MICROVISION, INC.

 

 

NOTICE OF 2018 ANNUAL MEETING

June 5, 2018

 

 

Dear MicroVision Shareholder:

The Annual Meeting of Shareholders of MicroVision, Inc. (the “Company”) will be held at Courtyard Marriott Bellevue/Redmond, 14615 NE 29^th Place, Bellevue, WA 98007 on June 5, 2018 at 9:00 a.m. for the following purposes:

 

1.

To elect the seven director nominees named in the accompanying proxy statement to serve until the next annual meeting;

 

2.

To approve an amendment to the 2013 MicroVision, Inc. Incentive Plan;

 

3.

To approve an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock;

 

4.

To ratify the selection of Moss Adams LLP as the Company’s independent registered public accounting firm for the current fiscal year;

 

5.

To hold a non-binding advisory vote on the compensation of the Company’s named executive officers; and

 

6.

To conduct any other business that may properly come before the meeting and any adjournment or postponement of the meeting.

Details of the business to be conducted at the meeting are more fully described in the accompanying Proxy Statement. Please read it carefully before casting your vote.

If you were a shareholder of record on April 11, 2018 (the “Record Date”), you will be entitled to vote on the above matters. A list of shareholders as of the Record Date will be available for shareholder inspection at the headquarters of the Company, 6244 185^th Avenue NE, Suite 100, Redmond, Washington 98052, during ordinary business hours, from May 21, 2018 to the date of the Annual Meeting. The list also will be available for inspection at the Annual Meeting.

 

 

Important!

Whether or not you plan to attend the Annual Meeting, your vote is very important.

After reading the Proxy Statement, you are encouraged to vote by (1) toll-free telephone call, (2) the Internet or (3) completing, signing and dating the printable proxy card and returning it as soon as possible. If you are voting by telephone or the Internet, please follow the instructions on the proxy card. You may revoke your proxy at any time before it is voted by following the instructions provided below.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on June 5, 2018. The proxy materials and the annual report to shareholders for the fiscal year ended December 31, 2017 are available at http://www.microvision.com/investors/proxy.html.

If you need assistance voting your shares, please call Investor Relations at (425) 882-6629.

 

 

The Board of Directors recommends a vote FOR the election of the seven nominees for director named in this proxy statement, a vote FOR approval of the proposed amendment to the 2013 MicroVision, Inc. Incentive Plan, a vote FOR approval of the proposed amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock, a vote FOR ratification of the selection of Moss Adams LLP as the Company’s independent registered public accounting firm and a vote FOR the approval, on an advisory basis, of the compensation of the Company’s named executive officers, as such information is disclosed in this Proxy Statement under the heading Executive Compensation (commonly referred to as “say-on-pay”).

At the Annual Meeting, you will have an opportunity to ask questions about the Company and its operations. You may attend the Annual Meeting and vote your shares in person, even if you previously voted by telephone or the Internet or returned your proxy card. Your proxy (including a proxy granted by telephone or the Internet) may be revoked by sending in another signed proxy card with a later date, sending a letter revoking your proxy to the Company’s Secretary in Redmond, Washington, voting again by telephone or Internet, or attending the Annual Meeting and voting in person.

We look forward to seeing you. Thank you for your ongoing support of and interest in MicroVision, Inc.

 

Sincerely,

David J. Westgor

Secretary

April 20, 2018

Redmond, Washington

 

MICROVISION, INC.

6244 185th Avenue NE, Suite 100

Redmond, Washington 98052

 

 

PROXY STATEMENT FOR ANNUAL MEETING

OF SHAREHOLDERS

June 5, 2018

 

 

TABLE OF CONTENTS

 

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING			1
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD			4
Proposal One—Election Of Directors			4
Board Meetings and Committees			6
Shareholder Communication with the Board of Directors			10
Compensation Committee Interlocks and Insider Participation			10
Section 16(a) Beneficial Ownership Reporting Compliance			10
Code of Ethics			10
Proposal Two—Amendment to the 2013 MicroVision Incentive Plan			11
Proposal Three—Amendment to the Company’s Certificate of Incorporation			15
Proposal Four—Ratification of the Selection of Independent Registered Public Accounting Firm			17
Proposal Five—Advisory Vote on Executive Compensation			18
OTHER BUSINESS			18
EXECUTIVE COMPENSATION			19
Compensation Discussion and Analysis			19
Compensation Committee Report			21
Summary Compensation Table for 2017			22
Grants of Plan-Based Awards During 2017			24
Outstanding Equity Awards at Year End 2017			24
Option Exercises and Stock Vested During 2017			25
Potential Payments upon Termination or Change in Control			25
Severance and Employment Agreements			26
Director Compensation for 2017			29
INFORMATION ABOUT MICROVISION COMMON STOCK OWNERSHIP			31
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE			33
AUDIT COMMITTEE REPORT			33
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			34
INFORMATION ABOUT SHAREHOLDER PROPOSALS			35
ADDITIONAL INFORMATION			36
Annual Report			36
Incorporation by Reference			36
Householding			36
Voting by Telephone or the Internet			36

INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

 

Q:	Why did you send me this Notice of Internet Availability of Proxy Materials?

 

A:

We sent you the Notice of Internet Availability of Proxy Materials because the Board of Directors of the Company (the “Board of Directors” or the “Board”) is soliciting your proxy to vote at the 2018 Annual Meeting of Shareholders (the “Annual Meeting”). The Annual Meeting will be held at the Courtyard Marriott Bellevue/Redmond, 14615 NE 29th Place, Bellevue, WA 98007 on June 5, 2018, at 9:00 a.m.

This Proxy Statement summarizes the information regarding the matters to be voted upon at the Annual Meeting. You do not need to attend the Annual Meeting, however, to vote your shares. You may simply vote your shares by telephone or over the Internet in accordance with the instructions contained on the proxy card. You may also print, complete, sign, and return the proxy card to the address in the instructions.

On April 11, 2018 (the “Record Date”) there were 78,613,343 shares of common stock of the Company outstanding. If you owned shares of our common stock at the close of business on the Record Date, you are entitled to one vote for each share of common stock you owned as of that date. We made this Proxy Statement available on or about April 20, 2018 to all shareholders entitled to vote their shares at the Annual Meeting.

 

Q:	How many votes do I have?

 

A:	You have one vote for each share of common stock that you owned on the Record Date. The proxy card will indicate the number of shares.

 

Q:	How do I vote by proxy?

 

A:

If you properly cast your vote by either voting your proxy by telephone or via the Internet or executing and returning the proxy card, and your vote is not subsequently revoked by you, your vote will be voted in accordance with your instructions. If you sign the proxy card but do not make specific choices, your proxy will vote your shares as recommended by the Board as follows:

 

•

“FOR” the election of each of the nominees for director named in this proxy statement;

 

•

“FOR” approval of the proposed amendment to the 2013 MicroVision, Inc. Incentive Plan;

 

•

“FOR” approval of the proposed amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock;

 

•

“FOR” ratification of the selection of Moss Adams LLP as the Company’s independent registered public accounting firm; and

 

•

“FOR” the approval, on an advisory basis, of the compensation of the Company’s named executive officers, as such information is disclosed in this Proxy Statement under the heading Executive Compensation (commonly referred to as “say-on-pay”).

If any other matter is presented, your proxy will vote in accordance with his or her best judgment. At the time we printed this Proxy Statement, we knew of no matters that needed to be acted on at the Annual Meeting other than those discussed in this Proxy Statement.

 

Q:	May my broker vote for me?

 

A:

Under the rules of the Financial Industry Regulatory Authority, if your broker holds your shares in its “street” name, the broker may vote your shares on routine matters even if it does not receive instructions from you. At the Annual Meeting your broker may, without instructions from you, vote on Proposal 3 and Proposal 4, but not on any of the other proposals.

 

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Q:	What are abstentions and broker non-votes?

 

A:

An abstention represents the action by a shareholder to refrain from voting “for” or “against” a proposal. “Broker non-votes” represent votes that could have been cast on a particular matter by a broker, as a shareholder of record, but that were not cast because the broker (i) lacked discretionary voting authority on the matter and did not receive voting instructions from the beneficial owner of the shares or (ii) had discretionary voting authority but nevertheless refrained from voting on the matter.

 

Q:	May I revoke my proxy?

 

A:	Yes. You may change your mind after you send in your proxy card or vote your shares by telephone or via the Internet by following these procedures. To revoke your proxy:

 

•

Vote again by telephone or Internet;

 

•

Send in another signed proxy card with a later date;

 

•

Send a letter revoking your proxy to MicroVision’s Secretary at the Company’s offices in Redmond, Washington; or

 

•

Attend the Annual Meeting and vote in person.

 

Q:	How do I vote in person?

 

A:

If you plan to attend the Annual Meeting and vote in person, we will give you a ballot when you arrive. If your shares are held in a brokerage account or by another nominee, the Notice of Internet Availability of Proxy Materials is being forwarded to you. Follow the instructions on the Notice of Internet Availability of Proxy Materials in order to vote your shares by proxy or in person. Alternatively, you may contact the person in whose name your shares are registered or brokerage if shares are held in street name and obtain a proxy from that person or brokerage and bring it to the Annual Meeting.

 

Q:	What is the quorum requirement for the meeting?

 

A:

The quorum requirement for holding the meeting and transacting business is one-third of the outstanding shares entitled to be voted. The shares may be present in person or represented by proxy at the meeting. Both abstentions and broker non-votes are counted as present for the purpose of determining the presence of a quorum.

 

Q:	What vote is required to approve the election of directors (Proposal 1)?

 

A:

The seven nominees for director who receive the most votes at the 2018 Annual Meeting will be elected. So, if you do not vote for a nominee, or you “withhold authority to vote” for a nominee, your vote will not count either “for” or “against” the nominee. Abstentions and broker non-votes will have no effect on the outcome of voting for directors.

 

Q:	What vote is required to approve the proposed amendment to the 2013 MicroVision, Inc. Incentive Plan (Proposal 2)?

 

A:

The affirmative vote of a majority of the votes properly cast on the proposal at the 2018 Annual Meeting is required to approve the amendment to the 2013 MicroVision, Inc. Incentive Plan. Abstentions and broker non-votes will not be counted “for” or “against” the proposal and will have no effect on the outcome of the vote.

 

Q:	What vote is required to approve the proposed amendment to the Company’s Certificate of Incorporation (Proposal 3)?

 

A:	Approval of the amendment to the Company’s Certificate of Incorporation requires the affirmative vote of a majority of the outstanding shares of the Company’s common stock. As a result, abstentions and broker non-votes will have the same effect as a vote against the proposal.

 

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Q:	What vote is required to ratify the selection of Moss Adams LLP as the Company’s independent registered public accounting firm (Proposal 4)?

 

A:

The affirmative vote of a majority of the votes properly cast on the proposal at the 2018 Annual Meeting is required to ratify the appointment of Moss Adams LLP as the Company’s independent registered public accounting firm. Abstentions and broker non-votes will have no effect on the outcome of the vote.

 

Q:	What vote is required to approve the vote on the compensation of the Company’s named executive officers (Proposal 5)?

 

A:	For Proposal 5, you may vote “FOR”, “AGAINST”, or “ABSTAIN”. Because Proposal 5 is an advisory vote, there is technically no minimum vote requirement for that Proposal. Abstentions and broker non-votes will have no effect on the outcome of the vote.

 

Q:	Is voting confidential?

 

A:	We keep all the proxies and ballots private as a matter of practice.

 

Q:	Who pays the costs of soliciting these proxies?

 

A:

The Company will pay all the costs of soliciting these proxies. In addition to the solicitation of proxies by mail, our officers, employees or proxy solicitor also may solicit proxies by telephone, fax or other electronic means of communication, or in person. The Company has retained Saratoga Proxy Consulting, LLC at a fee estimated to be approximately $8,000, plus reasonable out-of-pocket expenses, to assist in the solicitation of proxies. The Company will also reimburse banks, brokers, nominees, fiduciaries and solicitors, including Saratoga, for the expenses they incur in forwarding the proxy materials to you.

 

Q:	Who should I call if I have any questions?

 

A:	If you have any questions about the Annual Meeting, voting or your ownership of MicroVision common stock, please call us at (425) 882-6629 or send an e-mail to ir@microvision.com.

 

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DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD

Proposal One—Election of Directors

The Board oversees the Company’s business affairs and monitors the performance of management. In accordance with corporate governance principles, the Board does not directly involve itself in day-to-day operations of the Company. The directors keep themselves informed through discussions with the Chief Executive Officer, other key executives, and the Company’s principal advisers by reading the reports and other materials that the Company sends them regularly and by participating in Board and committee meetings. The Company’s directors hold office until their successors have been elected and duly qualified unless the director resigns or by reason of death or other cause is unable to serve. Until any vacancy is filled, the Board will consist of the members who are elected at the Annual Meeting. Proxies cannot be voted for a greater number of persons than the number of nominees named.

If any nominee is unable to stand for election, the shares represented by all valid proxies will be voted for the election of such substitute nominee as the Board may recommend. All of the nominees are currently directors of the Company. The Company is not aware that any nominee is or will be unable to stand for election.

Proxies received from shareholders, unless directed otherwise, will be voted FOR the election of the nominees listed below.

THE BOARD RECOMMENDS A VOTE “FOR” ALL OF THE NOMINEES NAMED BELOW AS DIRECTORS OF THE COMPANY.

We seek individuals to serve as directors with established strong professional reputations, sophistication and experience in strategic planning, leadership, business management, innovation and in substantive areas that affect our business such as: technology development; sourcing, manufacturing and operations; financing; finance and accounting; business operations; government contracts; intellectual property strategy and licensing; legal and regulatory; and sales and marketing. We believe that each of our current directors possesses the professional and personal qualifications necessary for Board service and have highlighted particularly noteworthy attributes for each director in the individual biographies below.

Set forth below are the name, position held and age of each of the nominees for director of the Company. The principal occupation and recent employment history of each nominee is described below, and the number of shares of common stock beneficially owned by each nominee as of April 11, 2018 is set forth on page 31 of this Proxy Statement.

 

Name		Age				Position
Robert P. Carlile (1) (2)*			62			Director
Yalon Farhi			56			Director
Slade Gorton (1) (3)*			90			Director
Perry M. Mulligan			60			Director and Chief Executive Officer
Bernee D.L. Strom (1) (2)*			70			Director
Brian Turner (2) (3)*			58			Chairman of the Board and Lead Independent Director
Thomas M. Walker (3)*			53			Director

 

*	Independent Director

(1)	Member of the Compensation Committee

(2)	Member of the Audit Committee

(3)	Member of the Nominating Committee

Perry M. Mulligan has served as a director of the Company since January 2010 and Chief Executive Officer of the Company since November 2017. Mr. Mulligan has over 30 years of experience in operations and supply

 

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chain management. Mr. Mulligan was formerly Senior Vice President of Operations for Emulex Corporation where he oversaw Emulex operations, including supplier management, test engineering, logistics, IT and facilities from July 2013 to June 2015. Mr. Mulligan served as Senior Vice President, Operations for QLogic from October 2007 to June 2013, where he was responsible for all aspects of the manufacturing and delivery of products to the customer in addition to overall supply chain design and manufacturing strategy. Prior to QLogic, Mr. Mulligan was at Solectron from May 2004 to September 2007, where he held the position of Senior Vice President Supply Chain Management and Chief Procurement Officer and was responsible for establishing the overall materials and supply chain strategy. Mr. Mulligan brings extensive experience and knowledge in developing and setting up worldwide manufacturing and sourcing operations and overall supply chain strategy. Mr. Mulligan has an MBA from the University of Western Ontario.

Robert P. Carlile, a retired partner at KPMG LLP, joined the Company’s board in February 2017. In his 39-year career in public accounting at KPMG and Arthur Andersen, Mr. Carlile served as the lead audit partner on numerous public company engagements operating across different industries including technology, retail, transportation, bio-science, and manufacturing. He worked directly with boards of directors and audit committees of these companies on audits of financial statements and internal controls, registration statements and assistance with mergers, acquisitions and dispositions. In addition to his experience as a lead audit partner Mr. Carlile held a variety of operating leadership positions at KPMG and Arthur Andersen in the Pacific Northwest. In these roles he was responsible for establishing market strategy, fostering community relationships and accomplishing operating results. Mr. Carlile brings expertise to the board in the areas of auditing, accounting and financial reporting, internal controls and corporate governance.

Yalon Farhi joined the Company’s board in September 2016. Since 1998, Mr. Farhi, a Colonel in the Israeli Defense Forces (reserves), has served as a motivational lecturer and educator at Bnei-David Institutions, a pre-army and post-army educational program in Israel. From 1998 to January 2016, Mr. Farhi worked as an administrative manager for El-Ami, a non-governmental organization in Israel. Mr. Farhi also serves on the board of directors of DarioHealth Corp., a provider of digital health services and dynaCERT, Inc. a Canadian company that provides carbon reduction technology for internal combustion engines. In addition, for the past thirty years, Mr. Farhi has been the owner of a private gardening and land development services company based in Israel. Mr. Farhi received a degree in Education Studies and holds a Teaching Certificate from the Moreshet Yaacov College in Jerusalem. Mr. Farhi brings expertise to the board in international business.

Slade Gorton has served as a director of the Company since September 2003. Mr. Gorton is Of Counsel at the law firm of K&L Gates, LLP. Prior to joining the firm, he represented Washington State in the United States Senate for 18 years. Mr. Gorton began his political career in 1958 as a Washington State Representative and went on to serve as State House Majority Leader. Mr. Gorton served as Attorney General of Washington from 1969-1981, and during that time, he argued 14 cases before the United States Supreme Court. After leaving the Senate, Mr. Gorton served as a Commissioner on the National Commission on Terrorist Attacks Upon the United States (“9-11 Commission”); as a member of the National War Powers Commission and is Co-Chairman of the National Transportation Policy Project. Mr. Gorton also served in the U.S. Army, U.S. Air Force, and the U.S. Air Force Reserves. Mr. Gorton is a former Director of Clearwire, Inc. From his positions as an attorney, in business and government, and prior history as a director of the Company, Mr. Gorton brings expertise in legal matters, corporate governance, general leadership and the Company’s business and technology evolvement.

Bernee D.L. Strom has served as a director of the Company since October 2017. Ms. Strom has over 25 years of experience in executive management, marked by advisory roles and board memberships at Polaroid Corporation, Hughes Electronics/DirecTV, Benchmark Electronics and other public and privately held companies. Since April 2015, Ms. Strom has served as a Senior Advisor to Seattle-based investment bank Cascadia Capital and SkyLIFE Technologies. From 2008 to 2014 Ms. Strom was Chairman and CEO of WebTuner Corp., continuing as Chairman until 2015. Ms. Strom has also served as Chairman and CEO of Strom Group, an investment, management consulting, and business advisory firm focused on high technology companies. Prior to that, Ms. Strom founded or ran Gemstar/TV Guide International (now part of TIVO),

 

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Priceline.com, and USA Digital Radio (now HD Radio). Further, she was a founding partner of Revitalization Partners, a Seattle-based business advisory firm. Ms. Strom was named one of the leading business women of the State of Washington with its Lead Where You Land award and is the recipient of many other awards and recognition for her mentorship, entrepreneurship and leadership in both commercial and civic organizations.

Brian Turner has served as a director of the Company since July 2006 and currently serves as Chairman of the Board and Lead Independent Director. Mr. Turner was the Chief Financial Officer of Coinstar Inc. from 2003 until June 2009. Prior to Coinstar, from 2001 to 2003, he served as Senior Vice President of Operations, Chief Financial Officer and Treasurer of Real Networks, Inc., a digital media and technology company. Prior to Real Networks, from 1999 to 2001, Mr. Turner was employed by BSquare Corp., a software company, where he initially served as Senior Vice President of Operations, Chief Financial Officer and Secretary, before being promoted to President and Chief Operating Officer. From 1995 to 1999, Mr. Turner was Chief Financial Officer and Vice President of Administration of Radisys Corp., an embedded software company. Mr. Turner’s experience also includes 13 years at PricewaterhouseCoopers LLP where he held several positions including Director, Corporate Finance. Mr. Turner sits on various private company boards as well as on the board of Cray, Inc., a public company. Mr. Turner also served on Synergy Material Fund (“SMF”) from 2012 to 2015 where he was Lead Director and on the Audit and Compensation Committee. SMF was a registered Investment Company. Mr. Turner brings financing expertise and knowledge of operational finance and accounting to the Board.

Thomas M. Walker has served as a director of the Company since November 2013. Mr. Walker served as Executive Vice President of the Company from December 2012 through November 2013. Mr. Walker served as Vice President, General Counsel and Secretary of the Company from May 2002 to December 2012. Prior to joining MicroVision, Mr. Walker served as Senior Vice President, General Counsel and Secretary of Advanced Radio Telecom Corp., a publicly held telecommunications company where he managed domestic and international legal affairs from April 1996 to April 2002. Prior to that, Mr. Walker advised publicly and privately held businesses while practicing in the Los Angeles offices of the law firms of Pillsbury Winthrop and Buchalter Nemer Fields and Younger. Mr. Walker holds a B.A. from Claremont McKenna College and a J.D. from the University of Oregon. Mr. Walker has an in depth knowledge of the Company’s business from his time spent as an executive of the Company and also brings an understanding of corporate governance and relevant legal topics to the Board.

Board Meetings and Committees

Our Board of Directors met seven times during 2017. All directors attended at least 75% of the meetings of the Board and meetings of the Board committees on which they served. We have adopted a policy that each of our directors be requested to attend our Annual Meeting each year. All directors attended our annual meeting in 2017.

Independence Determination

No director will be deemed to be independent unless the Board affirmatively determines that the director has no material relationship with the Company, directly or as an officer, share owner, or partner of an organization that has a relationship with the Company. The Board observes all criteria for independence set forth in the NASDAQ listing standards and other governing laws and regulations.

In its annual review of director independence, the Board considers all commercial, banking, consulting, legal, accounting, charitable, or other business relationships any director may have with us. As a result of its annual review, the Board has determined that all of the directors, with the exception of Mr. Mulligan and Mr. Farhi, are independent (the “Independent Directors”). The Independent Directors are identified by an asterisk in the table above.

The NASDAQ listing standards have both objective tests and a subjective test for determining who is an “independent director.” The objective tests state, for example, that a director is not considered independent if he

 

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or she is our employee or is a partner in or executive officer of an entity to which we made, or from which we received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year. The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. None of the non-employee directors were disqualified from “independent” status under the objective tests. In assessing independence under the subjective test, the Board took into account the standards in the objective tests, and reviewed and discussed additional information provided by the directors and us with regard to each director’s business and personal activities as they may relate to us and our management. Based on all of the foregoing, as required by NASDAQ rules, the Board made a subjective determination as to each Independent Director that no relationship exists which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has not established categorical standards or guidelines to make these subjective determinations, but considers all relevant facts and circumstances.

In addition to the Board-level standards for director independence, the directors who serve on the Audit Committee each satisfy standards established by the Securities and Exchange Commission (the “SEC”) providing that to qualify as “independent” for purposes of membership on that Committee, members of audit committees may not accept, directly or indirectly any consulting, advisory, or other compensatory fee from us other than their director compensation.

Board’s Role in Risk Oversight

It is management’s responsibility to manage risk and bring to the Board’s attention risks that are material to the Company. The Board has oversight responsibility of the processes established to report and monitor systems for the most significant risks applicable to the Company. The Board administers its risk oversight role directly and through its committee structure and the committees’ regular reports to the Board at Board meetings. The Board reviews strategic, financial and execution risks and exposures associated with the annual plan and multi-year plans, major litigation and other matters that may present material risk to our operations, plans, prospects or reputation; acquisitions and divestitures and senior management succession planning.

Board Expertise and Diversity

The Nominating Committee seeks to have a Board that represents diversity as to experience, gender, race and ethnicity, but does not have a formal policy with respect to diversity. We seek a Board that reflects a range of talents, ages, skills, viewpoints, professional experience, educational background and expertise to provide sound and prudent guidance with respect to our operations and interests. All of our directors are financially literate, and three members of our Audit Committee are audit committee financial experts.

Board Leadership Structure

Our Board annually elects a Chairman of the Board. The Board has chosen to separate the roles of Chairman and Chief Executive Officer. Mr. Turner currently serves as Chairman and Lead Independent Director. In this role, among other duties, Mr. Turner meets with our Chief Executive Officer and with senior officers as necessary, schedules and presides at meetings of the Board, including meetings of the Independent Directors, serves as a liaison between the Board and our management, approves meeting schedules and agendas, and undertakes other responsibilities designated by the Board. The Board believes that the separate roles of Mr. Mulligan as Chief Executive Officer and Mr. Turner as Chairman and Lead Independent Director currently well serve the interests of us and our shareholders. Mr. Mulligan can devote his attention to leading the Company and focus on our business strategy. The Board believes that Mr. Turner provides an appropriate level of independence in the Company’s leadership through his review and approval of meeting agendas and his leadership of the Board.

 

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Committees

The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating Committee. The Board of Directors has adopted a written charter for each of the Audit Committee, Compensation Committee and Nominating Committee. The full text of each charter is available on our website located at www.microvision.com.

The Audit Committee

The Board has an Audit Committee which assists the Board by monitoring and overseeing: (1) our accounting and financial reporting processes and the audits of our financial statements, (2) the integrity of our financial statements, (3) our compliance with legal and regulatory requirements, and (4) the performance of our internal finance and accounting personnel and our independent auditors. The Audit Committee conducts discussions related to our earnings announcements and periodic filings, as well as numerous other informal meetings and communications among the Chair, various Audit Committee members, the independent auditors and/or members of our management. Robert P. Carlile, Bernee D.L. Strom and Brian Turner currently serve on the Audit Committee, with Mr. Carlile serving as Chairman. The Audit Committee met four times during 2017.

Among other matters, the Audit Committee monitors the activities and performance of our external auditors, including the audit scope, external audit fees, auditor independence matters and the extent to which the independent auditor may be retained to perform non-audit services. The Audit Committee and the Board of Directors have ultimate authority and responsibility to select, evaluate and, when appropriate, replace our independent auditor. The Audit Committee also reviews the results of the external audit work with regard to the adequacy and appropriateness of our financial accounting and internal controls. Management and independent auditor presentations to and discussions with the Audit Committee also cover various topics and events that may have significant financial impact or are the subject of discussions between management and the independent auditor. In addition, the Audit Committee generally oversees our internal financial controls and financial disclosure procedures.

The “audit committee financial experts” designated by the Board are Robert P. Carlile, Bernee D.L. Strom and Brian Turner, each an independent director. Mr. Carlile has thirty-nine years of experience in various roles in Public Accounting at KPMG and Arthur Andersen. Ms. Strom has over 25 years of executive management experience, marked by advisory roles and board memberships on both publicly and privately held companies. Mr. Turner has thirteen years of experience as a chief financial officer of four public companies and has thirteen years of experience in various roles at PricewaterhouseCoopers LLP, including Director, Corporate Finance.

The Compensation Committee

The Compensation Committee makes decisions on behalf of, and recommendations to, the Board regarding salaries, incentives and other forms of compensation for directors, officers, and other key employees, and administers policies relating to compensation and benefits. The Compensation Committee also serves as the Plan Administrator for our stock option plans pursuant to authority delegated by the Board. Slade Gorton, Bernee D.L. Strom, and Robert P. Carlile currently serve as members of the Compensation Committee, with Ms. Strom serving as chairperson. The Compensation Committee met four times during 2017.

The Nominating Committee

The Nominating Committee counsels the Board of Directors with respect to Board and committee structure and membership. In fulfilling its duties, the Nominating Committee, among other things, will:

 

•

establish criteria for nomination to the Board and its committees, taking into account the composition of the Board as a whole;

 

•

identify, review, and recommend director candidates for the Board;

 

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•

recommend directors for election at the annual meeting of shareholders and to fill new or vacant positions;

 

•

establish policies with respect to the process by which our shareholders may recommend candidates to the Nominating Committee for consideration for nomination as a director;

 

•

assess and monitor, with Board involvement, the performance of the Board; and

 

•

recommend directors for membership on Board Committees.

Thomas Walker, Slade Gorton and Brian Turner currently serve as members of the Nominating Committee, with Mr. Turner serving as Chairman. The Nominating Committee met once during 2017.

The Nominating Committee will consider recommendations for directorships submitted by shareholders, or groups of shareholders, that have beneficially owned at least 5% of our outstanding shares of common stock for at least one year prior to the date the nominating shareholder submits a candidate for nomination as a director. A nominating shareholder or group of nominating shareholders may submit only one candidate for consideration. Shareholders who wish the Nominating Committee to consider their recommendations for nominees for the position of director should submit their request in writing no later than the 120th calendar day before the anniversary of the date of the prior year’s annual meeting proxy statement was released to shareholders. Such written requests should be submitted to the Nominating Committee care of the Corporate Secretary, MicroVision, Inc., 6244 185th Avenue NE, Suite 100, Redmond, Washington 98052, and must contain the following information:

 

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The name, address, and number of shares of common stock beneficially owned by the nominating shareholder and each participant in a nominating shareholder group (including the name and address of all beneficial owners of more than 5% of the equity interests of a nominating shareholder or participant in a nominating shareholder group);

 

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A representation that the nominating shareholder, or nominating shareholder group, has been the beneficial owner of more than 5% of our outstanding shares of common stock for at least one year and will continue to beneficially own at least 5% of our outstanding shares of common stock through the date of the annual meeting;

 

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A description of all relationships, arrangements, or understandings between or among the nominating shareholder (or any participant in a nominating shareholder group) and the candidate or any other person or entity regarding the candidate, including the name of such person or entity;

 

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All information regarding the candidate that we would be required to disclose in a proxy statement filed pursuant to the rules and regulations of the SEC with respect to a meeting at which the candidate would stand for election;

 

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Confirmation that the candidate is independent, with respect to the Company, under the independence requirements established by us, the SEC, and NASDAQ listing requirements, or, if the candidate is not independent with respect to the Company under all such criteria, a description of the reasons why the candidate is not independent;

 

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The consent of the candidate to be named as a nominee and to serve as a member of the Board if nominated and elected;

 

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A representation signed by the candidate that if elected he or she will: (1) represent all shareholders of the Company in accordance with applicable laws, and our certificate of incorporation, by-laws, and other policies; (2) comply with all rules, policies, or requirements generally applicable to non-employee directors; and (3) upon request, complete and sign customary Directors and Officers Questionnaires.

 

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In its assessment of each potential candidate, the Nominating Committee will review the nominee’s judgment, experience, independence, understanding of our or other related industries and such other factors the Nominating Committee determines are pertinent in light of the current needs of the Board. The Nominating Committee will also take into account the ability of a director to devote the time and effort necessary to fulfill his or her responsibilities.

Nominees may be suggested by directors, members of management, and, as described above, by shareholders. In identifying and considering candidates for nomination to the Board, the Nominating Committee considers, in addition to the requirements set out in the Nominating Committee charter, quality of experience, our needs and the range of talent and experience represented on the Board.

Shareholder Communication with the Board of Directors

We have adopted written procedures establishing a process by which our shareholders can communicate with the Board of Directors regarding various topics related to the Company. A shareholder desiring to communicate with the Board, or any individual director, should send his or her written message to the Board of Directors (or the applicable director or directors) care of the Corporate Secretary, MicroVision, Inc., 6244 185th Avenue NE, Suite 100, Redmond, Washington 98052. Each submission will be forwarded, without editing or alteration, by the Secretary of the Company to the Board, or the applicable director or directors, on or prior to the next scheduled meeting of the Board. The Board will determine the method by which such submission will be reviewed and considered. The Board may also request the submitting shareholder to furnish additional information it may reasonably require or deem necessary to sufficiently review and consider the submission of such shareholder.

Compensation Committee Interlocks and Insider Participation

All members of the Compensation Committee during 2017 were independent directors, and none of them were our employees or former employees, at the time they served on the Compensation Committee. Mr. Mulligan served on the Compensation Committee in 2017 but stepped down from the Compensation Committee at the time he assumed the role of Chief Executive Officer of the Company. During 2017, none of our executive officers served on the compensation committee (or equivalent), or the board of directors, of any other entity whose executive officer(s) served on the Compensation Committee or Board.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors, executive officers, and greater-than 10% shareholders file reports with the SEC relating to their initial beneficial ownership of our securities and any subsequent changes. They must also provide us with copies of the reports.

Based solely on a review of the copies of such forms in our possession, and on written representations from reporting persons, we believe that all of these reporting persons complied with their filing requirements during 2017.

Code of Ethics

We have adopted a code of ethics applicable to all of our executive officers, known as the Code of Ethics for MicroVision Executives. We have also adopted a code of conduct applicable to our directors, officers, and employees, known as the Code of Conduct. The Code of Ethics for MicroVision Executives and the Code of Conduct are available on our website. In the event that we amend or waive any of the provisions of the Code of Ethics for MicroVision Executives we intend to disclose the same on our website at www.microvision.com.

 

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Proposal Two—Amendment of the 2013 MicroVision, Inc. Incentive Plan

The Board of Directors has authorized an amendment to the 2013 MicroVision, Inc. Incentive Plan (as amended, the “Incentive Plan”), subject to shareholder approval. The amendment will increase the number of shares of common stock reserved for issuance upon exercise of options granted under the Incentive Plan by 1,500,000 to a total of 10,800,000 shares.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE FOREGOING AMENDMENT OF THE 2013 MICROVISION, INC. INCENTIVE PLAN.

Summary of the Incentive Plan

The Incentive Plan amended, restated and renamed our 2006 Incentive Plan. The Incentive Plan was originally adopted by the Board in 2013 and approved by the shareholders in June of 2013. The Incentive Plan will terminate on the tenth anniversary of the date of approval by the shareholders, unless earlier terminated by the Board. If the proposed amendment to the Incentive Plan is approved, a maximum of 10,800,000 shares of common stock may be delivered in satisfaction of awards made under the Incentive Plan. The maximum number of shares of common stock for which stock options may be granted to any person in any calendar year and the maximum number of shares of common stock subject to stock appreciation rights, or “SARs,” granted to any person in any calendar year will each be 250,000. The maximum benefit that will be paid to any person under other awards in any calendar year will be, to the extent paid in shares, 250,000 shares, and, to the extent paid in cash, $3,000,000. In the event of a stock dividend, stock split or other change in our capital structure, the Administrator will make appropriate adjustments to the limits described above and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to awards, any exercise prices relating to awards and any other provisions of awards affected by the change. The Administrator may also make similar adjustments to take into account other distributions to stockholders or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Incentive Plan and to preserve the value of awards.

Administration. The Board of Directors administers the Incentive Plan. The term “Administrator” is used in this Proxy Statement to refer to the person (the Board and its delegates) charged with administering the Incentive Plan. The Administrator has full authority to determine who will receive awards and to determine the types of awards to be granted as well as the amounts, terms, and conditions of any awards. Awards may be in the form of options, SARs, restricted or unrestricted stock, deferred stock, other stock-based awards, or cash awards, and any such award may be a performance-based award. The Administrator has the right to determine any questions that may arise regarding the interpretation and application of the provisions of the Incentive Plan and to make, administer, and interpret such rules and regulations as it deems necessary or advisable. Determinations of the Administrator made under the Incentive Plan are conclusive and bind all parties.

Eligibility. Participation is limited to employees, non-employee directors, as well as consultants and advisors who are selected by the Administrator to receive an award. The group of persons from which the Administrator will select participants consisted of approximately 130 individuals as of March 29, 2018.

Stock Options. The Administrator may, from time to time, award options to any participant subject to the limitations described above. Stock options give the holder the right to purchase shares of common stock of the Company within a specified period of time at a specified price. Two types of stock options may be granted under the Incentive Plan: incentive stock options, or “ISOs”, which are subject to special tax treatment as described below, and nonstatutory options, or “NSOs.” Eligibility for ISOs is limited to employees of the Company and its subsidiaries.

The exercise price of an ISO cannot be less than the fair market value of the common stock at the time of grant. In addition, the expiration date of an ISO cannot be more than ten years after the date of the original grant.

 

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In the case of NSOs, the exercise price and the expiration date are determined in the discretion of the Administrator. The Administrator also determines all other terms and conditions related to the exercise of an option, including the consideration to be paid, if any, for the grant of the option, the time at which options may be exercised and conditions related to the exercise of options.

Stock Appreciation Rights. The Administrator may grant SARs under the Incentive Plan. An SAR entitles the holder upon exercise to receive an amount in cash or common stock or a combination thereof (as determined by the Administrator) computed by reference to appreciation in the value of a share of common stock above a base amount which may not be less than fair market value on the date of grant.

Stock Awards; Deferred Stock. The Incentive Plan provides for awards of nontransferable shares of restricted common stock, as well as unrestricted shares of common stock. Awards of restricted stock and unrestricted stock may be made in exchange for past services or other lawful consideration. Generally, awards of restricted stock are subject to the requirement that the shares be forfeited or resold to the Company unless specified conditions are met. Subject to these restrictions, conditions and forfeiture provisions, any recipient of an award of restricted stock will have all the rights of a stockholder of the Company, including the right to vote the shares and to receive dividends. Other awards under the Incentive Plan may also be settled with restricted stock. The Incentive Plan also provides for deferred grants (“deferred stock”) entitling the recipient to receive shares of common stock in the future on such conditions as the Administrator may specify. Any stock award or award of deferred stock resulting in a deferral of compensation subject to Section 409A of the Code will be construed to the maximum extent possible consistent with the requirements of Section 409A of the Code.

Performance Awards. The Administrator may also make awards subject to the satisfaction of specified performance criteria. Performance awards may consist of common stock or cash or a combination of the two. The performance criteria used in connection with a particular performance award will be determined by the Administrator. The Administrator will determine whether the performance targets or goals that have been chosen for a particular performance award have been met.

General Provisions Applicable to All Awards. Neither ISOs nor, except as the Administrator otherwise expressly provides, other awards may be transferred other than by will or by the laws of descent and distribution. During a recipient’s lifetime, an ISO and, except as the Administrator may provide, other non-transferable awards requiring exercise may be exercised only by the recipient. Shares delivered under the Incentive Plan may consist of either authorized but unissued or treasury shares. The number of shares delivered upon exercise of a stock option is determined net of any shares transferred by the optionee to the Company (including through the holding back of shares that would otherwise have been deliverable upon exercise) in payment of the exercise price or tax withholding.

Mergers and Similar Transactions. In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all of the Company’s stock by a person or entity or by a group of persons or entities acting together, or in the event of a sale of substantially all of the Company’s assets or a dissolution or liquidation of the Company, the following rules will apply except as otherwise provided in an Award:

 

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If the transaction is one in which there is an acquiring or surviving entity, the Administrator may provide for the assumption of some or all outstanding awards or for the grant of new awards in substitution therefor by the acquiror or survivor.

 

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If the transaction is one in which holders of common stock will receive a payment (whether cash, non-cash or a combination), the Administrator may provide for a “cash-out”, with respect to some or all awards, equal in the case of each affected award to the excess, if any, of (A) the fair market value of one share of common stock times the number of shares of common stock subject to the award, over (B) the aggregate exercise or purchase price, if any, under the award (in the case of an SAR, the aggregate base price above which appreciation is measured), in each case on such payment terms and other terms, and subject to such conditions, as the Administrator determines.

 

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If there is no assumption or substitution of any award requiring exercise, each such outstanding award will become fully exercisable prior to the completion of the transaction on a basis that gives the holder of the award a reasonable opportunity to exercise the award and participate in the transaction as a stockholder.

 

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Each award, other than outstanding shares of restricted stock, unless assumed will terminate upon consummation of the transaction.

 

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Any share of common stock delivered pursuant to the “cash-out” or acceleration of an award, as described above, may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting conditions to which the award was subject. In the case of restricted stock, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such stock in connection with the transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Incentive Plan.

Amendment. The Administrator may at any time or times amend the Incentive Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Incentive Plan as to any future grants of awards. The Administrator may not, however, alter the terms of an Award so as to affect adversely the Participant’s rights under the Award without the Participant’s consent, unless the Administrator expressly reserved the right to do so at the time of the Award.

Federal Income Tax Consequences

The following discussion summarizes certain federal income tax consequences of the grant and exercise of stock options under the Incentive Plan under the law as in effect on the date of this Proxy Statement. The summary does not purport to cover federal employment tax or other federal tax consequences that may be associated with stock options or federal tax consequences associated with other awards under the Incentive Plan, nor does it cover state, local or non-U.S. taxes.

ISOs. In general, an optionee realizes no taxable income for regular income tax purposes upon the grant or exercise of an ISO. However, the exercise of an ISO may result in an alternative minimum tax liability to the optionee. With certain exceptions, a disposition of shares purchased under an ISO within two years from the date of grant or within one year after exercise (a “disqualifying disposition”) produces ordinary income to the optionee equal to the value of the shares at the time of exercise less the exercise price. A corresponding deduction is available to the Company. Any additional gain recognized in the disqualifying disposition is treated as a capital gain for which the Company is not entitled to a deduction. In general, if the disqualifying disposition is an arm’s length sale at less than the fair market value of the shares at time of exercise, the optionee’s ordinary income, and the Company’s corresponding deduction, are limited to the excess, if any, of the amount realized on the sale over the amount paid by the optionee for the stock. If the optionee does not dispose of the shares until after the expiration of these one- and two-year holding periods, any gain or loss recognized upon a subsequent sale is treated as a long-term capital gain or loss for which the Company is not entitled to a deduction.

NSOs. In general, in the case of a NSO, the optionee has no taxable income at the time of grant but realizes income in connection with exercise of the option in an amount equal to the excess (at the time of exercise) of the fair market value of the shares acquired upon exercise over the exercise price; a corresponding deduction is available to the Company; and upon a subsequent sale or exchange of the shares, any recognized gain or loss after the date of exercise is treated as a capital gain or loss for which the Company is not entitled to a deduction.

In general, an ISO that is exercised by the optionee more than three months after termination of employment is treated as an NSO. ISOs are also treated as NSOs to the extent they first become exercisable by an individual in any calendar year for shares having a fair market value (determined as of the date of grant) in excess of $100,000.

 

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The Administrator may award stock options that are exercisable for restricted stock. Under Section 83 of the Code, an optionee who exercises an NSO for restricted stock will generally have income only when the stock vests. The income will equal the fair market value of the stock at that time less the exercise price. However, the optionee may make a so-called “83(b) election” in connection with the exercise to recognize taxable income at that time. Assuming no other applicable limitations, the amount and timing of the deduction available to the Company will correspond to the income recognized by the optionee. If an ISO is exercised for restricted stock, a timely 83(b) election will have the effect, in general, of fixing the amount taken into account for alternative minimum tax purposes at the excess of the fair market value of the shares at time of exercise over the exercise price. However, for regular income tax purposes the ordinary income and corresponding Company deduction associated with a disqualifying disposition of stock acquired upon exercise of an ISO, where the stock was restricted at time of exercise but vested prior to the disposition, would be determined by reference to the fair market value of the shares on the date of vesting whether or not the optionee made an 83(b) election.

Under the so-called “golden parachute” provisions of the Code, the accelerated vesting of awards in connection with a change in control of the Company may be required to be valued and taken into account in determining whether a participant has received compensatory payments, contingent on the change in control, in excess of certain limits. If these limits are exceeded, a substantial portion of amounts payable to the participant, including the payment consisting of accelerated vesting of awards, may be subject to an additional 20% federal tax and may be nondeductible to the Company.

Under Section 162(m) of the Code, remuneration in excess of $1 million is generally nondeductible if paid to any “covered employee” of a publicly held corporation (generally the corporation’s chief executive officer and its next three most highly compensated executive officers, excluding the chief financial officer, in the year that the compensation is paid).

Stock options awarded under the Incentive Plan are intended to be exempt from the rules of Section 409A of the Code and guidance issued thereunder and will be administered accordingly. However, neither the Company nor the Administrator, nor any person affiliated with or acting on behalf of the Company or the Administrator, will be liable to any participant or to the estate or beneficiary of any participant by reason of any acceleration of income, or any additional tax or interest penalties, resulting from the failure of an award to satisfy the requirements of Section 409A of the Code.

 

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Proposal Three—Amendment to the Company’s Certificate of Incorporation

The Board of Directors has authorized an amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), subject to shareholder approval. The amendment will increase the authorized number of shares of the Company’s common stock by 50,000,000 to a total of 150,000,000 shares.

The Company’s Certificate of Incorporation currently permits the Company to issue up to an aggregate of 125,000,000 shares of capital stock, consisting of 100,000,000 shares of common stock and 25,000,000 shares of preferred stock. On February 6, 2018, the Company’s Board of Directors unanimously approved an amendment to the Company’s Certificate of Incorporation to permit the Company to issue up to an aggregate of 175,000,000 shares of capital stock, consisting of 150,000,000 shares of common stock and 25,000,000 shares of preferred stock. The text of the proposed amendment is set forth below.

As of April 11, 2018, there were approximately 78,613,343 shares of the Company’s common stock issued and outstanding and approximately 7,137,620 shares of common stock reserved for future issuance under the Company’s outstanding options, warrants and convertible securities. Thus, approximately 2,220,772 authorized shares of common stock currently remain available for issuance.

The Board of Directors would like to increase the number of authorized shares of common stock to provide the Company with flexibility to issue shares of common stock for general corporate purposes, which could include, among other uses, financings, strategic partnering arrangements, equity incentive plans, acquisitions of assets or businesses, stock splits or stock dividends. The availability of additional authorized shares of common stock would allow the Company to accomplish these goals, and other business and financial objectives, in the future without stockholder approval, except as may be required in particular cases by the Company’s charter documents, applicable law or the rules of any stock exchange or other system on which the Company’s securities may then be listed.

The Board of Directors believes it would be in the best interests of the Company and its stockholders to have shares of common stock available for any of these purposes if needed. Although the Company expects to require raising additional capital to fund its operations past the third quarter of 2018, which may involve the issuance of common stock, it currently has no transaction pending and does not have plans currently for authorizing any other issuance of common stock other than pursuant to the Incentive Plan discussed in proposal 2 above.

Approving the amendment to increase the authorized number of shares of the Company’s common stock will not result in any dilution to current stockholders unless and until the Company issues such shares in the future. The Board of Directors selected the size of the increase to provide the company with sufficient authorized shares for use in any needed financing transactions, as well as to provide it the ability to take advantage of other opportunities that may be available to it that would require the use of shares of common stock without the cost and time that would be needed to seek further amendments to its Certificate of Incorporation.

If this proposal is not approved, the Company will be severely limited in its ability to engage in various transactions involving issuances of common stock, such as financings, strategic partnering arrangements, equity incentive plans and acquisitions of assets or businesses. We will require additional capital to fund our operations and to implement our business plan. If we do not obtain additional capital, we may be required to curtail our operations substantially.

In addition to the more traditional uses described above, the Company could issue shares of its stock as a defense against efforts to obtain control of the Company. The Board of Directors does not intend or view the increase in authorized shares of stock as an anti-takeover measure, nor is the Company aware of any proposed or contemplated transaction of this type.

 

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If this proposal is approved, the newly authorized shares of common stock would have the same rights as the presently authorized shares, including the right to cast one vote per share of common stock. Although the authorization of additional shares would not, in itself, have any effect on the rights of any holder of the Company’s common stock, the future issuance of additional shares of common stock (other than a stock split or dividend) would have the effect of diluting the voting rights and could have the effect of diluting earnings per share and book value per share of existing stockholders.

If approved, the first paragraph of Article IV of the Company’s Certificate of Incorporation will be amended to read in its entirety as follows:

“The total number of shares of capital stock which this corporation shall have the authority to issue is one hundred seventy five million shares (175,000,000), consisting of (i) one hundred fifty million shares (150,000,000) of common stock, $.001 par value (“Common Stock”) and (ii) twenty five million (25,000,000) shares of preferred stock, $.001 par value (“Preferred Stock”).”

Approval of this amendment to the Certificate of Incorporation requires approval by a majority of the outstanding shares of common stock. As a result, abstention and broker non-votes will have the same effect as a vote against the proposal. Holders of shares of the Company’s common stock do not have appraisal rights under Delaware law or under the governing documents of the Company in connection with this proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE FOREGOING AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION.

 

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Proposal Four—Ratification of the Selection of Independent Registered Public Accounting Firm

The Audit Committee of the Board has selected Moss Adams LLP as the Company’s independent registered public accounting firm for the current fiscal year, subject to ratification by the Company’s stockholders at the Annual Meeting. The Company has been advised by Moss Adams LLP that it is a registered public accounting firm with the Public Company Accounting Oversight Board (the “PCAOB”) and complies with the auditing, quality control, and independence standards and rules of the PCAOB and the SEC. A representative of Moss Adams LLP is expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement if he or she so desires.

Although stockholder ratification of the selection of Moss Adams LLP as the Company’s independent registered public accounting firm is not required, the Board is nevertheless submitting the selection of Moss Adams LLP to the stockholders for ratification. Unless contrary instructions are given, shares represented by proxies solicited by the Board will be voted for the ratification of the selection of Moss Adams LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2018. Should the selection of Moss Adams LLP not be ratified by the stockholders, the Audit Committee will reconsider the matter. Even in the event the selection of Moss Adams LLP is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change is in the best interests of the Company and its stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE SELECTION OF MOSS ADAMS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

 

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Proposal Five—Advisory Vote on Executive Compensation

The Executive Compensation section beginning on page 19 of this Proxy Statement shows 2017 compensation information for our named executive officers.

The Board is asking shareholders to cast a non-binding, advisory vote FOR the approval of the compensation paid to the Company’s named executive officers, as disclosed in the Executive Compensation section.

Our executive compensation program embodies a pay-for-performance philosophy that is intended to support the Company’s business strategy and align the interests of our executives with our shareholders.

For these reasons, the Board is asking shareholders to support this proposal. Although the vote we are asking you to cast is non-binding, the Compensation Committee and the Board value the views of our shareholders and will consider the outcome of the vote when determining future compensation arrangements for our named executive officers. The Company is providing a vote on this proposal pursuant to Section 14A of the Exchange Act and has determined that it will hold advisory votes on executive compensation each year.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS.

OTHER BUSINESS

The Company knows of no other matters to be voted on at the Annual Meeting or any adjournment or postponement of the meeting. If, however, other matters are presented for a vote at the meeting, the proxy holders (the individuals designated on the proxy card) will vote your shares according to their judgment on those matters.

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Executive Compensation Objectives

The Company’s executive compensation program is designed to attract, retain, motivate and recognize high performance executive officers. The Compensation Committee is responsible for and oversees the Company’s compensation program. The Company’s philosophy is to provide compensation programs that incentivize and reward both the short and long-term performance of the executive officers relative to the Company’s performance. Thus, the Compensation Committee utilizes compensation components that measure overall Company performance, including performance against the Company’s annual strategic operating plan. In addition, the Compensation Committee seeks to align the interests of the Company’s executive officers with its shareholders.

Executive Compensation Components

Overview. The principal elements of the Company’s compensation are base salary, incentive bonus awards, and equity awards. The Company’s executive compensation policy recognizes that stock price is only one measure of performance, and given industry business conditions and the long-term strategic direction and goals of the Company, it may not necessarily be the best current measure of executive performance. Thus, the Compensation Committee considers the median level of compensation of its peer group and the achievement of the Company’s business objectives when determining executive compensation.

Base Salary. Base salaries for the named executive officers are primarily based on the position, taking into account competitive market compensation paid by other companies in the Company’s peer group for similar positions. Recommendations from management regarding each named executive officer’s base salary based on management’s evaluation of the executive officer’s performance are also taken into account.

As with total executive compensation, the Compensation Committee believes that executive base salaries should generally target the median base salary of the Company’s peer group. Each named executive officer’s base salary is also determined by reviewing the other components of the executive officer’s compensation to ensure that the total compensation is in line with the Compensation Committee’s overall compensation philosophy.

Salaries for 2017 were based on the compensation objectives mentioned above and, in the case of Messrs. Tokman and Mulligan, their employment agreements. Base salary rates in 2017 for Messrs. Tokman, Mulligan, Holt, Zimmerman, Westgor and Sharma were $375,000, $350,000, $255,905, $227,990, $232,032 and $240,000, respectively. Mr. Tokman resigned as Chief Executive Officer and Director of the Company on November 13, 2017 but continued serving as President through December 31, 2017 and, in that capacity, continued to earn the same base salary. Mr. Mulligan was appointed as Chief Executive Officer, in addition to his role as a Director of the Company, effective November 13, 2017.

Incentive Bonus. The Compensation Committee believes that a portion of an executive officer’s total compensation, an incentive bonus, should be based on the Company’s performance. The Compensation Committee believes that structuring a significant portion of each executive officer’s annual cash compensation as an incentive bonus, and the contingent nature of that compensation, induces an executive officer to execute on both the short and long-term goals of the Company. It has structured the executive compensation program to reflect this philosophy by creating an incentive bonus framework that translates Company financial and operational performance into incentive bonuses.

Each of the named executive officers is eligible for an annual incentive bonus. The amount of the bonus depends generally on the level of Company performance, with a target set as a percentage of base salary. The Compensation Committee approves the target bonus percentages and the actual bonus awards for all executive officers. Target bonus percentages are set to be approximately at the median of the Company’s peer group.

 

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In 2017, the Compensation Committee approved 65% as a target bonus award (as a percentage of base salary) for Mr. Tokman, 65% as a target bonus for Mr. Mulligan, and 40% as a target bonus for each of the other named executive officers. The amount of the bonus actually awarded to executives is determined solely in the discretion of the Compensation Committee for all executive officers. Based on its review of management’s evaluation of the Company’s performance in 2017, the Compensation Committee, using its discretionary authority, determined that each named executive officer employed by the Company should receive approximately 70% of his target incentive bonus. Bonuses awarded in 2017 to Messrs. Mulligan, Holt, Zimmerman, Westgor and Sharma were $25,000, $72,500, $65,000, $67,000 and $70,000, respectively. Mr. Mulligan’s bonus was prorated for 2017. Mr. Tokman will receive an amount equal to $196,000 pursuant to the Letter Agreement described below, which represents his target bonus amount for 2017.

Equity Awards. The Compensation Committee believes that equity participation is a key component of the Company’s executive compensation program. Equity awards are designed to attract and retain executive officers and to motivate them to enhance shareholder value by aligning the financial interests of executive officers with those of shareholders. Each year the Compensation Committee reviews the size and composition of the equity grants to ensure that they are aligned with the Company’s compensation philosophy of compensating executives at the median of the Company’s peer group. Similar to base salary, a review of equity award levels is conducted to ensure that a named executive officer’s equity compensation comports with the Compensation Committee’s overall philosophy and objectives and is competitive with the Company’s peer group.

The Compensation Committee’s practice is to make annual equity awards as part of its overall philosophy of performance-based compensation. Restricted stock units and stock options are awarded by the Compensation Committee to executive officers based on a philosophy of providing equity incentives at the median of the Company’s peer group.

In 2017, Messrs. Tokman, Mulligan, Holt, Zimmerman, Westgor and Sharma were awarded options to purchase 150,000, 125,000, 65,000, 65,000, 65,000 and 130,000 shares of the Company’s common stock, respectively.

Tax Deductibility of Compensation

Limitations on the deductibility of compensation may occur under Section 162(m) of the Internal Revenue Code of 1986, which generally limits a public company’s tax deduction for compensation paid to its named executive officers to $1 million in any year. The Compensation Committee takes into consideration various factors, which may from time to time may include tax deductibility, in making executive compensation decisions and may, from time to time, approve and authorize compensation that is not fully tax deductible.

Processes and Procedures

Role of the Compensation Committee and the Chief Executive Officer in the Compensation Process. The Chief Executive Officer, with the assistance and support of the human resources department and other members of management, provides recommendations regarding the compensation of the executive officers, including himself. The Compensation Committee considers these recommendations and consults with the Chief Executive Officer and other members of management as to his recommendations for the executive officers. The Compensation Committee considers the Chief Executive Officer’s recommendations, together with the Compensation Committee’s philosophy, objectives and market data in approving these recommendations.

Role of Compensation Consultants in the Compensation Process. The Compensation Committee’s charter provides the Compensation Committee with the authority to retain a compensation consulting firm in its discretion.

Role of Say-on-Pay Advisory Votes in the Compensation Process. The Compensation Committee and the Board value the views of our shareholders and consider the outcome of “say-on-pay” votes when determining future compensation arrangements for our named executive officers. “Say-on-pay” votes are non-binding, advisory votes on the compensation of our named executive officers.

 

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Compensation Committee Report

The Compensation Committee has reviewed and discussed this Compensation Discussion and Analysis with management. Based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the Securities and Exchange Commission.

Compensation Committee

Slade Gorton

Bernee D.L. Strom (Chairperson)

Robert P. Carlile

 

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Summary Compensation Table for 2017

We refer to each person who served as Chief Executive Officer of the Company in 2017, the Company’s Chief Financial Officer, and the Company’s three other executive officers as of December 31, 2017 collectively as “named executive officers.” This table shows certain information about the compensation we paid each of the Company’s named executive officers.

 

Name and Principal Position		Fiscal Year				Salary				Bonus (5)				Stock Awards (6)				Option Awards (6)				All Other Compensation (7)(8)				Total
Alexander Y. Tokman(1)(2)			2017			$	403,053			$	165,822			$	—			$	147,719			$	9,087			$	725,681
Former President, Chief Executive Officer and Director			2016				364,443				177,666				10,934				232,227				7,622				792,892
			2015				362,360				140,528				—				444,209				3,464				950,561
Perry M. Mulligan(1)(3)			2018				—				25,000				—				—				—				25,000
Chief Executive Officer and Director			2017				93,728				—				215,750				114,119				75,672				499,269
Stephen P. Holt			2018				—				72,500				—				—				—				72,500
Chief Financial Officer			2017				230,186				62,770				—				64,012				6,215				363,183
			2016				221,459				65,295				—				58,057				7,399				352,210
			2015				214,942				50,676				—				111,052				2,336				379,006
Dale E. Zimmerman			2018				—				65,000				—				—				—				65,000
Vice President, Research and Development			2017				226,123				62,583				—				64,012				—				352,718
			2016				220,798				65,700				—				58,057				—				344,555
			2015				216,583				41,840				—				111,052				—				369,475
David J. Westgor			2018				—				67,000				—				—				—				67,000
Vice President, General Counsel and Secretary			2017				227,194				61,718				—				64,012				6,954				359,878
			2016				217,745				64,200				—				58,057				5,549				345,551
			2015				210,250				49,200				—				111,052				2,026				372,528
Sumit Sharma(4)			2018				—				70,000				—				—				—				70,000
Vice President, Engineering & Operations			2017				213,333				60,600				—				128,023				5,143				407,099

 

(1)

Effective November 13, 2017, Mr. Tokman resigned as Chief Executive Officer and Director of MicroVision, Inc. and Mr. Mulligan was appointed as Chief Executive Officer, in addition to his role as Director of the Company. Mr. Tokman served as President through the end of 2017 to assist with the transition. Compensation for Mr. Mulligan is reported for fiscal 2017, the year in which he became Chief Executive Officer of the Company.

 

(2)	In 2016 Mr. Tokman elected to receive restricted stock awards in lieu of an increase in base salary.

 

(3)	Mr. Mulligan’s compensation includes the following payments to him in his capacity as Director prior to his appointment as Chief Executive Officer: salary, $46,000 (representing director fees earned or paid in cash); stock awards, $19,500.

 

(4)	Compensation for Mr. Sharma is reported for fiscal 2017, the year in which he became an executive officer of the Company.

 

(5)	Bonuses payable in year presented, earned in prior year.

 

(6)	Reflects the fair value of stock and option awards on the grant date in accordance with FASB ASC Topic 718.

 

(7)	Perquisites and other personal benefits are valued on an aggregate incremental cost basis. All figures shown below represent the direct dollar cost incurred in providing these perquisites and other personal benefits to the named executive officers.

 

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(8)	The table below shows all other amounts under All Other Compensation for fiscal 2015, 2016 and 2017:

 

Name and Principal Position		Fiscal Year				Perquisites and Personal Benefits				Employer contribution to 401(k) account (9)				Separation payments (10)				Relocation payments (11)
Alexander Y. Tokman			2017			$	—			$	9,087			$	828,737			$	—
Former President, Chief Executive Officer and Director			2016				—				7,622				—				—
			2015				—				3,464				—				—
Perry M. Mulligan			2017				—				—				—				75,672
Chief Executive Officer and Director
Stephen P. Holt			2017				—				6,215				—				—
Chief Financial Officer			2016				—				7,399				—				—
			2015				—				2,336				—				—
Dale E. Zimmerman			2017				—				—				—				—
Vice President, Research and Development			2016				—				—				—				—
			2015				—				—				—				—
David J. Westgor			2017				—				6,954				—				—
Vice President, General Counsel and Secretary			2016				—				5,549				—				—
			2015				—				2,026				—				—
Sumit Sharma			2017				—				5,143				—				—
Vice President, Engineering and Operations

 

(9)	This column represents the amount of matching contributions made to our qualified 401(k) retirement plan for each of our named executive officers. In June 2015, the Company began making contributions to our qualified 401(k) retirement plan for all employees.

 

(10)	This column represents the amounts paid to or accrued for Mr. Tokman pursuant to the Letter Agreement described below.

 

(11)	This column represents the reimbursement of Mr. Mulligan’s relocation expenses in connection with his employment as Chief Executive Officer pursuant to his Employment Agreement described below.

 

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Grants of Plan-Based Awards During 2017

The following table shows grants of plan based awards to our named executive officers in 2017:

 

Name		Grant Date				Estimated Possible Payments  Under Non-Equity Incentive Plan Awards Target				All Other Stock  Awards: Number of Shares  of Stock or Units				All Other Option  Awards: Number  of Securities Underlying Options				Exercise or Base Price of Option Awards (1)				Grant Date Fair Value of Stock and Option Awards (2)
Alexander Y. Tokman			2/8/2017			$	—				—				150,000			$	1.67			$	147,719
Perry M. Mulligan			11/13/2017				31,023				135,000				125,000				1.57				329,869
Stephen P. Holt			2/8/2017				92,074				—				65,000				1.67				64,012
Dale E. Zimmerman			2/8/2017				90,449				—				65,000				1.67				64,012
David J. Westgor			2/8/2017				90,878				—				65,000				1.67				64,012
Sumit Sharma			2/8/2017				85,333				—				130,000				1.67				128,023

 

(1)	All option awards were granted with an exercise price equal to the closing price of our common stock on the NASDAQ Global Market on the date of grant.

 

(2)	Reflects the fair value of option and stock awards on the date of grant in accordance with FASB ASC Topic 718.

Outstanding Equity Awards at Year-End 2017

The following table shows outstanding equity awards for our named executive officers as of December 31, 2017:

 

Name				Number  of Securities Underlying Unexercised Options Exercisable				Number  of Securities Underlying Unexercised Options Unexercisable				Option Exercise Price				Option Expiration Date				Number of Shares of Stock That Have Not Vested				Market Value of Shares of Stock That Have Not Vested  (7)
Alexander Y. Tokman		(1)			18,509				—			$	17.84				12/31/2018				—			$	—
		(3)			8,594				—				17.84				12/31/2018				—				—
		(1)			16,714				—				14.88				12/31/2018				—				—
		(3)			8,750				—				14.88				12/31/2018				—				—
		(1)			13,928				—				27.28				12/31/2018				—				—
		(3)			5,878				—				27.28				12/31/2018				—				—
		(4)			80,000				—				1.80				12/31/2018				—				—
		(2)			2,807				—				2.28				12/31/2018				—				—
		(2)			225,000				—				2.28				12/31/2018				—				—
		(1)			150,000				—				1.76				12/31/2018				—				—
		(1)			100,000				—				3.26				12/31/2018				—				—
		(1)			50,000				—				1.89				12/31/2018				—				—
		(1)			37,500				—				1.67				12/31/2018				—				—
Perry M. Mulligan		(3)(6)			1,875				—				22.64				7/30/2020				—				—
		(5)(6)			1,875				—				22.64				7/30/2020				—				—
		(5)(6)			1,875				—				9.20				6/9/2021				—				—
		(5)(6)			15,000				—				3.08				6/7/2022				10,000				16,300
		(1)			—				125,000				1.57				11/13/2027				125,000				203,750

 

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Name				Number  of Securities Underlying Unexercised Options Exercisable				Number  of Securities Underlying Unexercised Options Unexercisable				Option Exercise Price				Option Expiration Date				Number of Shares of Stock That Have Not Vested				Market Value of Shares of Stock That Have Not Vested  (7)
Stephen P. Holt		(1)			40,000				—				2.20				5/7/2023				—				—
		(2)			40,000				—				2.28				8/8/2023				—				—
		(1)			37,500				12,500				1.76				6/3/2024				—				—
		(1)			25,000				25,000				3.26				6/2/2025				—				—
		(1)			12,500				37,500				1.89				6/1/2026				—				—
		(1)			16,250				48,750				1.67				2/8/2027				—				—
Dale E. Zimmerman		(1)			3,750				—				7.62				8/4/2021				—				—
		(4)			40,000				—				1.80				8/3/2022				—				—
		(2)			65,000				—				2.28				8/8/2023				—				—
		(1)			37,500				12,500				1.76				6/3/2024				—				—
		(1)			25,000				25,000				3.26				6/2/2025				—				—
		(1)			12,500				37,500				1.89				6/1/2026				—				—
		(1)			16,250				48,750				1.67				2/8/2027				—				—
David J. Westgor		(1)			1,888				—				17.84				3/25/2018				—				—
		(3)			625				—				17.84				3/25/2018				—				—
		(3)			1,750				—				14.88				4/23/2019				—				—
		(1)			2,805				—				14.88				4/23/2019				—				—
		(1)			1,876				—				27.28				4/26/2020				—				—
		(3)			1,032				—				27.28				4/26/2020				—				—
		(1)			1,467				—				10.40				4/6/2021				—				—
		(4)			15,000				—				1.80				8/3/2022				—				—
		(2)			15,000				—				2.28				8/8/2023				—				—
		(1)			37,500				12,500				1.76				6/3/2024				—				—
		(1)			25,000				25,000				3.26				6/2/2025				—				—
		(1)			12,500				37,500				1.89				6/1/2026				—				—
		(1)			16,250				48,750				1.67				2/8/2027				—				—
Sumit Sharma		(1)			10,000				10,000				3.16				10/7/2025				—				—
		(1)			12,500				37,500				1.89				6/1/2026				—				—
		(1)			32,500				97,500				1.67				2/8/2027				—				—

 

(1)	The indicated option vests 25% on each anniversary of the grant date.

(2)	The indicated option vests 33% on each anniversary of the grant date.

(3)	The indicated options vested 100% on the date of grant.

(4)	The indicated options vested 34% on 8/15/2012, 33% on 8/15/2013 and 33% on 8/15/2014.

(5)	The indicated option vests on the earlier of the day prior to the date of the Company’s annual meeting of shareholders next following the date of grant, or one year from the date of grant.

(6)	The indicated option was awarded to Mr. Mulligan as a member of the Board of Directors.

(7)	The market value of shares of stock that have not vested is based on a price per share of $1.63, the closing sale price of the Company’s common stock as of December 29, 2017 as reported by NASDAQ.

Option Exercises and Stock Vested During 2017

None of our named executive officers exercised stock options, and no shares were acquired upon vesting of stock awards held by our named executive officers, during 2017.

Potential Payments upon Termination or Change in Control

All of our named executive officers, except for Mr. Tokman (who is no longer employed by the Company) and Mr. Mulligan, are employed at will and do not have employment agreements. Mr. Mulligan’s employment agreement is summarized below. Under the 2013 Incentive Plan, 100% of each of the named executive officers’ options which have not been exercised will become fully vested and immediately exercisable upon a change of

 

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control of the Company that does not result in an assumption, substitution or pay off of such award by the acquiring company. In addition, 100% of each named executive officer’s restricted stock units will become fully vested upon a change of control at the Company.

The following table sets forth aggregate estimated payment obligations to each of our named executive officers assuming a termination without cause, or a change in control, occurred on December 31, 2017:

 

Name		Payments Due in Connection with a Termination of Employment without Cause or for Good Reason				Payments Due in Connection with a Change of Control  and Termination of Employment without Cause or for Good Reason (1)				Payments Due in Connection with Change in Control (2)
Alexander Y. Tokman(3)		$	—			$	—			$	—
Perry M. Mulligan			569,547				74,160				15,000
Stephen P. Holt			14,284				454,278				—
Dale E. Zimmerman			24,343				417,755				—
David J. Westgor			29,748				430,819				—
Sumit Sharma			10,000				425,226				—

 

(1)

We included the estimated intrinsic value of accelerating any award of stock options or awards that are accelerated upon a change in control. In the case of a change in control, we assumed that all such awards would be cashed out at closing using the closing price of our common stock on the NASDAQ Global Market on December 29, 2017, which was $1.63 per share. See the section titled “Outstanding Equity Awards at Fiscal Year-End 2017” for information regarding unvested equity awards.

 

(2)	See “Severance and Employment Agreements—Change of Control Severance Plan.”

 

(3)	Mr. Tokman is no longer employed by the Company and therefore is not entitled to the payments described in this section.

Severance and Employment Agreements

Mr. Mulligan’s Employment Agreement

Payment upon Termination. Under Mr. Mulligan’s employment agreement with the Company dated November 21, 2017, as amended, if he dies, becomes disabled, retires, terminates his employment other than for “good reason” or is terminated by us for “cause,” he will be provided his earned but unpaid base salary, earned but unused vacation time, any bonus compensation for the prior year which is unpaid on the date of termination to the extent bonuses are paid to other officers, 12 months of certain group and medical benefits for Mr. Mulligan’s family and any business expenses which have not yet been reimbursed by us. If we terminate him “other than for cause,” or if he terminates his employment for “good reason,” he will receive, in addition to the amounts listed in the foregoing sentence, his base salary for 18 months following the date of his termination, plus an amount equal to his target bonus for the year prior to the termination, and we will continue to pay certain group medical and dental expenses in that 12-month period.

We do not accelerate the vesting of equity incentives for our executive officers in the event of a termination of employment. In the event of a change in control of the Company, all unvested stock options vest upon the change in control if the change in control does not result in an assumption, substitution or pay off of such award by the acquiring company, and the Compensation Committee has the discretion to remove the vesting restrictions on all unvested restricted shares.

In determining whether a termination occurred with or without “cause,” “cause” is deemed to exist under Mr. Mulligan’s employment agreement when there is a repeated willful failure to perform or gross negligence in the performance of his duties; fraud, embezzlement or other dishonesty with respect to us; a breach of his obligations of confidentiality, non-competition, or non-solicitation against us; or commission of a felony or other crime involving moral turpitude.

 

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