSI International, Inc. (NASDAQ: FSII) (FSI), a global
supplier of surface conditioning equipment and technology, serving integrated circuit (IC) and
microelectronics manufacturers, and has served in such positions since January 2000. Mr. Sand also
served as Chief Administrative Officer of FSI from January 1998 to December 1999, as Chief
Financial Officer from October 1990 to January 1998, and as Vice President of Finance from October
1987 to January 1992. Mr. Sand is a director of various FSI-owned United States and foreign
subsidiaries, as well as Apprecia Technology, Inc. and public company Sajan, Inc. [SAJA.PK]. He
also serves on the audit committee of Sajan. From October 2008 to April 2009, Mr. Sand had
previously served on our Board of Directors.
Mr. Sand was nominated for election to our Board of Directors because of his specific experience
and proven expertise in financial reporting and processes, SEC requirements, and participation in
other private and public company boards. Further, Mr. Sand has experience in the mergers and
acquisition process and investor relations.
8
CORPORATE GOVERNANCE, BOARD OF DIRECTORS AND COMMITTEES
Leadership Structure
Mr. R. M. Rickenbach serves as the Lead Director. In this role, he provides guidance to the Board
and to the Chairman and CEO. He leads executive meetings of the independent Board members. During
each regularly scheduled Board meeting, there is time allocated for the executive meeting, and
feedback provided by the Lead Director to the Chairman/CEO.
Roy Bauer is the Chairman of the Board and CEO. Mr. Bauer prepares the Board meeting schedule,
leads all full Board meetings, prepares the agenda, organizes special Board meetings outside the
normal schedule, and coordinates written action approvals.
We believe this leadership structure is effective for a 5-person Board as it provide adequate
checks and balances between the independent directors and the company management relative to
evaluation of performance, addressing conflicts of interest, and guiding the Board of Director
process.
Director Independence
Our Board of Directors has determined that four of our five current directorsMessrs. Belhe,
Rickenback and Sand and Ms. Larsonare independent under the applicable standards of the Nasdaq
Stock Market, and each member of our Audit and Finance Committee is independent pursuant to Rule
10A-3 of the Securities and Exchange Act of 1934.
Board Meetings
Our Board of Directors held four regularly scheduled meetings and seven special meetings during
2009, and acted by unanimous written consent in lieu of a meeting eight times, as permitted by the
applicable state law, during 2009. During 2009, all directors attended 75% or more of the meetings
of the Board of Directors and committees to which they were assigned.
In order to control expenses, and in light of the fact that very few stockholders attend our annual
or special meetings of stockholders in person, we do not require directors to attend stockholder
meetings. Our directors are invited, and frequently one or more of our directors is in attendance
at such meetings. At the 2009 annual meeting of stockholders, two of our directors, Messrs. Bauer
and Belhe, were present.
We have a standing Audit and Finance Committee, Compensation Committee and Corporate Governance and
Nomination Committee, each of which is more fully described below.
Committees
Audit and Finance Committee.
The Board of Directors established an Audit and Finance Committee in accordance with Section
3(a)(58)(A) of the Exchange Act. The Audit and Finance Committee currently consists of Board
members Kedar R. Belhe Karen Gilles Larson, and Benno G. Sand, with Mr. Sand serving as chair of
the committee since September 2009. All of the committee members are independent as defined in Rule
5605(a)(2) of the Nasdaq Marketplace Rules and as defined by the Sarbanes-Oxley Act of 2002. Our
Board of Directors has determined that we have two Audit and Finance Committee financial experts as
defined in Item 407(d)(5)(ii) of Regulation S-K: Messrs. Belhe and Sand.
The committee was established for the purpose of overseeing our accounting and financial reporting
and disclosure processes and the audits of our financial statements. The committee recommends for
approval by our Board of Directors an independent registered public accounting firm to audit our
consolidated financial statements for the fiscal year in which they are appointed, and monitors the
effectiveness of the audit effort, the internal and financial accounting organization and controls
and financial reporting. The duties of the committee are also to oversee and evaluate the
independent registered public accounting firm, to meet with the independent registered public
accounting firm to review the scope and results of the audit, to approve non-audit services
provided to us by our independent certified public accountants, and to consider various accounting
and auditing matters related to our system of internal controls, financial management practices and
other matters. The committee complies with the provisions of the Sarbanes-Oxley Act of 2002. A copy
of the Audit and Finance Committee charter is available on our website at www.digitiliti.com.
9
The Audit and Finance Committee commonly meets at least quarterly to review and approval the
financial reports and to discuss accounting, reporting and internal control matters, and other
pertinent matters as they arise. The Audit and Finance Committee also discusses auditing issues via
telephone conference and during regularly scheduled Board meetings, as appropriate, after which
time the conversations are incorporated into Boards minutes. The committee held four meetings
during 2009.
Compensation Committee.
The Board of Directors established a Compensation Committee. The Compensation Committee currently
consists of Board members Karen Gilles Larson, R.M. Rickenbach, and Kedar R. Belhe, who serves as
Chair. All of the committee members are independent as defined in Rule 5605(a)(2) of the Nasdaq
Marketplace Rules and as defined by the Sarbanes-Oxley Act of 2002.
The committee was established for the purpose of overseeing that the executive officers of
Digitiliti and its wholly owned subsidiary, Storage Elements, and directors of Digitiliti are
compensated effectively in a manner consistent with the compensation strategy of Digitiliti,
internal equity considerations, competitive practice, and the requirements of the appropriate
regulatory bodies. The Compensation Committee sets all levels of compensation for the executive
officers. For executive officers other than the CEO, this committee reviews, analyzes and makes a
determination of compensation based on recommendations from the CEO. Determinations are based on
criteria which include the performance of Digitilitis accomplishment of key financial and
strategic objectives, and the successful development of management. This committee is responsible
for conducting an assessment of the performance of the Chief Executive Officer at least annually,
reviewing and approving Digitilitis variable pay plans, overseeing any incentive compensation and
equity-based compensation plans for employees, review and approve employment agreements or
severance agreements and other duties as may be assigned. A copy of the Compensation Committee
charter is available on our website at www.digitiliti.com.
The committee has the authority to delegate any of its responsibilities to one or more
subcommittees made up solely of Board members as the committee may from time to time deem
appropriate. The committee may ask members of management, employees, outside counsel, or others
whose advice and counsel are relevant to the issues then being considered by the committee to
attend any meetings and to provide such pertinent information as the committee may request. The
committee has not engaged compensation consultants during the year 2009 to determine or recommend
the amount or form of executive and director compensation. The committee has read consultant
reports prepared for similar companies and has spoken with experts regarding compensation in the
past.
This committee commonly meets prior to Board meetings, pending pertinent agenda items. This
committee also discusses compensation issues via telephone conference and during regularly
scheduled Board meetings, after which time the conversations are incorporated into Boards minutes.
The committee held four meetings during 2009.
Corporate Governance and Nomination Committee.
The Board of Directors established a Corporate Governance and Nomination Committee. The Corporate
Governance and Nomination Committee currently consists of Board members Roy A. Bauer, R.M.
Rickenbach, and Karen Gilles Larson, serving as Chair. The current slate of director nominees were
recommended to the Corporate Governance and Nomination Committee by our Chief Executive Officer,
security holders and independent investment advisors.
The committee was established for the purpose of overseeing the identification, evaluation, and
nomination of Board members for election. The committee also has the responsibility for evaluating
the performance of the Board and Board committees. The committee oversees all matters of corporate
governance. Currently, the committee submits nominations for election to fill vacancies on the
Board to the entire Board of Director for its consideration. A copy of the Corporate Governance and
Nomination Committee charter is available on our website at www.digitiliti.com.
10
Our goal is to assemble a Board of Directors that brings together a diverse variety of perspectives
and skills derived from high quality business and professional experience. In evaluating potential
directors, the committee considers the following factors:
|
|
|
the appropriate size of our Board of Directors; |
|
|
|
our needs with respect to the particular talents and experience of our directors; |
|
|
|
the knowledge, skills and experience of nominees, including experience in
desirable vertical markets such as financial, legal, medical or education or public
companies, in light of prevailing business conditions and the knowledge, skills and
experience already possessed by other members of the Board of Director; |
|
|
|
educational and practical experience; |
|
|
|
familiarity with the information technology industry; and |
|
|
|
the desire to balance the benefit of continuity with the periodic injection of a
fresh perspective that can be provided by new Board members. |
This committee meets at least twice a year, and holds additional meetings when pertinent matters
arise. This committee also discusses governance issues via telephone conference and during
regularly scheduled Board meetings, after which time the conversations are incorporated into the
Boards minutes. The committee held 4 meetings during 2009.
Qualifications of Candidates for Election to the Board
Our Board of Directors takes a critical role in guiding our strategic direction, and it oversees
the management of us. When candidates for our Board of Directors are considered, they are evaluated
based upon various criteria. Director candidates for our Board of Directors are considered for
vacant seats if they (i) are independent, in accordance with applicable law and stock exchange
listing standards, (ii) demonstrate high ethical standards, professionalism, and integrity in their
personal and professional dealings, (iii) are willing to commit themselves to their duties as
members of our Board of Directors and its various committees and to their responsibilities to us,
(iv) possess the appropriate knowledge and understanding of fundamental financial statements, (v)
have substantial relevant business and technological experience, (vi) provide a diverse set of
skills, backgrounds and experiences in order to provide varying perspectives, (vii) have no
identified conflicts of interest with us, (viii) have not been convicted in a criminal proceeding
other than traffic violations during the ten years before the date of selection, and (ix) are
willing to comply with our code of ethics. We retain the right to modify these minimum
qualifications from time to time. Exceptional candidates who do not meet all of these criteria may
still be considered.
Process for Identifying and Evaluating Candidates for Election to the Board
The role of the Corporate Governance and Nomination Committee is to review the qualifications and
backgrounds of any candidates for our Board of Directors, its current members, as well as the
overall composition of the Board. In the case of any director candidates, the questions of
independence and financial expertise are important to determine what roles the candidate can
perform, and the Corporate Governance and Nomination Committee will consider whether the candidate
meets the applicable independence standards and the level of the candidates financial expertise.
Any new candidates will be interviewed, and the Corporate Governance and Nomination Committee will
approve the final nominations. Our chairman of the Board, acting on behalf of the Corporate
Governance and Nomination Committee, will extend the formal invitation to the selected candidates.
11
Stockholder Nominations
Stockholders may nominate director candidates for consideration by the Corporate Governance and
Nominating Committee by writing to our Secretary, who will forward the nomination to the chairman
of the Corporate Governance and Nominating Committee. The submission must provide the candidates
name, biographical data and qualifications, including five-year employment history with employer
names and a description of the employers business; whether such individual can read and understand
fundamental financial statements; other board memberships (if any); and such other information as
is reasonably available and sufficient to enable the Corporate Governance and Nominating Committee
to evaluate the minimum qualifications stated above under the section of this proxy statement
entitled Qualifications of Candidates for Election to the Board. The submission must be
accompanied by a written consent of the individual to stand for election if nominated by the
Corporate Governance and Nominating Committee and to serve if elected by the stockholders. If a
stockholder nominee is eligible, and if the nomination is proper, the Corporate Governance and
Nominating Committee then will deliberate and make a decision as to whether the candidate will be
appointed and subsequently submitted to our stockholders for a vote. The Corporate Governance and
Nominating Committee will not change the manner in which it evaluates candidates, including the
applicable minimum criteria set forth above, on the basis of whether the candidate was recommended
by a stockholder.
Executive Sessions of the Board
Our Board of Directors has adopted a formal policy of meeting in executive session, with only
independent directors being present, on a regular basis and at least two times each year. The Board
of Directors met in executive session four times during 2009.
Stockholder Communications
Our Board of Directors believes that it is important for us to have a process whereby our
stockholders may send communications to our Board. Accordingly, stockholders who wish to
communicate with our Board of Directors or a particular director may do so by sending a letter to
William M. McDonald, Secretary, at 266 East 7th Street, St. Paul, MN 55101. The mailing
envelope must contain a clear notation indicating that the enclosed letter is a Stockholder-Board
Communication or Stockholder-Director Communication. All such letters must identify the author
as a stockholder and clearly state whether the intended recipients are all members of our Board of
Directors or only certain specified individual directors. Mr. McDonald copies all such letters and
circulates them to the appropriate director or directors.
DIRECTOR COMPENSATION
Below is the compensation received by members of our Board of Directors in 2009, except that the
compensation for Roy A. Bauer, Daniel J. Herbeck (former director and executive officer) and Brad
D. Wenzel (former director and executive officer) is disclosed under the section titled Executive
Compensation.
DIRECTOR COMPENSATION FOR FISCAL YEAR 2009
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees |
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
Earned or |
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
Deferred |
|
|
All Other |
|
|
|
|
|
|
Paid in |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Compensation |
|
|
Compensation |
|
|
|
|
Name |
|
Cash ($) |
|
|
($) |
|
|
($)(7) |
|
|
($) |
|
|
Earnings ($) |
|
|
($) |
|
|
Total ($) |
|
Kedar R. Belhe (1) |
|
|
|
|
|
|
|
|
|
$ |
122,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
122,353 |
|
Karen Gilles Larson (2) |
|
|
|
|
|
|
|
|
|
$ |
122,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
122,353 |
|
R.M.Rickenbach (3) |
|
|
|
|
|
|
|
|
|
$ |
31,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,983 |
|
Benno G. Sand (4) |
|
|
|
|
|
|
|
|
|
$ |
31,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,983 |
|
Jonathan S. Miner (5) |
|
|
|
|
|
|
|
|
|
$ |
11,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,483 |
|
Pamela J. Miner (6) |
|
|
|
|
|
|
|
|
|
$ |
11,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,483 |
|
|
|
|
(1) |
|
On May 14, 2009, Mr. Belhe was granted a five-year option to purchase 225,000
shares of our common stock, exercisable at $0.385 per share, and vests over a
period of three years based on his continued service as a director. On April 22,
2010, this option was cancelled and replaced with a new option with identical
terms due to errors in the grant of the original option. |
|
(2) |
|
On May 14, 2009, Ms. Gilles Larson was granted a five-year option to purchase
225,000 shares of our common stock, exercisable at $0.385 per share, and vests
over a period of three years based on her continued service as a director. On
April 22, 2010, this option was cancelled and replaced with a new option with
identical terms due to errors in the grant of the original option. |
12
|
|
|
(3) |
|
On September 10, 2009, Mr. Rickenback was granted a five-year option to purchase
225,000 shares of our common stock, exercisable at $0.385 per share, and vests
over a period of three years based on his continued service as a director. |
|
(4) |
|
On February 6, 2009, Mr. Sand was granted a ten-year option to purchase 225,000
shares of our common stock, exercisable at $0.385 per share, and vests over a
period of three years based on his continued service as a director. When he
departed from the Board in April 2009, this option was cancelled unvested pursuant
to its terms. On September 10, 2009, when Mr. Sand rejoined the Board, he was
granted a five-year option to purchase 225,000 shares of our common stock,
exercisable at $0.385 per share, and vests over a period of three years based on
his continued service as a director. |
|
(5) |
|
On February 6, 2009, Mr. Miner was granted a ten-year option to purchase 100,000
shares of our common stock. Upon his departure from the board, the option was
cancelled unvested pursuant to its terms. |
|
(6) |
|
On February 6, 2009, Ms. Miner was granted a ten-year option to purchase 100,000
shares of our common stock. Upon her departure from the board, the option was
cancelled unvested pursuant to its terms. |
|
(7) |
|
The value of the stock options is calculated in accordance with FASB ASC Topic 718. |
EXECUTIVE OFFICERS
As of the date of this report, each of the persons below currently serves as one of our executive
officers:
|
|
|
|
|
|
|
Name |
|
Age |
|
Positions |
|
Officer Since |
Roy A. Bauer |
|
65 |
|
Chairman of the Board, President and Chief Executive Officer |
|
Elected Chairman October 2008 |
|
|
|
|
|
|
Appointed as President & CEO February 2009 |
William M. McDonald |
|
46 |
|
Chief Financial Officer and Secretary |
|
April 2008 |
The following is a summary of the background and business experience of our executive officers
other than Mr. Bauer (whose background and business experience is described in connection with his
status as a director):
William M. McDonald. Mr. McDonald has over 25 years experience in public accounting. Having assumed
the position of Controller in June 2007, the Company promoted him to the position of Chief
Financial Officer in April 2008. Prior to joining Digitiliti, Mr. McDonald held a senior level
position in the Commercial Loan division of North Star bank in St. Paul, Minnesota, and served as
Chief Financial Officer for Kath Fuel Oil Co. Mr. McDonald holds a Public Accounting certificate
(inactive status), as well as a degree of Juris Doctor from William Mitchel College of Law.
13
EXECUTIVE COMPENSATION
The following table provides information relative to compensation paid to each person who served as
a named executive officer anytime during the fiscal years ended December 31, 2008 and December 31,
2009.
|
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|
|
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
Deferred |
|
|
All Other |
|
|
|
|
Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Compen- |
|
|
Compen- |
|
|
Compen- |
|
|
|
|
Principal |
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
sation |
|
|
sation |
|
|
sation |
|
|
Total |
|
Position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($)(1) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Roy A. Bauer, CEO |
|
|
12/31/09 |
|
|
$ |
175,000 |
(2) |
|
$ |
10,000 |
(3) |
|
|
0 |
|
|
$ |
240,053 |
(4) |
|
$ |
40,000 |
(3) |
|
|
0 |
|
|
|
0 |
|
|
$ |
465,053 |
|
|
|
|
12/31/08 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
William McDonald, |
|
|
12/31/09 |
|
|
$ |
84,977 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
12,879 |
(5) |
|
$ |
97,856 |
|
CFO |
|
|
12/31/08 |
|
|
$ |
93,091 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
154,167 |
|
|
|
0 |
|
|
|
0 |
|
|
|
3,850 |
(5) |
|
$ |
251,108 |
|
Brad D. Wenzel Former |
|
|
12/31/09 |
|
|
$ |
77,118 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
417,522 |
(7) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
494,640 |
|
CEO and Director(6) |
|
|
12/31/08 |
|
|
$ |
231,230 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
231,230 |
|
Larry D. Ingwersen, |
|
|
12/31/09 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Former CEO(8) |
|
|
12/31/08 |
|
|
$ |
191,382 |
(9) |
|
|
0 |
|
|
|
0 |
|
|
$ |
1,425,000 |
(10) |
|
|
0 |
|
|
|
0 |
|
|
$ |
54,093.16 |
(9) |
|
$ |
1,670,475 |
|
Daniel J. Herbeck, |
|
|
12/31/09 |
|
|
$ |
34,623 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
34,623 |
|
Former President, CEO |
|
|
12/31/08 |
|
|
$ |
104,868 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
135,953 |
(12) |
|
$ |
240,821 |
|
and Director
(11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Savage, Former |
|
|
12/31/09 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
President(15) |
|
|
12/31/08 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
79,883 |
(14) |
|
|
0 |
|
|
|
0 |
|
|
$ |
44,000 |
(15) |
|
$ |
123,883 |
|
Roderick D. Johnson, |
|
|
12/31/09 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Former COO(16) |
|
|
12/31/08 |
|
|
$ |
191,382 |
(9) |
|
|
0 |
|
|
|
0 |
|
|
$ |
1,425,000 |
(17) |
|
|
0 |
|
|
|
0 |
|
|
$ |
54,093.16 |
(9) |
|
$ |
1,670,475 |
|
|
|
|
(1) |
|
The value of the stock options and warrants are calculated in accordance with FASB ASC
Topic 718. |
|
(2) |
|
Under the terms of his employment agreement, Mr. Bauer is paid an annual salary of
$175,000. In 2009, $131,222.85 of his salary was paid in common stock of Digitiliti, or
656,249 shares, at $0.20 per share, pursuant to the terms of his employment agreement.
Starting October 1, 2009, his agreement provides that his salary would be payable monthly
half in cash ($7,291.67) and half in shares of common stock at $.20 per share (36,458
shares). The price at which the shares were issued to Mr. Bauer in 2009, as described
above, was above the fair market value of the shares on each date the shares issued. |
|
(3) |
|
Under the terms of his employment agreement, Mr. Bauer was granted a one time
performance bonus of $50,000, earned if Mr. Bauer was Chief Executive Officer of Digitiliti
on December 31, 2009. A portion of the bonus, $10,000, was paid to Mr. Bauer in 2010
pursuant to his request. However, we are still obligated to pay Mr. Bauer the remaining
$40,000. |
14
|
|
|
(4) |
|
On February 6, 2009, Mr. Bauer was granted a ten-year option (valued at $25,836) to
purchase 225,000 shares of our common stock, exercisable at $0.385 per share, and vests
over a period of three years based on his continued service as a director. Under the terms
of his employment agreement, Mr. Bauer was granted a signing bonus of a ten-year warrant
(valued at $82,432) to purchase 500,000 shares of our common stock at $0.20 per share
(which was above the market value of our stock at the time of grant), vested in full. In
addition, if Mr. Bauer achieved various performance goals by certain dates in 2010, Mr.
Bauer would be granted three additional warrants to purchase: 250,000 shares at $0.35 per
share (valued at $44,313), 250,000 shares at $0.50 per share (valued at $43,736) and
250,000 shares at $.50 per share (valued at $43,736). Two of the warrant incentives were
not granted due to the performance goals not being achieved by the deadline, but one
warrant incentive is still outstanding. |
|
(5) |
|
During the two year period for 2008 and 2009, we paid McDonald Professional Services
$12,879 and $3,850, respectively. McDonald Professional Services is owned by William M.
McDonald, and the amounts paid represent fees for professional services rendered during
those years. |
|
(6) |
|
Mr. Wenzel served as CEO from January 2005 until April 17, 2008, when he resigned as
CEO and was replaced by Mr. Ingwersen. Mr. Wenzel continued as an officer and director of
Digitiliti until April 15, 2009, when he resigned from such positions. |
|
(7) |
|
Under the terms of his severance arrangement, Mr. Wenzel was issued a three-year
warrant to purchase 300,000 shares of our common stock, exercisable at $0.385 per share,
valued at $42,527 in connection with his assignment of intellectual property and
confidentiality agreement. In addition, the arrangement provided that we would convert an
outstanding option to acquire 1,500,000 shares of common stock, exercisable at $0.385 per
share, which would have expired according to its terms, into a warrant to purchase the same
number of shares at the same exercise price but for an extended period until April 15,
2015. The new warrant was valued at $374,995. |
|
(8) |
|
Mr. Ingwersen served as CEO from April 17, 2008 until October 13, 2008, when he
resigned and was replaced by Mr. Herback. |
|
(9) |
|
Messrs. Ingwersen and Johnson collectively agreed to receive in lieu of an aggregate of
$100,227.68 of salary earned by both in 2008: (i) a warrant each to purchase 180,000 shares
of our common stock, exercisable at $0.385 per share, until June 1, 2014 (each valued at
$41,082), and (ii) 252,500 shares of our common stock each (based on the fair market value
of $0.25 per share on date of issuance, valued at $63,125). The difference between the
amount of salary owed to both of $100,227.68 and the value of the aggregate payments to
both of $208,414 was $108,186.32, which is reflected under the column All Other
Compensation. |
|
(10) |
|
Mr. Ingwersen was granted a ten-year option to purchase 1,425,000 shares of our common
stock, exercisable at $0.385 per share, and vested over a period of two years. |
|
(11) |
|
Mr. Herbeck served as acting President, CEO and a director from October 17, 2008 until
February 16, 2009, when he resigned and was replaced by Mr. Bauer. |
|
(12) |
|
Prior to becoming CEO, Mr. Herbeck provided services to us as a consultant. As a
consultant, Mr. Herbeck earned $105,343.82 in 2008, but agreed to receive in lieu of such
compensation, 600,862 shares of common stock, based on $0.20 per shares the market value
of our stock on the date of issuance, and a five year warrant to purchase 100,000 shares
of our common stock, exercisable at $.35 per share. The value of such warrant was $15,781. |
|
(13) |
|
Mr. Savage served as President until April 17, 2008, when he resigned. He resigned as a
director on January 16, 2009. |
|
(14) |
|
Mr. Savage was granted a five-year option to purchase 225,000 shares of our common
stock, exercisable at $0.35 per share. |
|
(15) |
|
Mr. Savage provided services as President pursuant to a management agreement with M2
Capital. In 2008, M2 Capital was paid $44,000 in management fees in connection with Mr.
Savages services to us. |
|
(16) |
|
Mr. Johnson served as COO until October 13, 2008. |
|
(17) |
|
Mr. Johnson was granted a ten-year option to purchase 1,425,000 shares of our common
stock, exercisable at $0.385 per share, and vested over a period of two years. |
15
Executive Employment Arrangements with Named Executive Officers
On October 30, 2009, we entered into an employment agreement with Roy A. Bauer, our Chief Executive
Officer. Under this agreement, we agreed to pay Mr. Bauer an annual base salary of $175,000; a
one-time performance bonus of $50,000 based on Mr. Bauer continuing to be our Chief Executive
Officer on December 31, 2009; signing bonus of a fully-vested, five-year warrant to purchase
500,000 shares of our common stock, exercisable at $0.20 per share. In addition, contingent on
achieving certain performance goals in 2010, we agreed to issue Mr. Bauer three warrants to
purchase 250,000 shares of our common stock each. Conditions for two of the warrants were not met
within the required deadlines, and so were not issued. The last warrant, conditioned on building
management capabilities and implementing an orderly CEO transition plan by December 31, 2010, would
be exercisable at $.50 per share if issued. The agreement also provides that Mr. Bauers salary
from February 9, 2009 through September 30, 2009 would be paid in shares of our common stock
(546,875 shares) based on $0.20 per share, and that from October 1, 2009 onward, his monthly salary
would be payable half in cash and half in shares of common stock, based on $0.20 per share.
We do not have a formal employment agreement or arrangement with William M. McDonald, our Chief
Financial Officer.
Severance Arrangements with Named Executive Officers
In April 2009, we entered into a severance arrangement with Brad D. Wenzel, one of our former Chief
Executive Officers, upon his resignation. Under this arrangement, Mr. Wenzel would be paid
severance equal to six months salary, payable in accordance with our current payroll practice. If
we had sold our Pharaoh Enterprise Online Data Protection and Backup operations (Pyramid) within
12 months, Mr. Wenzel would have been entitled to 2.5% of the base price we receive from the sale.
In consideration for Mr. Wenzel entering into a confidential agreement and an agreement to assign
all his rights to intellectual property conceived by Mr. Wenzel during his employment to us, we
issued him a three-year warrant to purchase 300,000 shares of our common stock at $0.385 per share.
Under this arrangement, we also agreed to exchange his five-year option granted on July 23, 2007 to
purchase 1,500,000 shares at $0.385 per share, which would have terminated in connection with his
resignation, into a new five-year warrant to purchase the same amount of shares at the same
exercise price, so that he would have the ability to exercise for five years after his resignation.
Pension Benefits
None of our named executive officers are covered by a pension plan or other similar benefit plan
that provides for payments or other benefits at, following, or in connection with retirement.
Nonqualified Deferred Compensation
None of our named executive officers are covered by a defined contribution or other plan that
provides for the deferral of compensation on a basis that is not tax-qualified.
16
OUTSTANDING EQUITY AWARDS AT YEAR END 2009
The following table provides information as of December 31, 2009 regarding unexercised stock
options, stock awards that have not vested and equity incentive plan awards for each person who
served as a named executive officer during the year ended December 31, 2009.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1) |
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
|
Plan |
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Value of |
|
|
Awards: |
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Shares |
|
|
Number of |
|
|
Market or |
|
|
|
|
|
|
|
|
|
|
|
Awards |
|
|
|
|
|
|
|
|
|
|
or Units |
|
|
or Units |
|
|
Unearned |
|
|
Payout Value |
|
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
of Stock |
|
|
of Stock |
|
|
Shares, |
|
|
of Unearned |
|
|
|
Securities |
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
That |
|
|
That |
|
|
Vested Units |
|
|
Shares, Units |
|
|
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
Option |
|
|
|
|
|
|
Have |
|
|
Have |
|
|
or Other |
|
|
or Other |
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Unexercised |
|
|
Exercise |
|
|
Option |
|
|
Not |
|
|
Not |
|
|
Rights That |
|
|
Rights That |
|
|
|
Options (#) |
|
|
Options (#) |
|
|
Unearned |
|
|
Price |
|
|
Expiration |
|
|
Vested |
|
|
Vested |
|
|
Have Not |
|
|
Have Not |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
Options (#) |
|
|
($) |
|
|
Date |
|
|
(#) |
|
|
($) |
|
|
Vested (#) |
|
|
Vested ($) |
|
Roy A. Bauer |
|
|
100,000 |
|
|
|
125,000 |
(2) |
|
|
|
|
|
$ |
0.385 |
|
|
|
02/06/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
(3) |
|
$ |
0.35 |
|
|
|
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
(4) |
|
$ |
0.50 |
|
|
|
|
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
(5) |
|
$ |
0.50 |
|
|
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William McDonald |
|
|
120,839 |
|
|
|
29,161 |
(6) |
|
|
|
|
|
$ |
0.35 |
|
|
|
07/23/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,336 |
|
|
|
66,664 |
(7) |
|
|
|
|
|
$ |
0.35 |
|
|
|
04/17/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel J. Herbeck |
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100,000 |
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0 |
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$ |
0.35 |
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02/10/2014 |
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(1) |
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None of our named executive officers exercised options in 2009. |
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(2) |
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The option vests as to 6,250 additional shares each month until it is fully vested on August
31, 2011. |
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(3) |
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Under Mr. Bauers employment agreement, if the commercial launch of Pyramid occurs no
later than March 31, 3010, Mr. Bauer would receive a warrant to purchase 250,000 shares of
our common stock. This condition was not met within the time frame, and so the warrant was
not earned and was not issued to Mr. Bauer. |
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(4) |
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Under Mr. Bauers employment agreement, if we raised a minimum of $3,000,000 of
additional capital by June 30, 2010, Mr. Bauer would receive a warrant to purchase 250,000
shares of our common stock. This condition was not met within the time frame, and so the
warrant was not earned and was not issued to Mr. Bauer. |
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(5) |
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Under Mr. Bauers employment agreement, if he builds management capabilities and
implements an orderly CEO transition plan by December 31, 2010, Mr. Bauer will receive a
warrant to purchase 250,000 shares of our common stock. |
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(6) |
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The option vests as to 4,167 additional shares each month until it is fully vested on
July 31, 2010. |
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(7) |
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The option vests as to 4,167 additional shares each month until it is fully vested on
April 30, 2011. |
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of our fiscal year 2009, there has not been, and there is not currently
proposed any transaction or series of similar transactions in which the amount involved exceeded or
will exceed the lesser of $120,000 or 1% of our total assets as of December 31, 2009 and 2008 and
in which any related person, including any current director, executive officer, holder of more than
5% of our capital stock, or entities affiliated with them, had a material interest.
Our Audit and Finance Committees charter requires review of any proposed related party
transaction, conflicts of interest and any other transaction for which independent review is
necessary or desirable to achieve the highest standards of corporate governance. It is also our
unwritten policy, which policy is not otherwise evidenced, for any related party transaction that
involves more than a de minimis obligation, expense or payment, to obtain approval by our Board of
Directors prior to our entering into any such transaction. During the fiscal year 2009, there have
not been any related party transactions or proposed related party transactions which were not
reviewed and approved by our Board of Directors.
Code of Conduct
On May 1, 2009, the Board of Directors approved a Code of Conduct which applies to our president,
chief executive officer, chief accounting officer or controller and any other person who performs
similar functions for us. The Code of Conduct was filed as an exhibit to our Annual Report on Form
10-K for the fiscal year ended December 31, 2008 and is available on our website at
www.digitiliti.com. The Audit and Finance Committee of our Board of Directors is responsible for
overseeing the Code of Conduct. Our Board of Directors must approve any waivers of the Code of
Conduct.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires our
executive officers and directors and persons who own more than ten percent (10%) of our common
stock to file initial reports of ownership (Form 3) and reports of changes in ownership (Form 4)
with the Securities and Exchange Commission, and to furnish copies of all such reports to us.
Based solely on review of the copies of such forms furnished to us, the following Section 16(a)
filings for our executive officers and directors were not timely filed for transactions that
occurred during fiscal year 2009 due to inadvertent oversight: Roy A. Bauer, 1 filing for 3
transactions; Kedar R. Belhe, 2 filings for 2 transactions; Karen Gilles Larson, 1 filing for 1
transaction; R.M. Rickenbach, 1 filing for 1 transaction; Benno G. Sand, 2 filings for 2
transactions; Jonathan S. Miner (former board member), 1 filing for 1 transaction; and Pamela J.
Miner (former board member), 1 filing for 1 transaction.
18
PROPOSAL 2
APPROVAL OF THE 2010 LONG-TERM INCENTIVE PLAN
On July 15, 2010, the Board of Directors adopted the Digitiliti, Inc. 2010 Long-Term Incentive Plan
(2010 Plan), subject to approval by stockholders. Our stockholders are asked to act upon a
proposal to approve the 2010 Long-Term Incentive Plan.
The 2010 Plan is intended to attract, motivate and retain key employees, directors and other
individuals and to provide additional incentives through stock ownership and other incentives.
Eligible participants in the plan are: (i) employees of the Company or an affiliate who are
selected by the committee to participate in the 2010 Plan, (ii) directors, and (iii) consultants,
agents, advisors and independent contractors who are selected by the committee to participate in
the 2010 Plan and render bona fide services to the Company or an affiliate. As of August 16, 2010,
there were approximately 18 employees eligible for participation, five directors, and one other
individual eligible for participation in the 2010 Plan. Except as described below, no awards have
been made or anticipated to be made under the 2010 Plan as of the date of this proxy statement.
The 2010 Plan permits the Company to grant awards in the form of Qualified Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock, Performance-Based Awards,
and Other Awards, each of which is defined below.
If the 2010 Plan is approved by the stockholders, existing and future non-employee directors shall
be granted the following options automatically:
NEW PLAN BENEFITS
2010 Long-Term Incentive Plan
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Number of |
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Exercise Price |
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Each Non-Employee Director: |
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Option Shares |
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($) |
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Vesting |
Initial Automatic Grant of Non-Qualified Options(1) |
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225,000 |
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(3) |
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(4) |
Additional Automatic Grants of Non-Qualified Options(2) |
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5,000 |
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(3) |
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(5) |
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(1) |
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Granted to each person who is first elected or appointed to serve as a non-employee director
after the effective date of the 2010 Plan. |
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(2) |
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Granted to each existing non-employee director on the anniversary date of the initial grant to
such non-employee director. Existing non-employee directors who are reelected under Proposal One of
this Proxy Statement shall receive an additional automatic grant of options on the date of the Plan
is approved by the Stockholders, and on such annual anniversary date thereafter. |
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(3) |
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100% of the Fair Market Value of one share of common stock on the date of grant. |
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(4) |
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Option vests as to one-third (1/3) of the shares on the first anniversary date of the date of
grant with the remainder vesting ratably monthly over the following two years if such non-employee
director is then a director of the Company. |
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(5) |
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Option vests 100% on the first anniversary date of the date of grant if such non-employee
director is then a director of the Company. |
Vote Required
In order to approve this proposal, the affirmative vote of a majority of the votes cast at the
annual meeting, in person or by proxy, must be received in favor of this proposal.
19
Unless a contrary choice is specified, proxies solicited by the Board of Directors will be voted
FOR approval of the 2010 Long-Term Incentive Plan.
Recommendation of Our Board of Directors
Our Board of Directors recommends a vote FOR the approval of the 2010 Long-Term Incentive Plan.
Set forth below is a summary description of the essential features of the 2010 Plan. This
description is subject to and qualified in its entirety by the full text of the 2010 Plan, which is
attached to this Proxy Statement as Annex A.
DESCRIPTION OF THE 2010 PLAN
Effective Date and Term
Subject to the approval by the stockholders under this proposal, the 2010 Plan will be effective as
of July 15, 2010 and will terminate on July 14, 2020 or at such earlier date as the Board shall
determine. The termination of the 2010 Plan will not affect any outstanding awards granted under
the 2010 Plan.
Number of Shares
Subject to permitted adjustments for certain events, the number of shares of common stock that may
be issued in connection with awards granted under the 2010 Plan is 5,000,000 shares. If: (i) an
Option or Stock Appreciation Right expires or is terminated, surrendered or canceled, without
having been fully exercised, (ii) a Restricted Stock is forfeited, or (iii) any other grant results
in shares of common stock not being issued, the shares covered by such award would again be
available for use under the 2010 Plan. In addition, if (A) any shares of common stock are used as
full or partial payment to the Company upon exercise of an Option or for any other award that
requires a payment to the Company or (B) any shares are surrendered or withheld to pay employment
taxes or other withholding obligations, such shares would again be available for use under the 2010
Plan.
The number of shares authorized under the 2010 Plan would be adjusted in the case of any stock
dividend, stock split, reverse stock split, reclassification, combination, exchange of shares or
other similar recapitalization of the Company. Upon such events, the number of shares or other
securities issued pursuant to an award under the 2010 Plan, the exercise price of any Option or
Stock Appreciation Right and other affected terms of an award issued under the 2010 Plan will be
appropriately adjusted.
Administration
The 2010 Plan will be administered by the Compensation Committee. If the Board has not appointed a
separate Compensation Committee, the 2010 Plan will be administered by the entire Board, unless the
Board appoints a committee of at least two but fewer than the entire Board. If the committee does
not include the entire Board, it shall serve at the pleasure of the Board, which may from time to
time appoint members in substitution for members previously appointed and fill vacancies, however
caused, in the committee. (The administrator of the 2010 Plan shall generally be referred to as the
committee.)
Subject to the express provisions of the 2010 Plan, the committee has complete authority to:
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determine when and to whom awards are granted and the type and amounts of awards; |
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determine the terms, conditions and provisions of, and restrictions relating to, each award granted; |
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determine the form and contents of all award agreements evidencing and describing an award; |
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determine whether awards will be settled, paid or exercised in cash, shares or other awards or
other property, or cancelled, forfeited or suspended; |
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interpret and construe the 2010 Plan and any award agreement evidencing an award; |
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establish, amend, waive and rescind any rules and regulations relating to the administration of the
2010 Plan; |
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take any other action which it considers necessary or advisable for the administration of the 2010
Plan and to carry out the purposes of the 2010 Plan; and |
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Correct any defect, supply any omission or reconcile any inconsistency in the 2010 Plan or in any
award or award agreement evidencing an award. |
20
Each member and former member of the committee and each person the committee delegates or has
delegated authority under the 2010 Plan will be entitled to indemnification by the Company against
any loss, liability, judgment, damages, costs and reasonable expense incurred by such person in
connection with any action taken, failure to take action or any determination made in good faith
under or with respect to the 2010 Plan.
Amendment
The Board of Directors may amend the 2010 Plan, and such amendment will not adversely affect any
award granted prior to such amendment. However, if an amendment would diminish any rights of a
participant pursuant to an award granted under the 2010 Plan, such amendment will not be made
without the consent of such participant.
Change in Control
In the event of a Change in Control, as defined below, all Options and Stock Appreciation Rights
shall become fully and immediately exercisable, any restrictions imposed on Restricted Stock shall
lapse, all awards shall be deemed fully earned for the performance periods, and other awards shall
become fully vested, exercisable or payable. In addition, the committee may take other actions it
deems necessary or advisable with respect to awards, including establishing, amending or waiving
the type, terms, conditions or duration of, or restrictions on, awards to provide for earlier,
later, extended or additional time for exercise and lifting restrictions and other modifications.
The committee may take such actions with respect to all participants, to certain categories of
participants or to only individual participants.
Change in Control means:
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a sale or other disposition of all or substantially all of the
Companys assets (in one transaction or in a series of related
transactions) to a person or entity that is not controlled by the
Company; |
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the liquidation or dissolution of the Company; |
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when a person becomes the owner of fifty percent (50%) or more of the
voting power of the Company who was not an owner of at least fifty
percent (50%) of such combined voting power as of the effective date
of the transaction; or |
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a merger or consolidation involving the Company in which the
stockholders of the Company prior to the effective date of the
transaction have ownership of less than 50% of the voting power of the
surviving entity immediately following the transaction. |
Eligibility for Awards
Awards may be granted to: (i) employees of the Company or an affiliate, including officers, (ii)
directors of the Company, and (iii) any consultants, agents, advisors or independent contractors
who are selected by the committee to participate in the 2010 Plan, who render bona fide services to
the Company or an affiliate that are not in connection with a capital raising transaction and who
do not promote or maintain a market for the Companys securities. Qualified Stock Options may be
granted only to employees of the Company or an affiliate of the Company.
Types of Awards
Under the 2010 Plan, the committee may grant a number of different types of awards. A summary of
the principal characteristics of various types of awards which may be granted is set forth below.
21
Stock Options. Two types of stock options to purchase our common stock may be granted under the
2010 Plan. Stock options intended to qualify for special tax treatment under Section 422 of the
Internal Revenue Code of 1986, as amended (Code), are referred to as Qualified Stock Options,
and options not intended to so qualify are referred to as Non-Qualified Stock Options.
For Qualified Stock Options, the option price shall be no less than 100% of the fair market value
of the shares of common stock on the date the option is granted. For Non-Qualified Stock Options,
the option price shall be determined by the committee but shall be no less than 85% of the fair
market value of the shares of common stock on the date the option is granted.
The other terms of options shall be determined by the committee. However, in the case of options
intended to qualify as Qualified Stock Options, such terms must meet all requirements of Section
422 of the Code. Currently, such requirements include:
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the option must be granted within 10 years from the adoption of the 2010 Plan; |
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the option may not have a term longer than 10 years; |
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the option must be not transferable other than by will or the laws of descent
and distribution and may be exercised only by the optionee during his/her
lifetime; |
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the maximum aggregate fair market value of common stock with respect to which
such options are first exercisable by an optionee in any calendar year may
not exceed $100,000; and |
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the option must be granted only to an employee. |
In addition, if the optionee owns more than 10% of the Companys common stock or more than 10% of
the total combined voting power of all classes of stock of the Company or an affiliate of the
Company, the option price must be at least 110% of fair market value of the shares of common stock
on the date the option is granted, and the option may not have a term longer than five years.
Director Options. Each non-employee director shall automatically be granted two types of
Non-Qualified Options, referred to as Director Options.
Each person who is first elected or appointed to serve as a non-employee director after the
effective date of the 2010 Plan and each person who is elected to serve as a non-employee director
at the 2010 annual meeting shall automatically be granted an initial Director Option to purchase
225,000 shares of common stock. Such Director Options shall have an exercise price equal to the
fair market value of the shares of common stock on the date the option is granted, vest as to
one-third (1/3) of the option shares on the first anniversary date of the date of grant with the
remainder vesting ratably monthly over the following two years if the person is then a director of
the Company, and expire five years after the date of grant.
In addition, each non-employee director shall automatically be granted an additional Director
Option on each anniversary date of the initial Director Option grant if the person is then a
director of the Company. Such Director Options shall grant the right to purchase 5,000 shares of
common stock, have an exercise price equal to the fair market value of the shares of common stock
on the date the option is granted, vest as 100% of the option shares on the first anniversary date
of the date of grant, and expire ten years after the date of grant.
In addition to the Directors Options, the committee may grant directors other awards under the 2010
Plan.
Stock Appreciation Rights. A Stock Appreciation Right (SAR) is the right to receive an amount
equal to the appreciation in value of one share of common stock from the time the SAR is granted
until the time the grantee elects to receive payment. Participants who elect to receive payment of
SARs may receive payment in common stock or in cash, or a combination of both as determined by the
committee.
22
When a SAR is granted in tandem with an option, the SARs exercise price shall not be less then the
exercise price of the option, the SAR shall cover the same number of shares of common stock covered
by the option or a fewer
number as the committee determines, and the SAR shall be subject to the same terms and conditions
as the option except for additional limitations as provided in the 2010 Plan or an award agreement
evidencing the award. In addition, the exercise of the option shall cause a correlative reduction
in the SARs; and the payment of SARs shall cause a correlative reduction in the shares under the
option. Payment may be made in common stock or in cash, or a combination of both as determined by
the committee.
Restricted Stock. Restricted Stock is common stock which is subject to forfeiture and transfer
restrictions until a period of time has elapsed and/or certain performance or other conditions have
been fulfilled. The committee may, at any time in its discretion, waive all or any part of any
restrictions applicable to a Restricted Stock grant. Unless the committee provides otherwise, and
subject to other limitations in the 2010 Plan, the person receiving an award of Restricted Stock
shall have all rights of a stockholder with respect to the shares subject to the Restricted Stock
award, including the right to receive dividends and the right to vote, from the date of grant.
Other Awards. In addition to the awards listed above, the committee may grant other incentives
payable in cash or in shares of common stock under the 2010 Plan as it determines to be in the best
interest of the Company, and subject such Other Awards to other terms and conditions as the
committee deems appropriate.
Performance-Based Awards. The committee may grant performance-based Options, Restricted Stock and
Other Awards. Generally, the rights under Performance-Based Awards shall be based upon the
attainment of written performance goals approved by the committee for a performance period set by
the committee.
General Provisions Applicable to Awards
Under the 2010 Plan, the following provisions are applicable to one or more types of awards:
Award Agreement and Terms of Award. The grant of any award will be evidenced by an award agreement
which describes the specific award granted and the terms, conditions and provisions of, and
restrictions relating to, such award. Any award agreement shall contain such provisions as the
committee shall determine to be necessary, desirable and appropriate.
Transferability. Unless otherwise specified in an award agreement or permitted by the committee,
each award shall be non-transferable other than by will or the laws of descent and distribution and
shall be exercisable during a participants lifetime only by him/her.
Payment. Upon the exercise of an option or in the case of any other award that requires a payment
to the Company, payment may be made either:
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in cash; or |
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with the consent of the committee: |
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by the tender of shares of common stock having an aggregate fair market value equal to the
amount due the Company, including a so-called cashless exercise; |
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in other property; |
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by the surrender of all or part of an award (including the award being exercised or acquired); or |
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by any combination of the foregoing, including cash. |
Withholding. At the time any award is granted under the 2010 Plan, vested or exercised, the Company
may require payment from the holder to satisfy any income withholding requirements applicable to
such distribution, vesting or exercise. If the committee consents, the holder may pay such amount
by delivering shares of common stock or have the Company withhold shares of common stock with a
fair market value equal to the amount of taxes owed.
Restrictions on Shares
The committee may require each person purchasing common stock pursuant to an option or receiving
common stock pursuant to any other form of award under the 2010 Plan to represent to and agree with
the Company in writing that
such person is acquiring the shares for investment and without a view to distribution or resale. In
addition, shares issued under the 2010 Plan may be subject to restrictive agreements between the
Company or an affiliate and the participant. The committee may require that a legend reflecting any
restriction described above be placed on any certificate for shares.
23
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE 2010 PLAN
The following is a summary of the U.S. federal income tax consequences of the 2010 Plan, based on
current income tax laws, regulations and rulings.
Qualified Stock Options
Subject to the effect of the Alternative Minimum Tax, discussed below, an optionee does not
recognize income on the grant of a Qualified Stock Option. If an optionee exercises a Qualified
Stock Option in accordance with the terms of the option and does not dispose of the shares acquired
within two years from the date of the grant of the option nor within one year from the date of
exercise, the optionee will not realize any income by reason of the exercise, and the Company will
be allowed no deduction by reason of the grant or exercise. The optionees basis in the shares
acquired upon exercise will be the amount paid upon exercise. Provided the optionee holds the
shares as a capital asset at the time of sale or other disposition of the shares, his/her gain or
loss, if any, recognized on the sale or other disposition will be capital gain or loss. The amount
of his/her gain or loss will be the difference between the amount realized on the disposition of
the shares and his/her basis in the shares.
If an optionee disposes of the shares within two years from the date of grant of the option or
within one year from the date of exercise (Early Disposition), the optionee will realize ordinary
income at the time of such Early Disposition which will equal the excess, if any, of the lesser of:
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the amount realized on the Early Disposition, or |
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the fair market value of the shares on the date of exercise, over the optionees basis in the shares. |
The Company will be entitled to a deduction in an amount equal to such income. The excess, if any,
of the amount realized on the Early Disposition of such shares over the fair market value of the
shares on the date of exercise will be long-term or short-term capital gain, depending upon the
holding period of the shares, provided the optionee holds the shares as a capital asset at the time
of Early Disposition. If an optionee disposes of such shares for less than his/her basis in the
shares, the difference between the amount realized and his/her basis will be a long-term or
short-term capital loss, depending upon the holding period of the shares, provided the optionee
holds the shares as a capital asset at the time of disposition.
The excess of the fair market value of the shares at the time the Qualified Stock Option is
exercised over the exercise price for the shares is an item of tax preference, or Stock Option
Preference, which is discussed below.
Non-Qualified Stock Options
Non-Qualified Stock Options do not qualify for the special tax treatment accorded to Qualified
Stock Options under the Code. Although an optionee does not recognize income at the time of the
grant of the option, the optionee recognizes ordinary income upon the exercise of a Non-Qualified
Option in an amount equal to the excess, if any, of the fair market value of the stock on the date
of exercise of the option over the amount of cash paid for the stock.
As a result of the optionees exercise of a Non-Qualified Stock Option, the Company will be
entitled to deduct as compensation an amount equal to the amount included in the optionees gross
income. The Companys deduction will be taken in the Companys taxable year in which the option is
exercised.
The excess of the fair market value of the stock on the date of exercise of a Non-Qualified Stock
Option over the exercise price is not a Stock Option Preference.
24
SARs
Recipients of SARs do not recognize income upon the grant of such rights. When a participant elects
to receive payment of a SAR, the participant recognizes ordinary income in an amount equal to the
fair market value of shares of common stock or cash received, and the Company is entitled to a
deduction equal to such amount.
Restricted Stock and Performance Shares
Grantees of Restricted Stock and Performance-Based Awards of shares do not recognize income at the
time of the grant of such awards. However, when shares of Restricted Stock become free from any
restrictions or when shares are paid under Performance-Based Awards, grantees recognize ordinary
income in an amount equal to the fair market value of the stock on the date all restrictions and/or
performance conditions are satisfied, less, if applicable, the amount paid for the stock.
Alternatively, the grantee of Restricted Stock may elect to recognize income upon the grant of the
Stock and not at the time the restrictions lapse, in which case the amount of income recognized
will be the fair market value of the Stock on the date of grant less any amount paid. The Company
will be entitled to deduct as compensation the amount includible in the grantees income in its
taxable year in which the grantee recognizes the income.
Cash Awards
Cash-based awards are taxable as ordinary income when received or constructively received by a
participant. The Company is entitled to deduct the amount of a cash-based award when the award is
taxable to the recipient.
Taxation of Preference Items
The Code imposes an Alternative Minimum Tax on a portion of the optionees alternative minimum
taxable income. Alternative minimum taxable income is determined by adding the optionees Stock
Option Preference and any other items of tax preference to the optionees adjusted gross income and
then subtracting certain allowable deductions and a specified exemption amount.
Change of Control
If there is an acceleration of the vesting or payment of awards and/or an acceleration of the
exercisability of stock options upon a Change of Control, all or a portion of the accelerated
benefits may constitute Excess Parachute Payments under Section 280G of the Code to certain
officers, stockholders, or highly-compensated individuals. The individual receiving an Excess
Parachute Payment incurs an excise tax of 20% of the amount of the payment in excess of the
individuals average annual compensation over the five calendar years preceding the year of the
Change of Control, and the Company is not entitled to a deduction for such payment.
Limitation on Deduction
Section 162(m) of the Code provides that no deduction will be allowed for certain remuneration with
respect to a covered employee to the extent such remuneration exceeds $1,000,000. Under the
regulations interpreting Code Section 162(m), a covered employee is any individual who, as of the
last day of the Companys taxable year, is the Companys chief executive officer or among the four
highest compensated officers. Code Section 162(m) does not apply to: (a) compensation payable
solely on account of the attainment of one or more performance goals if (i) the goals are
determined by a committee of two or more outside directors, (ii) the material terms under which the
remuneration will be paid, including the goals, is disclosed to stockholders and approved by a
majority of the stockholders, and (iii) except in the case of SARs and certain stock options (as
described below), the committee certifies that the goals have been met; and (b) compensation
payable under a binding contract in effect on February 17, 1993 which is not thereafter modified in
any material respect. Compensation arising from SARs and stock options where the price from which
appreciation is calculated or exercise price, as the case may be, is no less than fair market value
on the date of grant constitute compensation on account of attainment of a performance goal as long
as the committee described above grants the SARs or options and the stockholders approve the
maximum number of shares per participant over a specific time period. The $1,000,000 limitation is
reduced by any remuneration subject to such limitation for which a deduction is disallowed under
the Change of Control provisions set forth above. Awards under the Plan may be structured to avoid
the application of Code Section 162(m).
Summary Only
The foregoing statement is only a summary of the U.S. federal income tax consequences of the 2010
Plan and is based on the Companys understanding of present U.S. federal tax laws and regulations,
which are subject to change.
25
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES
FROM 110,000,000 TO 135,000,000 SHARES AND
ALLOCATE THE ADDITIONAL SHARES AS COMMON STOCK
Our stockholders are asked to act upon a proposal to amend our Certificate of Incorporation, as
amended, to increase the number of shares that the Company is authorized to issue from 110,000,000
to 135,000,000, and allocate such additional shares as common stock. A form of the Certificate of
Amendment to our Certificate of Incorporation incorporating the amendment proposed in this Proposal
3 is attached to this Proxy Statement as Annex B.
Our Certificate of Incorporation currently authorizes us to issue up to 110,000,000 shares, whereby
100,000,000 shares have been allocated as common stock, 1,200,000 shares have been allocated as
Series A Convertible Preferred Stock and 8,800,000 shares have been allocated as undesignated
preferred stock. As of August 16, 2010, we had outstanding 64,745,000 shares of common stock and
752,262 shares of Series A Convertible Preferred Stock. Our Board of Directors believes the
proposed increase in the authorized number of shares and allocating such shares as common stock is
necessary to provide the Company with the flexibility to meet business and compensation needs as
they arise, to take advantage of favorable opportunities and to respond to a changing environment.
The additional shares of common stock would be available for issuance from time to time and for
such purposes as the Board of Directors may deem advisable without further action by our
stockholders, except as may be required by applicable laws or regulations. Although there are no
current plans for use of the additional shares, these purposes may include additional stock
issuances, retirement of indebtedness, employee benefit programs, corporate business combinations
or other corporate purposes. In addition, the Board of Directors believes that an increase in the
number of authorized shares would provide the Company with the ability to issue such additional new
shares of common stock should a business opportunity be presented in the future.
This amendment and the authorization of additional shares of common stock will not alter the
current number of issued shares or change the relative rights and limitations of the shares of
outstanding common stock. The terms of the additional shares of common stock will be identical to
those of the currently outstanding shares of common stock. However, because holders of common stock
have no preemptive rights to purchase or subscribe for any unissued stock of the Company, any
issuance of additional shares of common stock will reduce the current stockholders percentage
ownership interest in the total outstanding shares of stock of the Company. The authorization and
subsequent issuance of additional shares of common stock may, among other things, have a dilutive
effect on earnings per share and on the equity and voting power of existing holders of stock of the
Company. However, the actual effect on the holders of outstanding stock cannot be ascertained until
the shares of common stock are issued in the future.
Vote Required
In order to approve this proposal, the affirmative vote of a majority of the voting power of our
common stock and Series A Convertible Preferred Stock entitled to vote at the annual meeting of
stockholders must be received in favor of this proposal.
Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted
FOR approval of the amendment to the Certificate of Incorporation to increase the number of
authorized shares from 110,000,000 shares to 135,000,000 shares and allocate the additional shares
as common stock.
Recommendation of Our Board of Directors
Our Board of Directors recommends a vote FOR approval of an amendment to our Certificate of
Incorporation to increase the number of authorized shares from 110,000,000 shares to 135,000,000
shares and allocate the additional shares as common stock.
26
PROPOSAL 4
RATIFICATION OF THE APPOINTMENT OF
MALONE AND BAILEY, LP
AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit and Finance Committee has appointed Malone and Bailey, LP (Malone and Bailey) to serve
as our independent registered public accounting firm for the year ending December 31, 2010, subject
to ratification by our stockholders. Malone and Bailey has audited our consolidated financial
statements for the years ended December 31, 2008 and 2009. Lurie Besikof Lapidus & Company, LLP
(Lurie Besikof) previously served as our independent registered public accounting firm and
audited our consolidated financial statements for the year ended December 31, 2007. Our
stockholders are asked to act upon a proposal to ratify the appointment of Malone and Bailey as our
independent registered public accounting firm for the year ending December 31, 2010.
A representative of Malone and Bailey is expected to be present at the annual meeting, by
telephone, and will have an opportunity to make a statement if he or she so desires. The Malone and
Bailey representative will also be available to respond to appropriate questions from stockholders.
Audit and Non-Audit Fees
During the fiscal years 2009 and 2008, fees for services provided by Malone and Bailey were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Audit Fees |
|
$ |
86,445 |
|
|
$ |
0 |
|
Audit-Related Fees (review of registration statements and other SEC filings) |
|
$ |
66,775 |
|
|
$ |
69,499 |
|
Tax Fees (tax-related services, including income tax advice regarding
income taxes within the United States) |
|
|
|
|
|
|
|
|
All Other Fees |
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
153,220 |
|
|
$ |
69,499 |
|
In addition, audit fees for services provided by Lurie Besikof for the fiscal years ended December
31, 2008 and 2009 were $175,223 and $0, respectively.
None of the services described above were approved pursuant to the exception provided in Rule
2-01(c)(7)(i)(C) of Regulation S-X promulgated by the SEC.
Compatibility of Fees
The Audit and Finance Committee of the Board of Directors has considered whether the provision of
the services described above is compatible with maintaining the independent registered public
accounting firms independence and has concluded that the services did not interfere with the
independent registered public accounting firms independence.
Pre-Approval Policies and Procedures
The Audit and Finance Committee has a policy for the pre-approval of audit services, requiring its
prior approval for all audit and non-audit services provided by our independent registered public
accounting firms. Our independent registered public accounting firms may not provide certain
prohibited services. The Audit and Finance Committees prior approval must be obtained before the
scope or cost of pre-approved services is increased.
Consistent with these policies and procedures, the Audit and Finance Committee approved all of the
services rendered by Malone and Bailey and Lurie Besikof during fiscal years 2009 and 2008, as
described above.
27
Vote Required
In order to approve this proposal, the affirmative vote of a majority of the votes cast at the
annual meeting, in person or by proxy, must be received in favor of this proposal.
Unless a contrary choice is specified, proxies solicited by our Board of Directors will be voted
FOR ratification of the appointment of Malone and Bailey, LP as our independent registered public
accounting firm for the year ending December 31, 2010.
Recommendation of Our Board of Directors
Our Board of Directors recommends a vote FOR ratification of the appointment of Malone and Bailey,
LP as our independent registered public accounting firm for the year ending December 31, 2010.
REPORT OF THE AUDIT AND FINANCE COMMITTEE
The following Audit and Finance Committee Report shall not be deemed soliciting material or to be
filed with the SEC, nor shall such information be incorporated by reference into any future
filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except
to the extent that we specifically incorporate it by reference into such filing.
The Audit and Finance Committee oversees our financial reporting process on behalf of our Board of
Directors. The committee is comprised of three directors. The committee is currently governed by
our Audit and Finance Committee charter. A copy of the charter is available on our website at
www.digitiliti.com. All of the Audit and Finance Committee members are independent within
the meaning of Rule 5605(a)(2) of the Nasdaq Marketplace Rules, and are independent, as that term
is defined in Section 10A of the Exchange Act. Management has the primary responsibility for the
financial statements and the reporting process, including our systems of internal controls. In
fulfilling its responsibilities, the committee reviewed the financial statements in the quarterly
reports on Form 10-Q and the Annual Report on Form 10-K with management, including a discussion of
the quality and acceptability of our financial reporting and controls.
The committee reviewed with our independent registered public accounting firm, who are responsible
for expressing an opinion on the conformity of our audited financial statements with generally
accepted accounting standards, their judgments as to the quality and acceptability of our financial
reporting and such other matters as are required to be discussed with the committee under generally
accepted auditing standards, including the matters required to be discussed by the statement on
Auditing Standards No.61, as adopted by the Public Company Accounting Oversight Board (PCAOB). In
addition, the committee has discussed with the independent registered public accounting firm the
auditors independence from management and us, including the matters in the registered public
accounting firms written disclosures and the letter required by the applicable requirements of the
PCAOB. Furthermore, the committee has considered whether the provision of non-audit services by the
independent registered public accounting firm for the fiscal year ended December 31, 2009, is
compatible with maintaining their independence.
The committee also discussed with our independent registered public accounting firm the overall
scope and plans for its audit. At least once a quarter, the committee meets with members of the
independent registered public accounting firm, with and without management present, to discuss the
results of its examination, its evaluation of our internal controls and the overall quality of our
financial reporting.
In reliance on the reviews and discussions referred to above, the committee recommended to our
Board of Directors that the audited financial statements be included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2009 for filing with the SEC. The committee has
appointed Malone and Bailey, LP to serve as our principal independent public accountants for the
year ending December 31, 2010.
28
Management is responsible for our financial reporting process including its system of internal
control, and for the preparation of consolidated financial statements in accordance with generally
accepted accounting principles. Our independent registered public accounting firm is responsible
for auditing those financial statements. The committees responsibility is to monitor and review
these processes. It is not the committees duty or responsibility to conduct auditing or accounting
reviews or procedures. The members of the committee may not be, and, except for
our Audit and Finance Committee financial experts, do not represent themselves to be or to serve
as, accountants or auditors by profession or experts in the fields of accounting or auditing.
Therefore, the committee has relied, without independent verification, on managements
representation that the financial statements have been prepared with integrity and objectivity and
in conformity with U.S. generally accepted accounting principles and on the independent registered
public accounting firms report on our financial statements. The committees oversight does not
provide it with an independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or policies, or appropriate internal controls and
procedures designed to assure compliance with accounting standards and applicable laws and
regulations. Furthermore, the committees considerations and discussions with management and the
independent registered public accounting firm do not assure that our financial statements are
presented in accordance with generally accepted accounting principles, that the audit of our
financial statements has been carried out in accordance with U.S. generally accepted auditing
standards or that our independent accountants are in fact independent.
In addition to the responsibilities discussed in the preceding paragraphs, the committees
responsibilities include reviewing significant accounting policies, policy decisions and changes,
along with significant accounting, reporting and operational issues. The committee also reviews
corporate policies and significant instances (if any) of the lack of compliance with laws and
regulations, ethics, conflicts of interest and the investigation of misconduct or fraud. The
committee is responsible for the resolution of any disagreements between management and the
independent registered public accounting firm regarding financial reporting, review and approval of
the annual internal audit plan and reports of the internal audit function and the establishment of
procedures to receive, retain and treat complaints and whistle-blower information regarding
questionable accounting or auditing matters.
The committee is pleased to submit this report to the stockholders with regard to the above
matters.
Benno G. Sand, Chairman
Kedar R. Belhe
Karen Gilles Larson
29
The form of proxy and this proxy statement have been approved by our Board of Directors and are
being mailed and delivered to stockholders by its authority.
|
|
|
|
|
|
|
/s/ Roy A. Bauer
ROY A. BAUER
|
|
|
|
|
Chief Executive Officer and President |
|
|
Saint Paul, Minnesota
September 3, 2010
30
ANNEX A
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF DIGITILITI, INC.
Digitiliti, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:
1. The Certificate of Incorporation of the Corporation is hereby amended by changing the paragraph
numbered Fourth so that, as amended, said paragraph shall be and read in its entirety as follows:
The aggregate number of shares that the corporation shall have authority to issue is 135,000,000 shares, divided
into two classes: 125,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of preferred
stock, $0.001 par value per share. The Board of Directors has the right to set the series, classes, rights, privileges
and preferences of the preferred or any class or series thereof, by amendment hereto, without shareholder approval, as
provided in the General Corporation Law of the State of Delaware or as hereafter amended.
2. Pursuant to a resolution of its Board of Directors, a meeting of stockholders of the Corporation was duly called and held, on October 14, 2010 upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware, at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.
3. The foregoing amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its Secretary as of the
_____
day of
_____, 2010.
Annex B
DIGITILITI, INC.
2010 LONG-TERM INCENTIVE PLAN
Effective Date: July 15, 2010
DIGITILITI, INC.
2010 LONG-TERM INCENTIVE PLAN
Table of Contents
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Section |
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Page |
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1. Purpose of the Plan |
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|
1 |
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2. Definitions |
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1 |
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3. Shares Subject to the Plan |
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3 |
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4. Administration |
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4 |
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5. Term of Plan |
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5 |
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6. Terms and Conditions of Qualified Options |
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5 |
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7. Terms and Conditions of Non-Qualified Options |
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8 |
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8. Automatic Grants of Director Options to Non-employee Directors |
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11 |
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9. Terms and Conditions of Stock Appreciation Rights |
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15 |
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10. Awards of Restricted Stock |
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16 |
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11. Other Awards |
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19 |
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12. Performance-Based Awards. |
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19 |
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13. Adjustments Upon Certain Events |
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19 |
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14. Shares Acquired for Investment |
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21 |
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15. No Right to Employment, Service as a Director or Awards |
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22 |
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16. Other Benefit and Compensation Programs |
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22 |
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17. Successors and Assigns |
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22 |
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18. Nontransferability of Awards; Designation of Beneficiary |
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22 |
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19. Amendments or Termination |
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23 |
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20. International Participants |
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23 |
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21. General |
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23 |
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22. Effective Date |
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24 |
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ii
DIGITILITI, INC.
LONG-TERM INCENTIVE PLAN
The purposes of the Digitiliti, Inc. 2010 Long-Term Incentive Plan (the Plan) are (a) to
promote the long-term interests of Digitiliti, Inc. (the Company) and its stockholders by
strengthening the Companys ability to attract, motivate and retain key personnel and (b) to
provide additional incentive for those persons through stock ownership and other incentives to
improve operations, increase profits and strengthen the mutuality of interest between those persons
and the Companys stockholders.
The following capitalized terms used in the Plan have the respective meanings set forth in
this Section; other terms are defined elsewhere in the Plan:
|
(a) |
|
Affiliate means a Parent or Subsidiary. |
|
|
(b) |
|
Award means an Option, Stock Appreciation Right, Share of Restricted Stock,
Other Stock-Based Award or Other Cash-Based Award granted pursuant to the Plan. |
|
|
(c) |
|
Board means the Board of Directors of the Company. |
|
|
(d) |
|
Code means the Internal Revenue Code of 1986, as amended, or any successor
thereto. |
|
|
(e) |
|
Committee means the Compensation Committee of the Board or, if the Board has
not appointed a separate Compensation Committee, the entire Board. |
|
|
(f) |
|
Common Stock means the Companys common stock, $0.001 par value per share. |
|
|
(g) |
|
Company means Digitiliti, Inc., a Delaware corporation. |
|
|
(h) |
|
Director means a member of the Board of Directors of the Company. |
|
|
(i) |
|
Director Option means a Non Qualified Option granted to a Director pursuant
to Section 8. |
|
|
(j) |
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Effective Date means July 15, 2010. |
|
|
(k) |
|
Employee means any person, including officers and Directors, employed by the
Company or any Subsidiary. The payment to a Director by the Company of directors fees
shall not be sufficient to constitute employment by the Company. |
1
|
(l) |
|
Exchange Act means the Securities Exchange Act of 1934, as amended. |
|
|
(m) |
|
Exercise Price means the purchase price per Share under the terms of an
Option. |
|
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(n) |
|
Fair Market Value means, on a given date, (i) if the Common Stock is listed
or admitted to unlisted trading privileges on any national securities exchange, the
average of the closing sales prices of the Common Stock on the end of any day on all
national securities exchanges on which the Common Stock may at the time be listed or,
if there have been no sales on any such exchange on any day, the average of the highest
bid and lowest asked prices on all such exchanges at the end of such day or, (ii) if
the Common Stock is not so listed or admitted to unlisted trading privileges, and bid
and asked prices therefor in the domestic over-the-counter market are reported by Pink
Sheets LLC (or any comparable reporting service), the average of the closing bid and
asked prices on such day as reported by Pink Sheets LLC (or any comparable reporting
service), or (iii) if the Common Stock is not listed on any national securities
exchange or in the domestic over-the-counter market, the fair value of the Common Stock
determined by the Committee in good faith in the exercise of its reasonable discretion. |
|
|
(o) |
|
Non-employee Director means a Director who is not an Employee of the Company. |
|
|
(p) |
|
Non-Qualified Option means a stock option granted pursuant to Section 7 that
does not qualify as an incentive stock option as defined in Section 422 of the Code. |
|
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(q) |
|
Option means a Qualified Option or a Non Qualified Option (including a
Director Option). |
|
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(r) |
|
Other Stock-Based Awards means Awards granted pursuant to Section 11(a) or
Section 12. |
|
|
(s) |
|
Other Cash-Based Awards means Awards granted pursuant to Section 11(b) or
Section 12. |
|
|
(t) |
|
Parent means any parent corporation of the Company, as such term is defined
in Section 424(e) of the Code or any successor provision. The term shall include any
Parent which becomes such after adoption of the Plan. |
|
|
(u) |
|
Participant means an employee of the Company or an Affiliate who is selected
by the Committee to participate in the Plan; a Director of the Company who receives
Director Options or other Awards under the Plan; or any consultant, agent, advisor or
independent contractor who is selected by the Committee to participate in the Plan and
who renders bona fide services to the Company or an Affiliate that (i) are not in
connection with the offer and sale of the Companys securities in a capital-raising
transaction and (ii) do not directly or indirectly promote or maintain a market for the
Companys securities. Except where the
context otherwise requires, references in this Plan to employment and related
terms shall apply to services in any such capacity. |
2
|
(v) |
|
Performance-Based Awards means Options, Awards of Restricted Stock, Other
Stock-Based Awards and Other Cash-Based Awards granted pursuant to Section 12. |
|
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(w) |
|
Performance-Based Full-Value Awards means all Performance-Based Awards other
than Options and Stock Appreciation Rights. |
|
|
(x) |
|
Plan means this Digitiliti, Inc. 2010 Long-Term Incentive Plan, as amended or
supplemented from time to time. |
|
|
(y) |
|
Qualified Option means a stock option granted pursuant to Section 6 that is
intended to qualify as an incentive stock option under Section 422 of the Code. |
|
|
(z) |
|
Restricted Stock means any shares of Common Stock granted under Section 10. |
|
|
(aa) |
|
Stock Appreciation Right means a stock appreciation right granted pursuant to
Section 9. |
|
|
(bb) |
|
Subsidiary means any subsidiary corporation of the Company, as such term is
defined in Section 424(f) of the Code. The term shall include any Subsidiary which
becomes such after adoption of the Plan. |
3. |
|
Shares Subject to the Plan |
The total number of shares of Common Stock which may be issued under the Plan is 5,000,000
shares. The full number of shares of Common Stock available under the Plan may be used for any
Option or other type of Award. The aggregate number of shares of Common Stock available under the
Plan shall be subject to adjustment upon the occurrence of any of the events and in the manner set
forth in Section 13. If all or any potion of an Option or Stock Appreciation Right expires or is
terminated, surrendered or cancelled without having been fully exercised, if Restricted Stock is
forfeited, or if any other grant of an Award results in any shares of Common Stock not being
issued, the shares of Common Stock covered by such Award shall again be available for the grant of
Awards under the Plan. Any shares of Common Stock which are used as full or partial payment to the
Company upon exercise of an Option or for any other Award that requires a payment to the Company
and any shares surrendered or withheld to pay employment taxes or other withholding obligations
also shall be available for the grant of Awards under the Plan. The issuance of shares of Common
Stock upon the exercise or satisfaction of an Award shall reduce the total number of shares of
Common Stock available under the Plan. No fractional shares of Common Stock will be issued under
the Plan, but instead any fractional Share will be rounded downward to the next lowest whole Share.
3
|
(a) |
|
Delegation of Authority. The Plan shall be administered by the Committee. The
Committee shall consist of the Board, unless the Board appoints a Committee
consisting of at least two but fewer than all the members of the Board. If the
Committee does not consist of the entire Board, the Committees members shall serve
at the pleasure of the Board, which may from time to time appoint members in
substitution for members previously appointed and fill vacancies, however caused, in
the Committee. The Committee may select one of its members as its Chairperson and
shall hold its meetings at such times and places as it may determine. A majority of
the Committees members shall constitute a quorum. All determinations of the
Committee made at a meeting in which a quorum is present shall be made by a majority
of its members present at the meeting. Any decision or determination of the
Committee reduced to writing and signed by a majority of the members shall be fully
as effective as if it had been made by a majority vote at a meeting duly called and
held. |
|
(b) |
|
Authority of Committee. The Committee shall have exclusive power to make
Awards and to determine when and to whom Awards shall be granted, and the form, amount
and other terms and conditions of each Award, subject to the provisions of this Plan
and any applicable law or regulation. The Committee may determine whether, to what
extent and under what circumstances Awards may be settled, paid or exercised in cash,
shares of Common Stock or other Awards or other property, or cancelled, forfeited or
suspended. The Committee shall have the authority to interpret this Plan and any Award
or agreement made under this Plan, to establish, amend, waive and rescind any rules and
regulations relating to the administration of this Plan, to determine the terms and
provisions of any agreements entered into hereunder (not inconsistent with this Plan),
and to make all other determinations necessary or advisable for the administration of
this Plan. The Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any Award or agreement in the manner and to the extent
it shall deem desirable. The determinations of the Committee in the administration of
this Plan, as described herein, shall be final, binding and conclusive. |
|
(c) |
|
Indemnification. To the full extent permitted by law, each member and former
member of the Committee and each person to whom the Committee delegates or has
delegated authority under this Plan shall be entitled to indemnification by the Company
against and from any loss, liability, judgment, damages, cost and reasonable expense
incurred by such member, former member or other person by reason of any action taken,
failure to act or determination made in good faith under or with respect to this Plan. |
|
(d) |
|
Tax Withholding. The Committee shall have the right to require payment by a
Participant of any amount it may determine to be necessary to withhold for federal,
state, local, non-U.S. income, payroll or other taxes as a result of the exercise,
grant or vesting of an Award. With the consent of the Committee, the Participant may
pay a portion or all of such withholding taxes by delivering shares of Common Stock to
the Company or having the Company withhold shares of Common Stock with a Fair Market
Value or cash equal to the amount of such taxes that would have otherwise been payable
by the Participant. |
4
|
(e) |
|
Deferral. In the discretion of the Committee, in accordance with any
procedures established by the Committee and consistent with the provisions of Section
162(m) of the Code and Treas. Reg. §1.409A-2(b)(7) when applied to Participants who may
be covered employees thereunder, a Participant may be permitted to defer the issuance
of shares of Common Stock or cash deliverable upon the exercise of an Option or Stock
Appreciation Right, vesting of Restricted Stock, or satisfaction of Other Stock-Based
Awards or Other Cash-Based Awards, for a specified period or until a specified date,
but not beyond the expiration of the term of such Option, Stock Appreciation Right,
Restricted Stock grant, or other Award. |
|
(f) |
|
Dividends or Dividend Equivalents. If the Committee so determines, any Award
granted under the Plan may be credited with dividends or dividend equivalents paid with
respect to any underlying shares of Common Stock. The Committee may apply any
restrictions to the dividends or dividend equivalents that the Committee deems
appropriate and may determine the form of payment, including cash, shares of Common
Stock, Restricted Stock or otherwise. |
This Plan shall commence on July 15, 2010 (the Effective Date) and shall terminate on July
14, 2020 or at such earlier date as the Board of Directors shall determine. The termination of
this Plan shall not affect any Awards then outstanding under the Plan. No Award may be granted
under the Plan after July 14, 2020.
6. |
|
Terms and Conditions of Qualified Options |
Options granted under the Plan may be Qualified Options. When the Committee approves a grant
of a Qualified Option to a Participant, it shall prepare or cause to be prepared an option
agreement (Qualified Option Agreement) setting forth the terms of the Qualified Option, and such
Qualified Option Agreement shall be signed on behalf of the Company and by the Participant.
Qualified Options granted under this Plan shall be subject to the foregoing and to the following
terms and conditions and to such other terms and conditions, not inconsistent therewith, as the
Committee shall determine:
|
(a) |
|
Number of Shares and Exercise Price. The Qualified Option Agreement shall
state the total number of shares of Common Stock subject to the Qualified Option it
evidences, the Exercise Price per share of Common Stock and the other terms of the
Qualified Option. The number of shares of Common Stock subject to the Qualified Option
and the Exercise Price shall be adjustable as provided in Section 12(a) of this Plan. |
|
(b) |
|
Exercisability; Term. Qualified Options granted under the Plan shall be
exercisable at such time(s) and upon such terms and conditions as may be determined by
the Committee. However, subject to Section 6(l), a Qualified Option shall not be
exercisable more than ten (10) years after the date it is granted. The period during
which a Qualified Option may be exercised once it is
granted may not be reduced, except as provided in Sections 6(e), (f) and (g) of this
Plan. |
5
|
(c) |
|
Exercise of Qualified Options. Except as otherwise provided in the applicable
Qualified Option Agreement, a Qualified Option may be exercised for all, or from time
to time any part, of the shares of Common Stock for which it is then exercisable. For
purposes of this Section 6, the exercise date of a Qualified Option shall be the date a
written notice of exercise and full payment of the purchase price are received by the
Company in accordance with this Section 6(c) and Section 6(d) below. The purchase
price for the shares of Common Stock as to which a Qualified Option is exercised shall
be paid to the Company in cash or its equivalent, such as by check or wire transfer,
or, if provided in the Qualified Option Agreement or with the consent of the Committee:
(i) in shares of Common Stock having a Fair Market Value equal to the aggregate
Exercise Price of the shares of Common Stock being purchased and satisfying such other
requirements as may be imposed by the Committee; provided, that such shares were then
purchased on the open market or have been held by the Participant for at least six
months (or such other period as established from time to time by the Committee in order
to avoid adverse accounting treatment under generally accepted accounting principles);
(ii) partly in cash and partly in such shares; or (iii) if there is a public market for
the shares of Common Stock at such time, through the delivery of irrevocable
instructions to a broker to sell shares of Common Stock obtained upon the exercise of
the Qualified Option and to deliver promptly to the Company an amount out of the
proceeds of such sale equal to the aggregate Exercise Price for the shares being
purchased. |
|
(d) |
|
Manner of Exercise of Qualified Options. A Qualified Option shall be exercised
only by the Participant (i) delivering a completed and signed written notice of
exercise to the Company in the form prescribed by the Company specifying the number of
shares of Common Stock as to which the Qualified Option is being exercised; (ii)
delivering the original Qualified Option Agreement to the Company; and (iii) paying to
the Company the full amount of the Exercise Price for the number of shares of Common
Stock with respect to which the Qualified Option is being exercised as provided in
Section 6(c) above. When shares of Common Stock are issued to the Participant upon the
exercise of that Participants Qualified Option, the fact of such issuance shall be
noted on the Qualified Option Agreement by the Company before the Qualified Option
Agreement is returned to the Participant. When all shares of Common Stock covered by
the Qualified Option Agreement have been issued by the Company to the Participant or
when the Qualified Option expires, the Participant shall deliver the Qualified Option
Agreement to the Company, which shall cancel it. After the receipt by the Company of
the written notice of exercise and payment in full of the Exercise Price in accordance
with Sections 6(c) and 6(d), the Company shall deliver to the Participant exercising
the Qualified Option stock certificates evidencing the number of shares with respect to
which the Qualified Option has been exercised, issued in the Participants name;
provided, however, that such delivery shall be deemed effective for all purposes when
the Company or its stock transfer agent (if
any) has deposited such stock certificates in the United States mail, postage
prepaid, addressed to the Participant at the address specified in the written notice
of exercise. |
6
|
(e) |
|
Termination of Employment or Service. If a Participant who holds a Qualified
Option shall cease to be employed by or performing services for the Company or any
Affiliate for any reason other than death, unless the applicable Qualified Option
Agreement provides otherwise, such Qualified Option, if then exercisable, shall
automatically terminate and be forfeited on the 90th day following
termination if not earlier exercised, and neither such Participant nor any of the
Participants heirs, personal representatives, successors or assigns shall have any
rights with respect to such Qualified Option. Notwithstanding the foregoing, if an
independent contractor or other non-employment relationship between the Participant and
the Company or an Affiliate is terminated due to the commencement of an employment
relationship with the Company or an Affiliate, this provision shall apply only upon
termination of both the independent contractor and employment relationship between the
Participant and the Company or an Affiliate. In the case of a Participant who is a
natural person and who ceases to be employed by or performing services for the Company
or an Affiliate due to his or her disability (with disability being determined in the
sole discretion of the Committee), the Committee, at its discretion, may permit
exercise of the portion of the Qualified Option that is exercisable upon such
termination of employment until the earlier of the originally stated date of
termination of the Qualified Option or up to one (1) year after such termination of
employment or other service. |
|
(f) |
|
Death of Participant. Unless otherwise provided in the applicable Qualified
Option Agreement, if a Participant who is a natural person shall cease to be employed
by or performing services for the Company or any Affiliate as a result of the
Participants death, any Qualified Option held by such Participant may be exercised to
the same extent that the Participant would have been entitled to exercise it at the
date of death and may be exercised within a period of one (1) year after the date of
death, but in no case later than the expiration date of such Qualified Option. Such
Qualified Option shall be exercised pursuant to Sections 6(c) and (d) of this Plan by
the person or persons to whom the Participants rights under the Qualified Option shall
pass by will or the laws of descent and distribution. |
|
(g) |
|
Termination of Qualified Options Not Exercisable. Unless the applicable
Qualified Option Agreement provides otherwise, upon termination of a Participants
employment or other services with the Company or an Affiliate for any reason, including
by reason of death or disability of the Participant, any portion of the Participants
Qualified Option that is not exercisable shall automatically and immediately terminate
as to such Participant, and the shares of Common Stock subject to such portion of the
Qualified Option shall be available for the grant of Awards under the Plan. |
7
|
(h) |
|
No Obligation to Exercise Qualified Option. The grant of a Qualified Option
under the Plan shall impose no obligation on the Participant to exercise such Qualified
Option. |
|
(i) |
|
Eligible Recipients. Qualified Options may be granted only to persons who are
employees of the Company or an Affiliate. |
|
(j) |
|
Exercise Price. Subject to the provisions of Section 6(l), the exercise price
of shares of Common Stock that are subject to a Qualified Option shall not be less than
100% of the Fair Market Value of such shares at the time the Qualified Option is
granted, as determined in good faith by the Committee. |
|
(k) |
|
Limit on Exercisability. The aggregate Fair Market Value (determined at the
time the Qualified Option is granted) of the shares of Common Stock with respect to
which Qualified Options are exercisable by the Participant for the first time during
any calendar year, under this Plan or any other plan of the Company or any Affiliate,
shall not exceed $100,000. To the extent a Qualified Option exceeds this $100,000
limit, the portion of the Qualified Option in excess of such limit shall be deemed a
Non-Qualified Option. |
|
(l) |
|
Restrictions for Certain Shareholders. The purchase price of shares of Common
Stock that are subject to a Qualified Option granted to an employee of the Company or
any Affiliate who, at the time such Qualified Option is granted, owns 10% or more of
the total combined voting power of all classes of stock of the Company or of any
Affiliate, shall not be less than 110% of the Fair Market Value of such shares on the
date such Qualified Option is granted, and such Qualified Option may not be exercisable
more than five (5) years after the date on which it is granted. For the purposes of
this subparagraph, the rules of Section 424(d) of the Code shall apply in determining
the stock ownership of any employee of the Company or any Affiliate. |
|
(m) |
|
Limits on Transferability and Exercise of Qualified Options. Qualified Options
shall not be transferable except by will or the laws of descent and distribution, and
Qualified Options shall be exercisable during a Participants lifetime only by such
Participant. |
|
(n) |
|
Effect of Not Meeting Requirements. Subject to the discretion of the Committee
to provide otherwise, if the terms of a Qualified Option do not meet any requirements
of this Plan or the Code necessary to be treated as a Qualified Option under the Code,
such Qualified Option shall not terminate but shall be a Non-Qualified Option granted
under this Plan. |
7. |
|
Terms and Conditions of Non-Qualified Options |
Options granted under the Plan may be Non-Qualified Options. When the Committee approves a
grant of a Non-Qualified Option to a Participant, it shall prepare or cause to be prepared an
option agreement (Non Qualified Option Agreement) setting forth the terms of the Non-Qualified
Option, and such Non Qualified Option Agreement shall be signed on behalf of
the Company and by the Participant. Non-Qualified Options granted under this Plan shall be
subject to the foregoing and to the following terms and conditions and to such other terms and
conditions, not inconsistent therewith, as the Committee shall determine; provided, however, that
Non Qualified Options that are Director Options shall be governed by the provisions of Section 8 to
the extent that they are inconsistent with the provisions of this Section 7.
8
|
(a) |
|
Number of Shares and Exercise Price. The Non Qualified Option Agreement shall
state the total number of shares of Common Stock subject to the Non-Qualified Option it
evidences, the Exercise Price per share of Common Stock and the other terms of the
Non-Qualified Option. The Exercise Price of any Non-Qualified Option may be less than,
equal to or greater than Fair Market Value; provided, however, that in no event shall
the exercise price be less than eighty-five (85%) percent of Fair Market Value on the
date of grant. The number of shares of Common Stock subject to the Non-Qualified
Option and the Exercise Price shall be adjustable as provided in Section 13(a) of this
Plan. |
|
(b) |
|
Exercisability; Term. Non-Qualified Options granted under the Plan shall be
exercisable at such time(s) and upon such terms and conditions as may be determined by
the Committee, but in no event shall a Non-Qualified Option be exercisable more than
ten (10) years after the date it is granted, except as the Committee may determine
under Section 13(d) of the Plan. The period during which a Non-Qualified Option may be
exercised once it is granted may not be reduced, except as provided in Sections 7(e),
(f) and (g) of this Plan. |
|
(c) |
|
Exercise of Non-Qualified Options. Except as otherwise provided in the
applicable Non Qualified Option Agreement, a Non-Qualified Option may be exercised for
all, or from time to time any part, of the shares of Common Stock for which it is then
exercisable. For purposes of this Section 7, the exercise date of a Non Qualified
Option shall be the date a written notice of exercise and full payment of the purchase
price are received by the Company in accordance with this Section 7(c) and Section 7(d)
below. The purchase price for the shares of Common Stock as to which a Non-Qualified
Option is exercised shall be paid to the Company in cash or its equivalent, such as by
check or wire transfer or, if provided in the Non Qualified Option Agreement or with
the consent of the Committee: (i) in shares of Common Stock having a Fair Market Value
equal to the aggregate Exercise Price of the shares of Common Stock being purchased and
satisfying such other requirements as may be imposed by the Committee; provided, that
such shares were then purchased on the open market or have been held by the Participant
for at least six months (or such other period as established from time to time by the
Committee in order to avoid adverse accounting treatment under generally accepted
accounting principles); (ii) partly in cash and partly in such shares; or (iii) if
there is a public market for the shares of Common Stock at such time, through the
delivery of irrevocable instructions to a broker to sell shares of Common Stock
obtained upon the exercise of the Non-Qualified Option and to deliver promptly to the
Company an amount out of the proceeds of such sale equal to the aggregate Exercise
Price for the shares being purchased. |
9
|
(d) |
|
Manner of Exercise of Non-Qualified Options. A Non-Qualified Option shall be
exercised only by the Participant (i) delivering a completed and signed written notice
of exercise to the Company in the form prescribed by the Company specifying the number
of shares of Common Stock as to which the Non-Qualified Option is being exercised; (ii)
delivering the original Non Qualified Option Agreement to the Company; and (iii) paying
to the Company the full amount of the Exercise Price for the number of shares of Common
Stock with respect to which the Non-Qualified Option is being exercised as provided in
Section 7(c) above. When shares of Common Stock are issued to the Participant upon the
exercise of that Participants Non-Qualified Option, the fact of such issuance shall be
noted on the Non Qualified Option Agreement by the Company before the Non Qualified
Option Agreement is returned to the Participant. When all shares of Common Stock
covered by the Non Qualified Option Agreement have been issued by the Company to the
Participant or when the Non Qualified Option expires, the Participant shall deliver the
Non Qualified Option Agreement to the Company, which shall cancel it. After the
receipt by the Company of the written notice of exercise and payment in full of the
Exercise Price in accordance with Sections 7(c) and 7(d), the Company shall deliver to
the Participant exercising the Non-Qualified Option stock certificates evidencing the
number of shares with respect to which the Non-Qualified Option has been exercised,
issued in the Participants name; provided, however, that such delivery shall be deemed
effective for all purposes when the Company or its stock transfer agent (if any) has
deposited such stock certificates in the United States mail, postage prepaid, addressed
to the Participant at the address specified in the written notice of exercise. |
|
(e) |
|
Termination of Employment or Service. If a Participant who holds a Non
Qualified Option shall cease to be employed by or performing services for the Company
or any Affiliate for any reason other than death, unless the applicable Non Qualified
Option Agreement provides otherwise, such Non-Qualified Option shall, if then
exercisable, automatically terminate and be forfeited on the 90th day
following termination, if not earlier exercised, and neither such Participant nor any
of the Participants heirs, personal representatives, successors or assigns shall have
any rights with respect to such Non-Qualified Option. Notwithstanding the foregoing,
if an independent contractor or other non-employment relationship between the
Participant and the Company or an Affiliate is terminated due to the commencement of an
employment relationship with the Company or an Affiliate, this provision shall apply
only upon termination of both the independent contractor and employment relationship
between the Participant and the Company or an Affiliate. In the case of a Participant
who is a natural person and who ceases to be employed by or performing services for the
Company or an Affiliate due to his or her disability (with disability being determined
in the sole discretion of the Committee), the Committee, at its discretion, may permit
exercise of the portion of the Non Qualified Option that is exercisable upon such
termination of employment until the earlier of the originally stated date of
termination of the Non-Qualified Option or up to one year after such termination of
employment or other service. |
10
|
(f) |
|
Death of Participant. Unless otherwise provided in the applicable Non
Qualified Option Agreement, if a Participant who is a natural person shall cease to be
employed by or performing services for the Company or any Affiliate as a result of the
Participants death, any Non Qualified Option held by such Participant may be exercised
to the same extent that the Participant would have been entitled to exercise it at the
date of death and may be exercised within a period of one (1) year after the date of
death, but in no case later than the expiration date of such Non Qualified Option.
Such Non Qualified Option shall be exercised pursuant to Sections 7(c) and (d) of this
Plan by the person or persons to whom the Participants rights under the Non Qualified
Option shall pass by will or the laws of descent and distribution. |
|
(g) |
|
Termination of Non-Qualified Options Not Exercisable. Unless the applicable
Non Qualified Option Agreement provides otherwise, upon termination of a Participants
employment or other services with the Company or an Affiliate for any reason, including
by reason of death or disability of the Participant, any portion of the Participants
Non-Qualified Option that is not exercisable shall automatically and immediately
terminate as to such Participant, and the shares of Common Stock subject to such
portion of the Non-Qualified Option shall be available for the grant of Awards under
the Plan. |
|
(h) |
|
No Obligation to Exercise Non-Qualified Option. The grant of a Non-Qualified
Option under the Plan shall impose no obligation on the Participant to exercise such
Non-Qualified Option. |
8. |
|
Automatic Grants of Director Options to Non-employee Directors |
|
(a) |
|
Automatic Grants of Director Options. Under the Plan, each Non-employee
Director shall automatically be granted Director Options to purchase shares of Common
Stock as follows: |
|
(i) |
|
Initial Grants of Director Options. Each Non-employee
Director will be granted an initial Option (the Initial Grant) as follows: |
|
1. |
|
Future Non-Employee Directors. Each
person who is first elected or appointed to serve as a Non-employee
Director after the Effective Date shall automatically be granted a
Director Option on the date of his or her initial election or
appointment to the Companys Board of Directors to purchase 225,000
shares of Common Stock at a price equal to Fair Market Value on the
date of grant. |
|
|
2. |
|
Vesting. All Director Options granted
under Sections 8(a)(i) shall vest and become exercisable in cumulative
installments with respect to one-third (1/3) of the shares subject to
such Director Options on the first, anniversary date of the date of
grant of such Director Options, and the remainder thereafter shall vest
and
become exercisable ratably monthly over the remaining two years, in
each month the Director holding the options is then a Director of the
Company. |
11
|
(ii) |
|
Additional Grants of Director Options. On each
anniversary date of the Initial Grant of a Director Option to a Non-employee
Director under the Plan, such Non-employee Director will automatically be
granted an additional Director Option to purchase five thousand (5,000) shares
of Common Stock, but only if such person is a Non-employee Director on such
date. Existing Non-Employee Directors, as of the date of adoption of this
Plan, shall receive an additional grant of a Director Option upon reelection to
the Board by the stockholders at the 2010 annual meeting (Re-election Grant),
and will automatically be granted an additional Director Option on each
anniversary date of the Re-election Grant, but only if such person is a
Non-employee Director on such date. All Director Options granted under this
Section 8(a)(ii) shall vest and become exercisable as to all of the shares
subject to the Director Options one (1) year after the date of grant of such
Director Option, but only if the holder of the Director Options is then a
Director of the Company. |
|
(iii) |
|
Termination of Director Options. Subject to Sections
8(f), 8(g) and 8(h), all Director Options granted under this Section 8(a) shall
expire five (5) years after the date of grant in the case of initial grants of
Director Options and ten (10) years after the date of grant in the case of
additional grants of Director Options. |
|
(iv) |
|
Exercise Price. The exercise price of Director Options
granted under this Section 8(a) shall be equal to 100% of the Fair Market Value
of one share of Common Stock on the date of grant of the Director Option. |
|
(b) |
|
Discretionary Grants. In addition to the Director Options granted pursuant to
Section 8(a), a Director may be granted one or more Options or other Awards under other
provisions of the Plan, and such Options or other Awards will be subject to such terms
and conditions, consistent with the other provisions of the Plan, as may be determined
by the Committee in its sole discretion. |
|
(c) |
|
Director Option Agreements. When a Director Option is automatically granted
under Section 8(a), or when the Committee approves a grant of a Director Option, the
Committee shall prepare or cause to be prepared an option agreement (Director Option
Agreement) setting forth the terms of the Director Option, and such Director Option
Agreement shall be signed on behalf of the Company and by the Participant. |
12
|
(d) |
|
Exercise of Director Options. Except as otherwise provided in the applicable
Director Option Agreement, a Director Option may be exercised for all, or from time to
time any part, of the shares of Common Stock for which it is then exercisable. For
purposes of this Section 8, the exercise date of a Director Option
shall be the date a written notice of exercise and full payment of the purchase
price are received by the Company in accordance with this Section 8(d) and Section
8(e) below. The purchase price for the shares of Common Stock as to which a
Director Option is exercised shall be paid to the Company in cash or its equivalent,
such as by check or wire transfer or, if provided in the Director Option Agreement
or with the consent of the Committee: (i) in shares of Common Stock having a Fair
Market Value equal to the aggregate Exercise Price of the shares of Common Stock
being purchased and satisfying such other requirements as may be imposed by the
Committee; provided, that such shares were then purchased on the open market or have
been held by the Participant for at least six months (or such other period as
established from time to time by the Committee in order to avoid adverse accounting
treatment under generally accepted accounting principles); (ii) partly in cash and
partly in such shares; or (iii) if there is a public market for the shares of Common
Stock at such time, through the delivery of irrevocable instructions to a broker to
sell shares of Common Stock obtained upon the exercise of the Director Option and to
deliver promptly to the Company an amount out of the proceeds of such sale equal to
the aggregate Exercise Price for the shares being purchased. |
|
(e) |
|
Manner of Exercise of Director Options. A Director Option shall be exercised
only by the Participant (i) delivering a completed and signed written notice of
exercise to the Company in the form prescribed by the Company specifying the number of
shares of Common Stock as to which the Director Option is being exercised; (ii)
delivering the original Director Option Agreement to the Company; and (iii) paying to
the Company the full amount of the Exercise Price for the number of shares of Common
Stock with respect to which the Director Option is being exercised as provided in
Section 8(d) above. When shares of Common Stock are issued to the Participant upon the
exercise of that Participants Director Option, the fact of such issuance shall be
noted on the Director Option Agreement by the Company before the Director Option
Agreement is returned to the Participant. When all shares of Common Stock covered by
the Director Option Agreement have been issued by the Company to the Participant or
when the Director Option expires, the Participant shall deliver the Director Option
Agreement to the Company, which shall cancel it. After the receipt by the Company of
the written notice of exercise and payment in full of the Exercise Price in accordance
with Sections 8(d) and 8(e), the Company shall deliver or cause to be delivered to the
Participant exercising the Director Option stock certificates evidencing the number of
shares with respect to which the Director Option has been exercised, issued in the
Participants name; provided, however, that such delivery shall be deemed effective for
all purposes when the Company or its stock transfer agent (if any) has deposited such
stock certificates in the United States mail, postage prepaid, addressed to the
Participant at the address specified in the written notice of exercise. |
|
(f) |
|
Termination of Status as a Director. Subject to the provisions of Sections
8(g) and 8(h), if a Director ceases to serve as a Director, he or she may, but only
within one year after the date he or she ceases to be a Director of the Company,
exercise
his or her Director Option to the extent that he or she was entitled to exercise it
at the date of such termination. Any portion of a Director Option that is not
exercisable on the date a Director ceases to be a Director of the Company, and any
portion of a Director Option which the Director was entitled to exercise that is not
exercised within the time specified herein, shall immediately and automatically
terminate and be forfeited, and neither such Director nor any of the Directors
heirs, personal representatives, successors or assigns shall have any rights with
respect to such Director Option. |
13
|
(g) |
|
Disability of Director. Notwithstanding the provisions of Section 8(f) above,
if a Director is unable to continue his or her service as a Director with the Company
as a result of his or her total and permanent disability (as defined in Section
22(e)(3) of the Code), he or she may, but only within one year from the date of
termination of such service, exercise his or her Director Option to the extent he or
she was entitled to exercise it at the date of such termination. Any portion of a
Director Option that is not exercisable on the date a Director ceases to be a Director
of the Company, and any portion of a Director Option which the Director was entitled to
exercise that is not exercised within the time specified herein, shall immediately and
automatically terminate and be forfeited, and neither such Director nor any of the
Directors heirs, personal representatives, successors or assigns shall have any rights
with respect to such Director Option. |
|
(h) |
|
Death of Director. Upon the death of a Director holding a Director Option: |
|
(i) |
|
during the term of the Director Option when such Director was,
at the time of his or her death, a Director of the Company and who shall have
been a Director since the date of grant of the Director Option, the Director
Option may be exercised, at any time within one year following the date of
death, by the person who acquired the right to exercise such Director Option by
bequest or inheritance, but only to the extent of the right to exercise that
existed at the date of death; |
|
(ii) |
|
after the termination of the Directors status as a Director,
the Director Option may be exercised, at any time within one year following the
date of termination (and no additional time shall be added to the time to
exercise), by such Directors estate or by a person who acquired the right to
exercise the Director Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination; and |
|
(iii) |
|
any portion of a Director Option that is not exercisable on
the date of a Directors death, and any portion of a Director Option which the
Director was entitled to exercise that is not exercised within the time
specified in Section 8(h)(i) or Section 8(h)(ii), shall immediately and
automatically terminate and be forfeited, and neither such Director nor any of
the Directors heirs, personal representatives, successors or assigns shall
have any rights with respect to such Director Option. |
14
9. |
|
Terms and Conditions of Stock Appreciation Rights |
|
(a) |
|
Grants. The Committee may grant a Stock Appreciation Right independent of an
Option or in connection with an Option or a portion thereof. Any grant of a Stock
Appreciation Right under the Plan shall be evidenced by an Award agreement in such form
as the Committee shall from time to time approve and which shall set forth the terms
and conditions of the Stock Appreciation Right. The Committee may impose such terms
and conditions upon any Stock Appreciation Right as it deems fit. A Stock Appreciation
Right granted in connection with an Option or a portion thereof (i) may be granted at
the time the related Option is granted or at any time before the exercise or
cancellation of the related Option, (ii) shall cover the same number of shares of
Common Stock covered by the Option (or such fewer number of shares of Common Stock as
the Committee may determine), and (iii) shall be subject to the same terms and
conditions as such Option except for such additional limitations as are contemplated by
this Section 9 (or such additional limitations as may be included in the Award
agreement evidencing such Stock Appreciation Right). |
|
(b) |
|
Terms. The exercise price per share of Common Stock of a Stock Appreciation
Right shall be an amount determined by the Committee but in no event shall such amount
be less than the Fair Market Value of a share of Common Stock on the date the Stock
Appreciation Right is granted. In addition, in the case of a Stock Appreciation Right
granted in conjunction with an Option or a portion thereof, the exercise price shall
not be less than the Exercise Price of the related Option. Each Stock Appreciation
Right granted independent of an Option shall entitle a Participant upon exercise to an
amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one
share of Common Stock over (B) the exercise price per share, times (ii) the number of
shares of Common Stock covered by the Stock Appreciation Right. Each Stock
Appreciation Right granted in conjunction with an Option or a portion thereof shall
entitle a Participant to surrender to the Company the unexercised Option or any portion
thereof and to receive from the Company in exchange therefor an amount equal to (I) the
excess of (x) the Fair Market Value on the exercise date of one share of Common Stock
over (y) the Exercise Price per share of Common Stock, times (II) the number of shares
of Common Stock covered by the Option, or portion thereof, which is surrendered.
Payment shall be made in shares of Common Stock or in cash, or partly in shares and
partly in cash (any such shares of Common Stock valued at such Fair Market Value), all
as set forth in the Award agreement evidencing such Stock Appreciation Right or as
otherwise determined in the discretion of the Committee. Stock Appreciation Rights may
be exercised from time to time upon actual receipt by the Company of written notice of
exercise stating the number of shares of Common Stock with respect to which the Stock
Appreciation Right is being exercised. The date a notice of exercise is received by
the Company shall be the exercise date. |
15
|
(c) |
|
Termination of Employment or Service. If a Participant who holds a Stock
Appreciation Right shall cease to be employed by or performing services for the
Company or any Affiliate for any reason other than death, unless the applicable
Award agreement provides otherwise, such Stock Appreciation Right shall immediately
and automatically terminate and be forfeited, whether or not exercisable, and
neither such Participant nor any of the Participants heirs, personal
representatives, successors or assigns shall have any rights with respect to such
Stock Appreciation Right. Notwithstanding the foregoing, if an independent
contractor or other non-employment relationship between the Participant and the
Company or an Affiliate is terminated due to the commencement of an employment
relationship with the Company or an Affiliate, this provision shall apply only upon
termination of both the independent contractor and employment relationship between
the Participant and the Company or an Affiliate. In the case of a Participant who
is a natural person and who ceases to be employed by or performing services for the
Company or an Affiliate due to his or her disability (with disability being
determined in the sole discretion of the Committee), the Committee, at its
discretion, may permit exercise of the portion of the Stock Appreciation Right that
is exercisable upon such termination of employment until the earlier of the
originally stated date of termination of the Stock Appreciation Right or up to one
year after such termination of employment or other service. |
|
(d) |
|
Death of Participant. Unless otherwise provided in the applicable Award
agreement, if a Participant who is a natural person shall cease to be employed by or
performing services for the Company or any Affiliate as a result of the Participants
death, any Stock Appreciation Right held by such Participant may be exercised to the
same extent that the Participant would have been entitled to exercise it at the date of
death and may be exercised within a period of one (1) year after the date of death, but
in no case later than the expiration date of such Stock Appreciation Right. Such Stock
Appreciation Right shall be exercised pursuant to Section 9(b) of this Plan by the
person or persons to whom the Participants rights under the Stock Appreciation Right
shall pass by will or the laws of descent and distribution. |
|
(e) |
|
Termination of Stock Appreciation Rights Not Exercisable. Unless the
applicable Award agreement provides otherwise, upon termination of a Participants
employment or other services with the Company or an Affiliate for any reason, including
by reason of death or disability of the Participant, any portion of the Participants
Stock Appreciation Rights that is not exercisable shall automatically and immediately
terminate as to such Participant. |
10. |
|
Awards of Restricted Stock |
|
(a) |
|
Grant. Awards of Restricted Stock subject to forfeiture and transfer
restrictions may be granted by the Committee under the Plan. Any Awards of Restricted
Stock shall be evidenced by an Award agreement in such form as the Committee shall from
time to time approve and which shall set forth the terms and conditions of the Award of
Restricted Stock. Subject to the provisions of the Plan, the Committee shall determine
the number of shares of Restricted Stock to be granted
to each Participant; the duration of any period during which, and the conditions, if
any, under which, the Restricted Stock may be forfeited to the Company; and the
other terms and conditions of such Awards. The Committee may determine a period of
time during which the Participant receiving the Award of Restricted Stock must
remain in the continuous employment of the Company in order for the forfeiture and
transfer restrictions to lapse. If the Committee so determines, the restrictions
may lapse during any such restricted period in installments with respect to
specified portions of the shares of Restricted Stock covered by the Award of
Restricted Stock. The Committee may also impose performance or other conditions
that will subject the shares subject to the Award of Restricted Stock to forfeiture
and transfer restrictions. The Committee may, at any time, in its discretion, waive
all or any part of any restrictions applicable to any or all outstanding Awards of
Restricted Stock. |
16
|
(b) |
|
Transfer Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as provided in the Plan or the
applicable Award agreement. At the time of the grant of an Award of Restricted Stock,
a stock certificate representing the number of shares of Restricted Stock awarded
thereunder shall be registered in the name of the Participant and held by the Company.
Such stock certificate may bear a legend describing the conditions of the Restricted
Stock Award. Unless the Award agreement evidencing an Award of Restricted Stock or the
Committee provides otherwise, the Participant receiving the Award of Restricted Stock
shall have all rights of a shareholder with respect to the shares of Restricted Stock
subject to such Award, including the right to receive any dividends and the right to
vote such shares, subject to the following restrictions: (i) the Participant receiving
the Award of Restricted Stock shall not be entitled to delivery of the stock
certificate until the expiration of the restricted period and the fulfillment of any
other restrictive conditions set forth in the applicable Award agreement; (ii) none of
the shares of Common Stock subject to the Award of Restricted Stock may be sold,
assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of
during such restricted period or until after the fulfillment of any such other
restrictive condition; and (iii) all of the shares of Restricted Stock shall be
forfeited and all rights of the Participant to such shares shall terminate, without any
further obligation on the part of the Company, unless the Participant remains in the
continuous employment of the Company for the entire restricted period. Any shares of
Common Stock, any other securities of the Company and any other property (except for
cash dividends) distributed with respect to the shares subject to an Award of
Restricted Stock shall be subject to the same restrictions, terms and conditions as
such shares. After the lapse or termination of the restrictions of an Award of
Restricted Stock, or at such earlier time as otherwise determined by the Committee, a
stock certificate evidencing the shares of Common Stock subject to the Award of
Restricted Stock that bears no legend describing the conditions of an Award of
Restricted Stock shall be delivered to the Participant or his or her beneficiary or
estate, as the case may be. |
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Dividends. Dividends or dividend equivalents paid on any shares of Restricted
Stock may be paid directly to the Participant, withheld by the Company subject to
vesting of the Restricted Stock pursuant to the terms of the applicable Award
agreement, or may be reinvested in additional Awards of Restricted Stock, as determined
by the Committee in its discretion. |
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Termination of Employment or Service. If a Participant who holds a Restricted
Stock Award shall cease to be employed by or performing services for the Company or any
Affiliate for any reason other than death prior to the vesting of shares of Restricted
Stock granted to such Participant, unless the applicable Award agreement provides
otherwise, such Restricted Stock Award shall immediately and automatically terminate
and be forfeited and neither such Participant nor any of the Participants heirs,
personal representatives, successors or assigns shall have any rights with respect to
such unvested Restricted Stock Award. Notwithstanding the foregoing, if an independent
contractor or other non-employment relationship between the Participant and the Company
or an Affiliate is terminated due to the commencement of an employment relationship
with the Company or an Affiliate, this provision shall apply only upon termination of
both the independent contractor and employment relationship between the Participant and
the Company or an Affiliate. In the case of a Participant who is a natural person and
who ceases to be employed by or performing services for the Company or an Affiliate due
to his or her disability (with disability being determined in the sole discretion of
the Committee), the Committee, at its discretion, may permit a portion or all of the
shares subject to the Restricted Stock Award held by such Participant to vest on the
date of such termination. |
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Death of Participant. Unless otherwise provided in the applicable Award
agreement, if a Participant who is a natural person shall cease to be employed by or
performing services for the Company or any Affiliate as a result of the Participants
death prior to the vesting of shares subject to the Restricted Stock Award granted to
such Participant, the Committee, at its discretion, may permit a portion or all of the
shares of Restricted Stock to vest as of the date of death or to continue the
Restricted Stock Award under such terms and conditions as the Committee may determine.
The person entitled to any such shares of Restricted Stock shall be the person or
persons to whom the Participants rights under the Restricted Stock Award shall pass by
will or the laws of descent and distribution. |
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Termination of Restricted Stock Awards Not Vested. Unless the applicable Award
agreement provides otherwise, upon termination of a Participants employment or other
services with the Company or an Affiliate for any reason, including by reason of death
or disability of the Participant, any portion of the Participants Restricted Stock
Award that has not vested shall automatically and immediately terminate as to such
Participant, and the shares subject to such portion of the Restricted Stock Award shall
be available for the grant of Awards under the Plan. |
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Other Provisions. Each Award agreement relating to an Award of Restricted
Stock authorized under this Section 10 may contain such other provisions as the
Committee shall deem advisable including, but not limited to, a requirement that shares
of Common Stock acquired under an Award of Restricted Stock be subject to a restriction
on the Participants ability to transfer the shares to third parties without the
consent of the Company. |
In addition to the Awards described in Section 7 through 10 of the Plan, the Committee may
grant other incentives payable in cash or in Shares under the Plan as it determines to be in the
best interests of the Company and subject to such other terms and conditions as it deems
appropriate.
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Performance-Based Awards. |
Notwithstanding anything to the contrary herein, the Committee may grant performance-based
Options, Awards of Restricted Stock, Other Stock-Based Awards and Other Cash-Based Awards to
Participants (Performance-Based Awards). Any such Awards granted to Participants who may be
covered employees under Section 162(m) of the Code or any successor section thereto shall be
consistent with the provisions thereof. In such cases, a Participants Performance-Based Award
shall be determined based on the attainment of written performance goals approved by the Committee
for a performance period established by the Committee.
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Adjustments Upon Certain Events |
Notwithstanding any other provisions in the Plan to the contrary, the following provisions
shall apply to all Awards granted under the Plan:
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Generally. Upon any change in the outstanding shares of Common Stock after the
Effective Date by reason of any stock dividend, stock split, reverse stock split,
reclassification, combination, exchange of shares or other similar recapitalization of
the Company, there shall be an appropriate adjustment to (i) the number or kind of
shares of Common Stock or other securities issued or reserved for issuance pursuant to
the Plan or pursuant to outstanding Awards, (ii) the Exercise Price of any Option or
the exercise price of any Stock Appreciation Right, and/or (iii) any other affected
terms of such Awards. Notwithstanding the foregoing, no fractional shares shall be
issued or paid for. No adjustment shall be made under this Section 13(a) upon the
issuance by the Company of any warrants, rights or options to acquire additional Common
Stock or of securities convertible into Common Stock unless such warrants, rights,
options or convertible securities are issued to all shareholders of the Company on a
proportionate basis. |
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(b) |
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Change in Control. Notwithstanding anything contained in this Plan to the
contrary, and unless otherwise provided in the applicable Award agreement at the time
of grant, in the event of a Change in Control (as defined below), the following shall
occur as of the effective date of such Change in Control with
respect to any and all Awards outstanding as of the effective date of such Change in
Control: (i) any and all Options and Stock Appreciation Rights granted hereunder
shall become immediately exercisable, and shall remain exercisable throughout their
entire term; (ii) any restrictions imposed on Restricted Stock shall lapse; and
(iii) unless otherwise specified in an Award agreement at time of grant, the maximum
payout opportunities attainable under all outstanding Awards shall be deemed to have
been fully earned for the entire performance period(s) as of the effective date of
the Change of Control. The vesting of all such Awards shall be accelerated as of
the effective date of the Change of Control transaction, and in full settlement of
such Awards, there shall be paid out in cash, or in the sole discretion of the
Committee, shares of Common Stock with a Fair Market Value equal to the amount of
such cash, to participants within thirty (30) days following the effective date of
the Change of Control transaction the maximum of payout opportunities associated
with such outstanding Awards. |
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Definition of Change of Control. For purposes of this Section 13, Change in
Control means: |
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(i) |
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The sale, lease, exchange or other transfer, directly or
indirectly, of all or substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a person or entity that
is not controlled by the Company; |
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(ii) |
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The approval by the Companys shareholders of any plan or
proposal for the liquidation or dissolution of the Company; |
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(iii) |
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Any person or entity becomes the beneficial owner (as
defined in Rule 13d 3 under the Exchange Act), directly or indirectly, of more
than fifty percent (50%) of the combined voting power of the outstanding
securities of the Company ordinarily having the right to vote at elections of
directors who were not beneficial owners of at least fifty percent (50%) of
such combined voting power as of the Effective Date; or |
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(iv) |
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A merger or consolidation to which the Company is a party if
the shareholders of the Company immediately prior to the effective date of such
merger or consolidation have, solely on account of ownership of securities of
the Company at such time, beneficial ownership (as defined in Rule 13d 3
under the Exchange Act) immediately following the effective date of such merger
or consolidation of securities of the surviving company representing less than
fifty percent (50%) of the combined voting power of the surviving corporations
then outstanding securities ordinarily having the right to vote at elections of
directors. |
The provisions of this Section shall similarly apply to successive transactions of the types
described in Sections 13(c)(i) through (iv).
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Notwithstanding anything else herein, Change of Control shall not include the sale, lease,
exchange or other transfer, direct or indirect, of all or substantially all of the assets or equity
of the Companys legacy vault business (i.e., the DigiBAK (vault) business).
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Additional Adjustments of Awards. Subject to the above provisions, the
Committee shall have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation, dissolution or other Change in Control
transaction, to take such further action as it determines to be necessary or advisable
with respect to Awards. Such authorized action may include (but shall not be limited
to) establishing, amending or waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later, extended or additional
time for exercise and lifting restrictions and other modifications, and the Committee
may take such actions with respect to all Participants, to certain categories of
Participants or to only individual Participants. The Committee may take such action
before or after granting Awards to which the action relates and before or after any
public announcement with respect to such sale, merger, consolidation, reorganization,
liquidation, dissolution or Change in Control that is the reason for such action. The
grant of an Award under the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to dissolve, liquidate
or sell, or transfer all or any part of its business or assets. |
14. |
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Shares Acquired for Investment |
Shares of Common Stock acquired by a Participant under this Plan shall be acquired by the
Participant for investment and without intention of resale unless, in the opinion of counsel to the
Company, such shares may be purchased without any investment representation. Where an investment
representation is deemed necessary, the Committee may require a written representation to that
effect by the Participant as a condition of a Participant exercising an Option or otherwise
obtaining shares of Common Stock pursuant an Award granted under this Plan, and the Committee may
place an appropriate legend on the stock certificates evidencing the shares of Common Stock so
issued indicating that such shares have not been registered under federal or state securities laws
and describing the restrictions on transfer. Each Award shall be subject to the requirement that
if, at any time, the Committee shall determine in its discretion that the listing, registration or
qualification of the shares of Common Stock subject to the Award upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental regulatory body, if
necessary or desirable as a condition of, or in connection with, the granting of such Award or the
issuance or purchase of shares of Common Stock thereunder, then such Award shall not be granted or
exercised in whole or in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to the Committee.
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15. |
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No Right to Employment, Service as a Director or Awards |
The granting of an Award under the Plan shall impose no obligation on the Company or any
Affiliate to continue the employment of a Participant and shall not lessen or affect the
Companys or the Affiliates right to terminate the employment of such Participant. Nothing
in the Plan will interfere with or limit in any way the right of the Company, the Board or the
Companys stockholders to terminate the directorship of any Director at any time, nor confer upon
any Director any right to continue to serve as a Director of the Company. No Participant or other
person shall have any claim to be granted any Award, and there is no obligation for uniform
treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of
Awards and the Committees determinations and interpretations with respect thereto need not be the
same with respect to each Participant.
16. |
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Other Benefit and Compensation Programs |
Payments and other benefits received by a Participant under an Award shall not be deemed a
part of a Participants regular, recurring compensation for purposes of any termination, indemnity
or severance pay laws and shall not be included in, nor have any effect on, the determination of
benefits under any other employee benefit plan, contract or similar arrangement provided by the
Company or an Affiliate, unless expressly so provided by such other plan, contract or arrangement
or the Committee determines that an Award or portion of an Award should be included to reflect
competitive compensation practices or to recognize that an Award has been made in lieu of a portion
of competitive cash compensation.
17. |
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Successors and Assigns |
The Plan shall be binding on all successors and assigns of the Company and a Participant
including, without limitation, the estate of such Participant and the executor, administrator or
trustee of such estate, or any receiver or trustee in bankruptcy or representative of the
Participants creditors.
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Nontransferability of Awards; Designation of Beneficiary |
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(a) |
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Nontransferability. No Award or interest in an Award may be sold, assigned,
pledged (as collateral for a loan or as security for the performance of an obligation
or for any other purpose) or transferred by the Participant or made subject to
attachment or similar proceedings otherwise than by will or by the applicable laws of
descent and distribution, except to the extent a Participant designates one or more
beneficiaries on a Company-approved form who may exercise the Award or receive payment
under the Award after the Participants death. During a Participants lifetime, an
Award may be exercised only by the Participant. |
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(b) |
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Designation of Beneficiary. A Participant may designate a beneficiary to
succeed to the Participants Awards under the Plan in the event of the Participants
death by filing a beneficiary form with the Company and, upon the death of the
Participant, such beneficiary shall succeed to the rights of the Participant to the
extent permitted by law and the terms of this Plan and the applicable Award agreement.
In the absence of a validly designated beneficiary who is living at the time of the
Participants death, the Participants executor or administrator of the Participants
estate shall succeed to the Awards, which shall be transferable by will or pursuant to
laws of descent and distribution. |
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19. |
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Amendments or Termination |
The Board may amend, alter or discontinue the Plan, but no amendment, alteration or
discontinuation shall be made without the consent of a Participant if such action would diminish
any of the rights of the Participant under any Award theretofore granted to such Participant under
the Plan; provided, however, that the Committee may amend the Plan in such manner as it deems
necessary to permit the granting of Awards meeting the requirements of the Code or other applicable
laws.
20. |
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International Participants |
With respect to Participants who reside or work outside the United States of America, the
Committee may, in its sole discretion, amend the terms of the Plan or adopt such modifications,
procedures or subplans with respect to such Participants as are necessary or desirable to ensure
the viability of the benefits of the Plan, comply with applicable foreign laws or obtain more
favorable tax or other treatment for a Participant, the Company or an Affiliate; provided, however,
that no such changes shall apply to the Awards to Participants who may be covered employees under
Section 162(m) of the Code or any successor thereto unless consistent with the provisions thereof.
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(a) |
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Issuance of Shares of Common Stock. Notwithstanding any other provision of the
Plan, the Company shall have no obligation to issue or deliver any shares of Common
Stock under an Award granted under the Plan or make any other distribution of benefits
under the Plan unless, in the opinion of the Companys counsel, such issuance, delivery
or distribution would comply with all applicable laws (including, without limitation,
the requirements of the Securities Act of 1933, as amended, or any successor thereto
(the Securities Act) or the laws of any state or foreign jurisdiction) and the
applicable requirements of any securities exchange or similar entity. The Company
shall be under no obligation to any Participant to register for offering or resale or
to qualify for an exemption from registration under the Securities Act, or to register
or qualify under the laws of any state or foreign jurisdiction, any Awards, shares of
Common Stock, security or interest in a security paid or issued under, or created by,
the Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue stock certificates evidencing shares of Common Stock with such
legends and subject to such restrictions on transfer and stop transfer instructions as
counsel for the Company deems necessary or desirable for compliance by the Company with
federal, state and foreign securities laws. The Company may also require such other
action or agreement by the Participants as may from time to time be necessary to comply
with applicable securities laws. |
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(b) |
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Stock Certificates. To the extent this Plan or any applicable Award agreement
provides for the issuance of stock certificates to reflect the issuance of shares of
Common Stock, the issuance may be effected on a non-certificated basis, to the
extent not prohibited by applicable law or the applicable rules of any stock
exchange or market on which such shares are traded or quoted. |
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(c) |
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No Rights as a Shareholder. Unless otherwise provided by the Committee or in
the Plan or an Award agreement evidencing an Award or in any other written agreement
between a Participant and the Company or an Affiliate, no Award shall entitle the
Participant to any cash dividend, voting or other right of a shareholder unless and
until the date of issuance under the Plan of any shares of Common Stock that are
subject to such Award. |
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(d) |
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No Trust or Fund. The Plan is intended to constitute an unfunded plan.
Nothing contained herein shall require the Company to segregate any monies, other
property, or shares of Common Stock, or to create any trusts, or to make any special
deposits for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general unsecured
creditor of the Company. |
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(e) |
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Severability. If any provision of the Plan or any Award agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan or Award agreement, and such Plan or Award agreement
shall be construed and enforced as if the illegal or invalid provision had not been
included. |
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(f) |
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Choice of Law. The validity, construction, interpretation, administration and
effect of the Plan, and rights relating to the Plan and to Awards granted under the
Plan, shall be governed by the |
substantive laws, but not the choice of law rules, of the State of Delaware.
The Plan shall be effective on July 15, 2010 (the Effective Date), which is the date it was
approved by the Board. No options shall be granted pursuant to Section 6 hereof until the Plan is
approved by the Companys stockholders.
24
PROXY
FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD OCTOBER 14, 2010
This Proxy Is solicited on behalf of the Board of Directors of Digitiliti, Inc. (Digitiliti).
The undersigned, revoking all prior proxies, hereby appoints Roy A. Bauer and William M. McDonald,
or either of them, as proxy or proxies, with full power of substitution and revocation, to vote all
shares of common stock or Series A Convertible Preferred Stock of Digitiliti of record in the name
of the undersigned at the close of business on August 16, 2010 at the 2010 Annual Meeting of
Stockholders to be held on October 14, 2010 at 1:00 p.m., Central Daylight Time, at the primary
office of Digitiliti located at 266 East 7th Street, St. Paul, Minnesota, or any
adjournment thereof, upon matters listed below. I authorize the proxy to vote as his discretion may
dictate on the transaction of such other business as may properly come before the 2010 Annual
Meeting of Stockholders or any adjournment thereof.
Please mark, sign and date your proxy card and return it in the postage-paid envelope we have
provided or return it to Digitiliti, Inc., 266 East 7th Street, St. Paul, MN 55101,
attention: William M. McDonald.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be
Held on October 14, 2010: The Notice, Proxy Statement, 2009 Annual Report and form of Proxy will be
available at www.digitiliti.com/proxy2010 beginning on or about September 4, 2010.
Proposal No. 1:
The Board of Directors recommends that you vote For the following director nominees.
Election of the following to the Board of Directors until the next annual meeting and until their
successors are duly elected and qualified:
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For All o
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Withhold All o
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For all Except o |
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01) Roy A. Bauer
02) Kedar R. Belhe
03) Karen Gilles Larson
04) R.M. Rickenbach
05) Benno G. Sand |
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To withhold authority to vote for any individual nominee(s), mark For All Except and write the
number(s) of the nominee(s) above.
The Board of Directors recommends you vote FOR the following proposal(s):
Proposal No. 2:
To approve the 2010 long-term incentive plan.
o For o Against o Abstain
Proposal No. 3:
To approve an amendment to our Certificate of Incorporation to increase the number of
authorized shares
from 110,000,000 to 135,000,000 shares and allocate the additional shares as common
stock.
o For o Against o Abstain
Proposal No. 4:
To ratify the appointment of Malone and Bailey, LP to serve as independent registered
public accounting
firm for the year ending December 31, 2010.
o For o Against o Abstain
When signing as attorney, executor, administrator, trustee, or other fiduciary, please give full
title as such. Joint owner should each sign personally. All holders must sign. If a corporation or
partnership, please sign in full corporate or partnership name, by authorized officer.
Print Name of Stockholder Number of Shares
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Signature of Stockholder [SIGN WITHIN BOX]
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Signature of Joint Owner (if any) [SIGN WITHIN BOX]
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