DEF 14A 1 insignia010631d14a.txt INSIGNIA SYSTEMS, INC. DEFINITIVE PROXY STATEMENT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] Soliciting Material Pursuant to [_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12 Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials INSIGNIA SYSTEMS, 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): [X] No fee required. [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ________________________________________________________________________________ 2) Aggregate number of securities to which transaction applies: ________________________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ________________________________________________________________________________ 4) Proposed maximum aggregate value of transaction: ________________________________________________________________________________ 5) Total fee paid: ________________________________________________________________________________ [_] Fee paid previously with preliminary materials: ________________________________________________________________________________ [_] 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. 1) Amount previously paid: ________________________________________________________________________________ 2) Form, Schedule or Registration Statement No.: ________________________________________________________________________________ 3) Filing Party: ________________________________________________________________________________ 4) Date Filed: ________________________________________________________________________________ [LOGO] INSIGNIA SYSTEMS, INC. 5025 Cheshire Lane North - Plymouth, MN 55446 -------------------------------------------------------------------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS MAY 17, 2001 -------------------------------------------------------------------------------- TO THE STOCKHOLDERS OF INSIGNIA SYSTEMS, INC.: NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Insignia Systems, Inc. (the "Company"), a Minnesota corporation, will be held on Thursday, May 17, 2001 at 9:00 a.m., Central Daylight Savings Time, at the Radisson Hotel & Conference Center, 3131 Campus Drive, Plymouth, Minnesota, for the following purposes: 1. To elect directors to serve for the ensuing year and until their successors are elected; 2. To ratify an amendment to the Company's Stock Plan to increase by 500,000 shares the number of shares available under the Plan; 3. To ratify the appointment of Ernst & Young LLP as independent auditors for the Company for the current year; and 4. To transact such other business as may properly come before the meeting or any adjournment thereof. The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. The Board of Directors has fixed the close of business on March 21, 2001 as the record date for the determination of shareholders entitled to notice of and to vote at the meeting. By Order of the Board of Directors John R. Whisnant Acting Secretary Plymouth, Minnesota April 2, 2001 ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO VOTE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PAID ENVELOPE ENCLOSED FOR THAT PURPOSE. [LOGO] INSIGNIA SYSTEMS, INC. --------------------------------------- PROXY STATEMENT --------------------------------------------------- This Proxy Statement is furnished to the stockholders of Insignia Systems, Inc. in connection with the Board of Directors' solicitation of proxies to be voted at the annual meeting of stockholders to be held on May 17, 2001 or any adjournment thereof (the "Meeting"). The mailing of this Proxy Statement to stockholders commenced on or about April 2, 2001. All expenses in connection with solicitation of proxies will be borne by the Company. The Company will pay brokers, nominees, fiduciaries, or other custodians their reasonable expenses for sending proxy material to, and obtaining instructions from, persons for whom they hold stock of the Company. The Company expects to solicit proxies by mail, but directors, officers, and other employees of the Company may also solicit in person, by telephone, by telegraph or by mail. The Company's principal offices are located at 5025 Cheshire Lane North, Plymouth, Minnesota 55446. Any proxy may be revoked at any time before it is voted by written notice, mailed or delivered to the Secretary of the Company, or by revocation in person at the Meeting; but if not so revoked, the shares represented by such proxy will be voted in the manner directed by the shareholder. If no direction is made, proxies received from stockholders will be noted "for" the proposals set forth in the Notice of Meeting. The Company has 10,366,356 shares of common stock, par value $.01 per share (the "Common Stock") outstanding and entitled to vote at the Meeting. Each share of Common Stock is entitled to one vote. Only stockholders of record at the close of business on March 21, 2001 are entitled to vote at the meeting and at any continuation or adjournment thereof. The presence, in person or by proxy, of the holders of a majority of the shares of Common Stock entitled to vote at the meeting will constitute a quorum for the transaction of business. Under Minnesota law, each item of business properly presented at a meeting of stockholders generally must be approved by the affirmative vote of the holders of a majority of the voting power of the shares present, in person or by proxy, and entitled to vote on that item of business. However, if the shares present and entitled to vote on that item of business would not constitute a quorum for the transaction of business at the meeting, then the item must be approved by a majority of the voting power of the minimum number of shares that would constitute such a quorum. Votes cast by proxy or in person at the Meeting will be tabulated at the Meeting to determine whether or not a quorum is present. Abstentions will be treated as unvoted for purposes of determining the approval of the matter submitted to the shareholders for a vote. If a broker indicates on the proxy that it does not have discretionary authority as to certain shares to vote on a particular matter, those shares will not be considered as present and entitled to vote with respect to that matter. SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT The following table presents information provided to the Company as to the beneficial ownership of Common Stock as of March 21, 2001 (i) by persons known to the Company to hold 5% or more of such stock, (ii) each of the directors of the Company, (iii) each of the executive officers named in the Summary Compensation Table on page 3 and (iv) by all current officers and directors as a group. Beneficial ownership Page 1 includes shares available for purchase under warrants or options which are either currently exercisable or exercisable within 60 days after March 21, 2001. The address for directors and officers is that of the principal office of the Company.
Amount and Nature Name and Address of Of Beneficial Percent of Beneficial Owner Ownership Shares ----------------------------------------------------- ------------------------- --------------- Perkins Capital Management, Inc. 1,222,400 10.8% 730 East Lake Street Wayzata, MN 55391 W. Robert Ramsdell 1,110,567(1) 10.6% Perkins Opportunity Fund 799,800 7.1% 730 East Lake Street Wayzata, MN 55391 G. L. Hoffman 707,500(2) 6.9% Scott F. Drill 442,500(3) 4.1% Erwin A. Kelen 165,000(4) 1.6% Frank D. Trestman 165,000(5) 1.6% Gary L. Vars 167,158(6) 1.6% John R. Whisnant 99,780(7) 1.0% Don E. Schultz 45,000(8) 0.4% Gordon F. Stofer 24,014(9) 0.2% All current Directors and Officers as a Group 2,926,519(10) 28.0% (9 persons)
---------------------------------------- (1) Includes 195,000 shares subject to options and warrants which are currently exercisable. (2) Includes 11,371 shares owned by Mr. Hoffman's children, as to which he disclaims beneficial ownership. (3) Includes 400,000 shares subject to options and warrants which are currently exercisable. (4) Includes 110,000 shares subject to options and warrants which are currently exercisable and 30,000 shares held in trust for Mr. Kelen's children, as to which he disclaims beneficial ownership. (5) Includes 60,000 shares subject to options and warrants which are currently exercisable. Also includes 40,000 shares held in trust for Mr. Trestman's wife and children and 50,000 shares subject to warrants currently exercisable by the trust, as to which Mr. Trestman disclaims beneficial ownership. (6) Includes 139,375 shares subject to options and warrants which are currently exercisable, and 5,750 shares owned by Mr. Vars' wife, as to which he disclaims beneficial ownership. (7) Includes 39,583 shares subject to options and warrants which are currently exercisable. (8) Includes 45,000 shares subject to options and warrants which are currently exercisable. (9) Consists of 15,000 shares subject to options which are currently exercisable. (10) Includes 1,053,958 shares subject to options and warrants currently exercisable by officers and directors of the Company, 30,000 shares held in trust for the children of a director, 40,000 shares and 50,000 shares subject to warrants current exercisable held in trust for the wife and children of another director, 11,371 held by another director's children, and 5,750 shares held by the wife of another director. Page 2 EXECUTIVE COMPENSATION AND OTHER INFORMATION The following table shows, for the fiscal years ending December 31, 1998, 1999 and 2000, the cash compensation paid by the Company, as well as certain compensation paid or accrued for such years, to Scott Drill, the Company's President and Chief Executive Officer, and to each other executive officer of the Company (together with Mr. Drill, the "Named Executives") whose total cash compensation exceeded $100,000 during Fiscal 1998, 1999 and 2000 in all capacities in which they served: SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation Compensation Fiscal Year ------------------------- ---------------- Ended Stock Options All Other Name and Position December 31, Salary Bonus and Awards Compensation(1) -------------------------- ----------------- ------------ --------- ---------------- ------------------- G. L. Hoffman 2000 $103,692 -- -- $4,202 1999 $160,000 -- -- $6,290 1998 $160,000 -- -- $6,409 Scott Drill 2000 $216,670 -- -- $300 President and Chief 1999 $200,000 -- -- $396 Executive Officer 1998 $169,743 -- 400,000(2) $1,125 Gary Vars 2000 $187,667 -- -- $899 Chairman, Executive Vice 1999 $144,000 -- 65,000(3) $666 President and 1998 $36,000 -- 115,000(4) -- General Manager John R. Whisnant 2000 $125,000 -- -- $6,290 Vice President of 1999 $112,500 -- 40,000(5) $6,234 Finance, Chief Financial 1998 $100,000 -- 35,000(6) $6,286 Officer and Acting Secretary
---------------------------- (1) Includes amounts for car allowance and payment of life insurance premiums. (2) Includes a stock option to purchase 400,000 shares at $1.07 per share. (3) Includes a stock option to purchase 50,000 shares at $1.00 per share and a warrant to purchase 15,000 shares at $1.50 per share. (4) Includes a stock option to purchase 75,000 shares at $1.72 per share and a warrant to purchase 40,000 shares at $1.25 per share. (5) Includes a stock option to purchase 40,000 shares at $1.00 per share. (6) Includes a stock option to purchase 35,000 shares at $1.75 per share. STOCK OPTIONS The Company's Stock Plan (the "Plan") provides for the granting of stock options or restricted stock awards to key employees, consultants and directors. An aggregate of 1,970,000 shares of common stock have been issued or reserved for issuance under the Plan. As of March 21, 2001, there are options outstanding under the Plan for 1,361,050 shares. OPTION GRANTS IN LAST FISCAL YEAR None. Page 3 AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES The following table sets forth information with respect to the Named Executives concerning the exercise of options during the last fiscal year and unexercised options held as of the end of the fiscal year:
Number of Value of Unexercised Unexercised Options In-the-Money Options Shares at December 31, 2000 as of December 31, 2000(1) Acquired Value ---------------------------- ------------------------------ Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable ----------------------- ----------- -------- ----------- ------------- ----------- ------------- Scott F. Drill -- -- 400,000 -- $1,562,400 -- Gary L. Vars -- -- 111,250 63,750 $232,958 $133,493 John R. Whisnant 15,000 $85,785 30,833 44,167 $99,251 $142,174
----------------------- (1) Based on the market price of $4.969 per share for the Company's Common Stock on December 31, 2000. SECTION 16(b) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(b) of the Securities Act of 1934 requires the Company's executive officers and directors to file reports with the Securities and Exchange Commission concerning their initial ownership and changes in ownership of Company securities. To the Company's knowledge, all such reports were filed in a timely manner, except that W. Robert Ramsdell filed one late report in February 2000 concerning his ownership as of his initial election date as a director. ITEM I ELECTION OF DIRECTORS The Board of Directors has fixed at seven the size of the Board of Directors to be elected at the Meeting and has nominated as the management slate seven of the eight current members. Mr. Schultz is not standing for re-election. It is anticipated that proxies will be voted for the management slate, and that each nominee will serve if elected. Should any nominee be unable to serve, the persons named in the proxies may in their discretion vote for a substitute. The names and ages of the management slate of nominees, their principal occupations and other information is set forth below, based upon information furnished to the Company by the nominees.
Name and Age Occupation Director Since ----------------------------- ------------------------------------------------ ---------------- Gary L. Vars (60) Chairman, Executive Vice President and General 1999 Manager Scott F. Drill (48) President and Chief Executive Officer 1998 G. L. Hoffman (51) Private Investor 1990 Erwin A. Kelen (65) Private Investor, Consultant 1990 W. Robert Ramsdell (60) Private Investor, Consultant 1999 Gordon F. Stofer (54) Managing General Partner, Venture Capital Firm 1990 Frank D. Trestman (66) Private Investor, Consultant 1990
Page 4 BUSINESS EXPERIENCE G. L. Hoffman, age 51, a co-founder of the Company served as Chairman and Secretary of the Company since it was incorporated in January 1990 until March 2001, and was President and Chief Executive Officer from January 1990 until February 1998. Prior to that time he was a co-founder of Varitronic Systems, Inc., which develops, manufactures and markets business graphic products. Mr. Hoffman was employed as Chairman, Executive Vice President and Secretary of Varitronics from 1983 until January 1990. Scott F. Drill, age 48, has been President and Chief Executive Officer of the Company since February 24, 1998. Since May 1996, Mr. Drill was a partner in Minnesota Management Partners (MMP), a venture capital firm located in Minneapolis, Minnesota. He remains a partner in MMP, which completed investment of its capital in January 1998. From 1983 through March 1996 Mr. Drill was President and Chief Executive Officer of Varitronic Systems and Chairman since 1990. Prior to starting Varitronics, Mr. Drill held senior management positions in sales and marketing at Conklin Company and Kroy, Inc. Gary L. Vars, age 60, has been Executive Vice President and General Manager of the POPS Division since September 15, 1998 and Chairman since March 2001. Prior to joining the Company Mr. Vars spent 22 years as a marketing and business development consultant to Fortune 500 companies. From 1966 to 1976 Mr. Vars held various management positions at the Pillsbury Co., including Director of Marketing and New Product Development, Grocery Products Division. Erwin A. Kelen, age 65, has been a Director of the Company since August 1990. Since October 1990 Mr. Kelen has served as President of Kelen Ventures, a venture capital investment and consulting firm located in Minneapolis, Minnesota. From January 1984 to October 1990 Mr. Kelen was President and Chief Executive Officer of DataMyte Corporation, a manufacturer of computerized factory data collection systems based in Minneapolis, Minnesota. He is a director of Printronix, Inc., a manufacturer of printers for computer based systems located in Irvine, California; Computer Network Technologies, Inc., a Minneapolis-based designer and manufacturer of high-speed computer networking equipment; and CyberOptics a Minneapolis-based manufacturer of laser sensors and sensor systems. W. Robert Ramsdell, age 60, has been a Director of the Company since October 1999. Mr. Ramsdell has been engaged in private investments in micro cap companies since 1990. From 1970 to 1990 Mr. Ramsdell was in the institutional equity business where he became senior partner in 1973 as director of research and Los Angeles Office manager of Cantor Fitzgerald & Co and retired in 1990. He has been financial advisor to many companies including Occupational Urgent Care Systems (OUCH). Gordon F. Stofer, age 54, has been a Director of the Company since February 1990. Since 1980 Mr. Stofer has been the managing general partner of Cherry Tree Ventures, a venture capital investment firm located in Minneapolis, Minnesota. Mr. Stofer is also a director of Verdant Brands, Inc. (formerly Ringer Corporation), a lawn care products manufacturer and distributor in Eden Prairie, Minnesota; and Coda Music Technology, Inc., a developer and marketer of proprietary music technology products located in Eden Prairie, Minnesota. Frank D. Trestman, age 66, has been a Director of the Company since August 1990. Since November 1986 Mr. Trestman has served as President of Trestman Enterprises, a Minneapolis-based investment and consulting firm. Mr. Trestman also serves as a director of Best Buy Co., Inc., a national retailer of consumer electronic products based in Minneapolis, Minnesota, and Metris Companies, an information based direct marketer of consumer credit products, extended service plans and other fee based products and services to moderate income consumers. Metris Companies is located in Minneapolis, Minnesota. BOARD COMMITTEES The Board of Directors has two standing committees, the Audit Committee and the Compensation Committee. The Audit Committee consists of Mr. Kelen, Mr. Stofer and Mr. Trestman. The Audit Committee met one time in fiscal 2000 and has met once since December 31, 2000 to review the 2000 audit and the recommendations of the Company's independent auditors. Among other duties, the Audit Committee reviews Page 5 and evaluates significant matters relating to the audit and the internal controls of the Company, reviews the scope and results of audits by, and the recommendations of, the Company's independent auditors and approves additional services to be provided by the auditors. The Committee reviews the audited financial statements of the Company. The Compensation Committee consists of Mr. Kelen, Mr. Stofer, Mr. Ramsdell and Mr. Trestman. The Compensation Committee reviews the compensation of the Company's officers and directors and option grants to employees and met three times during 2000. The Board of Directors met four times during 2000. Each director attended at least 75% of the meetings held. The Company's directors do not receive any fees for their service on the Board of Directors, other than reimbursement of reasonable out-of-pocket expenses incurred on behalf of the Company. The Company's amended Stock Plan provides for the annual grant to each non-employee director of a non-qualified option to purchase 5,000 shares of common stock at an exercise price equal to the closing market price on the date of grant. BOARD AUDIT COMMITTEE REPORT The Audit Committee of the Board of Directors is responsible for providing independent objective oversight of the Company's financial reporting system by overseeing and monitoring management's and the independent auditors' participation in the financial reporting process. The Audit Committee is comprised of independent directors, and acts under a written charter first adopted and approved by the Board of Directors on October 23, 1991, and amended June 27, 2000, a copy of which is attached to this Proxy Statement as Appendix A. Each of the members of the Audit Committee is independent as defined by the Nasdaq listing standards. The Audit Committee held one meeting during fiscal year 2000. The meeting was designed to facilitate and encourage private communication between the Audit Committee and the Company's independent auditors, Ernst & Young LLP. The Audit Committee reviewed and discussed the audited financial statements with management and Ernst & Young LLP. Management represented to the Audit Committee that the Company's consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent auditors. The discussions with Ernst & Young LLP also included the matters required by Statement on Auditing Standards No. 61 (Communication with Audit Committees). Ernst & Young LLP provided to the Audit Committee the written disclosures and the letter regarding its independence as required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Committee discussed with the independent auditors the auditors' independence from management and the Company and considered the compatibility of nonaudit services with the auditors' independence. Based on the discussions with management and Ernst & Young LLP, the Audit Committee's review of the representations of management and the report of Ernst & Young LLP, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission. SUBMITTED BY THE AUDIT COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS: Erwin Kelen Gordon Stofer Frank Trestman The preceding report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Exchange Act of 1933 (the "1993 Act") or the Securities Exchange Act of 1934 (the "1934 Act"), except to the extent the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the 1993 Act or the 1934 Act. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" ELECTION OF THE MANAGEMENT SLATE OF NOMINEES. Page 6 ITEM II AMENDMENT TO STOCK PLAN The Board of Directors has adopted, subject to shareholder approval, an amendment to the Company's Stock Plan (the "Plan"). The amendment provides for an increase in the total number of shares available under the Plan by 500,000 shares to a total of 2,470,000 shares. As of March 21, 2001, a total of 608,557 shares had been issued upon the exercise of options under the Plan and there were options outstanding to purchase 1,361,050 shares under the Plan. Therefore, without shareholder approval of the amendment to the Plan, the Company believes that the remaining shares will be insufficient to cover future option grants and awards. The Board of Directors deemed it prudent to increase the shares available for grant under the Plan by 500,000 shares to facilitate future option grants and restricted stock awards. SUMMARY OF THE PLAN The Plan provides for the granting of stock options or restricted stock awards to key employees, consultants and directors. An aggregate of 1,970,000 shares of Common Stock have been issued or reserved for issuance under the Plan, as amended by the Board of Directors. Shares covered by expired or terminated stock options and forfeited shares of restricted stock may be used for subsequent awards under the Plan. The Plan is administered by the Company's Board of Directors or, if the Board so determines, by a committee of "disinterested persons" as defined in the Plan who are appointed by the Board. The Board or the committee has the power to select recipients, make awards of stock options or restricted shares, and adopt regulations and procedures for the Plan. The Plan permits the award of both stock options that qualify as "incentive stock options" under the Internal Revenue Code and options that do not so qualify ("non-qualified options"). Incentive stock options differ as to their tax treatment and are subject to a number of limitations under the Internal Revenue Code. The exercise price of non-qualified options may not be less than 85% of the fair market value of the stock on the date the option is granted. Incentive stock options may not be granted with an exercise price less than 100% of the fair market value of the Common Stock on the date of the grant (or, for an option granted to a person holding more than 10% of the Company's voting stock, at less than 110% of fair market value). Following an optionee's death, disability or retirement, the optionee's options may be exercised by the optionee (or the optionee's legal representative or legatee) for a period of three years or until the expiration of the stated term of the option, whichever is less. If an optionee's employment with the Company terminates for any other reason, such optionee's options will immediately terminate, except if such optionee is involuntarily terminated without "cause," in which even the optionee's vested options are exercisable for the lesser of three months or the remaining term of the option. Options may not be transferred other than by will or the laws of descent and distribution, and during the lifetime of an optionee may be exercised only by the optionee. The term of each option, which is fixed by the committee or the Board at the time of grant, may not exceed ten years from the date the option is granted (except that an incentive option granted to a person holding more than 10% of the Company's voting stock may be exercisable only for five years). Options may be made exercisable in whole or in installments, as determined by the committee or the Board. The vesting of options may be accelerated upon a change in control of the Company. The committee or the Board may also grant restricted stock awards under the Plan that result in shares of Common Stock being issued to a participant subject to restrictions against disposition during a restricted period established by the committee or the Board. The committee or the Board may condition the grant of restricted stock upon the attainment of specified performance goals or service requirements. The provisions of restricted stock awards need not be the same with respect to each recipient. The shares of restricted stock awarded under the Plan are to be held in custody by the Company until the restrictions thereon have lapsed. During the period of the restrictions, a participant has the right to vote the shares of restricted stock and to receive dividends and distributions unless the committee or the Board requires such dividends and distributions to be held by the Company subject to the same restrictions as the restricted stock. If a participant Page 7 terminates employment during the period of the restrictions, all shares still subject to restrictions will be forfeited and returned to the Company, subject to the right of the committee or the Board to waive such restrictions in the event of a participant's death, total disability, retirement or under special circumstances approved by the committee or the Board. GRANTS OF OPTIONS As of March 21, 2001, there are options outstanding under the Plan for 1,361,050 shares. During the last three years (January 1, 1998 to December 31, 2000), the Company has granted under the Plan options for a total of 640,000 shares to executive officers at an average price of $1.21 per share, options for a total of 75,000 shares to directors who are not executive officers at an average price of $2.72 per share and options for a total of 751,100 shares to other employees and to consultants at exercise prices ranging from $.75 to $4.00 per share. In 1998 options to purchase 40,066 shares were exercised by current and former employees. In 1999 options to purchase 181,666 shares were exercised by current and former employees. In 2000 options to purchase 135,000 shares were exercised by current and former employees. As of March 21, 2001, options covering 883,893 shares have terminated with exercise prices ranging from $.50 to $6.00 per share. FEDERAL INCOME TAX TREATMENT Generally the grant of either an incentive stock option or a non-qualified option under the Plan will not cause recognition of income by the optionee or entitle the Company to an income tax deduction. Upon exercise of an option the tax treatment will generally vary depending on whether the option is an incentive stock option or a non-qualified option. The exercise of an incentive stock option will generally not cause recognition of income by the optionee or entitle the Company to a tax deduction. However, the amount by which the fair market value of the shares obtained exceeds the exercise price on the date of exercise is an item of tax preference to the optionee for alternative minimum tax purposes. The exercise of a non-qualified option will generally cause the optionee to recognize taxable income equal to the difference between the exercise price and the fair market value of the stock obtained on the day of exercise. The Company must then in most cases obtain from the optionee funds to meet tax withholding requirements arising from that income recognition. The exercise of a non-qualified option will also generally entitle the Company to an income tax deduction equal to the amount of the income recognized by the exercising option holder. The foregoing discussion of the federal income tax treatment of options is necessarily general and any option holder should consult his tax advisor as to his own particular circumstances and applicable laws and regulations. SHAREHOLDER APPROVAL Approval of the amendment to the Plan requires the affirmative vote of a majority of the shares present and entitled to vote at the Meeting. REGISTRATION WITH THE SEC Upon approval of the amendment to the Plan, the Company will file a Registration Statement on Form S-8 to register with the SEC the issuance of the additional shares. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSED AMENDMENT TO THE PLAN. Page 8 ITEM III APPROVAL OF AUDITORS Ernst & Young LLP, independent auditors, have been the Company's auditors since 1990. They have been reappointed by the Board of Directors as the Company's auditors for the year ending December 31, 2001. Although shareholder approval is not required, the Board of Directors requests it. In the event the appointment should not be approved by the shareholders, the Board of Directors will make another appointment to be effective at the earliest possible time. AUDIT FEES The aggregate fees billed to the Company by Ernst & Young LLP for professional services rendered for the audit of the Company's consolidated annual financial statements for fiscal 2000 and the reviews of the financial statements included in the Company's Forms 10-Q for fiscal 2000 were $33,000. ALL OTHER FEES Other than audit fees, the aggregate fees billed to the Company by Ernst & Young LLP for the most recent fiscal year, none of which were financial information systems design and implementation fees, were $10,200. This figure includes fees of $10,200 for all nonaudit services such as tax-related services. The Audit Committee determined that the non-audit services performed by Ernst & Young LLP are not incompatible with maintaining Ernst & Young LLP's independence with respect to the Company. A representative of Ernst & Young LLP is expected to be present at the Meeting, will be given the opportunity to make a statement and will be available to answer appropriate questions. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP. OTHER BUSINESS The Management of the Company knows of no matters other than the foregoing to be brought before the Meeting. However, the enclosed proxy gives discretionary authority in the event any additional matters should be presented. SHAREHOLDER PROPOSALS The proxy rules of the Securities and Exchange Commission permit shareholders, after timely notice to issuers, to present proposals for shareholder action in issuer proxy statements where such proposals are consistent with applicable law, pertain to matters appropriate for shareholder action and are not properly omitted by issuer action in accordance with the proxy rules. The Company's next meeting of Shareholders (for the year ending December 31, 2001) is expected to be held on or about May 16, 2002 and proxy materials in connection with that meeting are expected to be mailed on or about April 3, 2002. Any shareholder proposals prepared in accordance with the proxy rules for inclusion in the Company's proxy materials must be received by the Company on or before December 1, 2001. The Company's Annual Report on Form 10-K for the year ended December 31, 2000 is being mailed to shareholders with this Proxy Statement. By Order of the Board of Directors John R. Whisnant Acting Secretary Page 9 APPENDIX A INSIGNIA SYSTEMS, INC. AUDIT COMMITTEE CHARTER ORGANIZATION This charter governs the operations of the Audit Committee. The Committee shall review and reassess the Charter as least annually and obtain the approval of the Board of Directors. The Committee shall be appointed by the Board of Directors and shall comprise at least three directors, each of whom are independent of management and the Company. Members of the Committee shall be considered independent if they have no relationship that may interfere with the exercise of their independence from management and the Company. All Committee members shall be financially literate and at least one member shall have accounting or related financial management expertise. STATEMENT OF POLICY The Audit Committee shall provide assistance to the Board of Directors in fulfilling their oversight responsibility to the shareholders, potential shareholders, the investment community, and others relating to the Company's financial statements and the financial reporting process, the systems of internal accounting and financial controls, the internal audit function, the annual independent audit of the Company's financial statements, and the legal compliance and ethics programs as established by management and the Board. In doing so, it is the responsibility of the Committee to maintain free and open communication between the Committee, independent auditors, the internal auditors and management of the Company. In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and the power to retain outside counsel, or other experts for this purpose. RESPONSIBILITIES AND PROCESSES The primary responsibility of the Audit Committee is to oversee the Company's financial reporting process on behalf of the Board and report the result of their activities to the Board. Management is responsible for preparing the Company's financial statements, and the independent auditors are responsible for auditing those financial statements. The Committee in carrying out its responsibilities believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The Committee should take the appropriate actions to set the overall corporate "tone" for quality financial reporting, sound business risk practices, and ethical behavior. The following shall be the principal recurring processes of the Audit Committee in carrying out its oversight responsibilities. The processes are set forth as a guide with the understanding that the Committee may supplement them as appropriate. The Committee shall have a clear understanding with management and the independent auditors that the independent auditors are ultimately accountable to the Board and the Audit Committee, as representatives of the Company's shareholders. The Committee shall have the ultimate authority and responsibility to evaluate and, where appropriate, replace the independent auditors. The Committee shall discuss with the auditors their independence from management and the Company and the matters included in the written disclosures required by the Independence Standards Board. Annually, the Committee shall review and recommend to the Board the selection of the Company's independent auditors, subject to shareholders' approval. The Committee shall discuss with the internal auditors and the independent auditors the overall scope and plans for their respective audits including the adequacy of staffing and compensation. Also, the Committee shall discuss with management, the internal auditors, and the independent auditors the adequacy and effectiveness of the accounting and financial controls, including the Company's system to monitor and manage business risk, and legal and ethical compliance programs. Further, the Committee shall meet separately with Page 10 the internal auditors and the independent auditors, with and without management present, to discuss the results of their examinations. The interim financial statements of the Company shall be reviewed by the independent auditors prior to the filing of the Company's Quarterly Report on Form 10-Q. When the independent auditors have identified matters that need to be communicated, the independent auditors shall discuss these matters with the Audit Committee and a representative of management prior to filing of the Form 10-Q. The Committee shall review with management and the independent auditors the financial statements to be included in the Company's Annual Report on Form 10-K (or the annual report to shareholders if distributed prior to the filing of Form 10-K), including their judgment about the quality, not just acceptability, of accounting principles, the reasonableness of significant judgements, and the clarity of the disclosures in the financial statements. Also, the Committee shall discuss the results of the annual audit and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards. While the Audit Committee has a specific responsibility set forth in this Charter, it is hereby expressly acknowledged that the Audit Committee does not conduct audit or investigations, or determine that the Company's financial statements are accurate and in compliance with generally accepted accounting practices. Nor will the Audit Committee resolve disagreements, if any, between Company management and the independent auditors, or assure compliance with laws and regulations, and the Company's global ethics policies. These are the responsibility of Company management and the independent auditors. Page 11 [LOGO] INSIGNIA SYSTEMS, INC. ANNUAL MEETING OF STOCKHOLDERS THURSDAY, MAY 17, 2001 9:00 A.M. RADISSON HOTEL AND CONFERENCE CENTER 3131 CAMPUS DRIVE PLYMOUTH, MN 55441 [LOGO] INSIGNIA SYSTEMS, INC. 5025 CHESHIRE LANE NORTH, PLYMOUTH, MN 55446 PROXY -------------------------------------------------------------------------------- THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING ON MAY 17, 2001. The shares of stock you hold in your account will be voted as you specify on the reverse side. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3. By signing the proxy, you revoke all prior proxies and appoint Scott F. Drill and John R. Whisnant, and each of them, with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments. SEE REVERSE FOR VOTING INSTRUCTIONS. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3. 1. Election of Directors: 01 G. L. Hoffman 05 W. Robert Ramsdell [ ] Vote FOR [ ] Vote WITHHELD 02 Scott F. Drill 06 Gordon F. Stofer all nominees from all nominees 03 Gary L. Vars 07 Frank D. Trestman (except as marked) 04 Erwin A. Kelen
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) ____________________________ | | | | |____________________________| PLEASE FOLD HERE -------------------------------------------------------------------------------- 2. To ratify an amendment to the Company's Stock Plan to increase the number of shares available under the plan. [ ] For [ ] Against [ ] Abstain 3. To ratify the appointment of Ernst & Young LLP as independent auditors for the current year. [ ] For [ ] Against [ ] Abstain THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL. Address Change? Mark Box [ ] Date ___________________________ Indicate changes below: ____________________________ | | | | |____________________________| Signature(s) in Box Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy, all persons must sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.