SGLB Sigma Labs Inc

ITEM 11. EXECUTIVE COMPENSATION

Processes and Procedures for Compensation Decisions

Our Compensation Committee is responsible for the executive compensation programs for our executive officers and reports to our Board of Directors on its discussions, decisions and other actions. Typically, our Chief Executive Officer makes recommendations to our Compensation Committee and is involved in the determination of compensation for the respective executive officers that report to him. Our Chief Executive Officer does not determine his own compensation. Our Chief Executive Officer makes recommendations to our Compensation Committee regarding short- and long-term compensation for all executive officers based on our results, an individual executive officer’s contribution toward these results and performance toward individual goal achievement. Our Compensation Committee then reviews the recommendations and other data and makes decisions (or makes recommendations to the Board) as to total compensation for each executive officer as well as each individual compensation component.

The following table sets forth compensation for services rendered in all capacities to the Company: (i) for each person who served as the Company’s Chief Executive Officer at any time during the past fiscal year, and (ii) for our two most highly compensated executive officers, other than our Chief Executive Officer, who were employed with the Company on December 31, 2022 (the foregoing executives are herein collectively referred to as the “named executive officers”).

Named Executive Officer Employment Agreements

Jacob Brunsberg

On September 7, 2021, we entered into an “at-will’ employment letter agreement with Jacob Brunsberg, effective as of September 20, 2021 (the “effective date”), pursuant to which Mr. Brunsberg agreed to serve as Senior Vice-President, Product Management and Strategic Relationships on an “at-will” basis. As of February 16, 2022, Mr. Brunsberg was appointed President and Chief Operating Officer, and as of April 1, 2022, Mr. Brunsberg was appointed President, Chief Executive Officer, and Principal Executive Officer of the Company. Additionally, Mr. Brunsberg was appointed to serve as a member of our Board of Directors, effective as of April 1, 2022, with a term expiring at the 2025 annual meeting of stockholders.

Under the employment letter agreement. Mr. Brunsberg is entitled to (i) an annual base salary of $200,000, which was increased to $250,000 effective February 16, 2022, and (ii) all benefits that we elect in our sole discretion to provide from time to time to our other executive officers,, and received a grant of a five-year stock option to purchase up to 100,000 shares of common stock of the Company, which has an exercise price equal to the closing price of the Company’s common stock on the effective date, and vested and became exercisable in full on the effective date. The option is on such other terms and provisions as are contained in the Company’s standard form nonqualified stock option agreement.

Additionally, during the term of his employment, Mr. Brunsberg is eligible to receive one or more bonuses relating to each fiscal year in recognition of his achievement of individual and Company goals established by the Board of Directors from time to time. However, the decision to provide any such bonuses and the amount and terms of any such bonuses is in the sole discretion of the Board of Directors. On January 24, 2022, Mr. Brunsberg was awarded a performance bonus of $19,876 for 2021.

Mark K. Ruport

On December 3, 2019, we entered into an “at-will’ employment letter agreement with Mark Ruport, effective as of December 3, 2019 (the “effective date”), pursuant to which Mr. Ruport agreed to serve as our Executive Chairman on an “at-will” basis. Additionally, Mr. Ruport was appointed to serve as a member of our Board of Directors, effective as of December 3, 2019, with a term expiring at the 2021 annual meeting of stockholders. As of April 30, 2020, Mr. Ruport was appointed as President, Chief Executive Officer, and principal executive officer of the Company, and no longer serves as Executive Chairman. On February 16, 2022, Mr. Ruport resigned as President, and effective April 1, 2022, Mr. Ruport resigned as Chief Executive Officer. Mr. Ruport remained an employee of the Company until September 30, 2022. Mr. Ruport remains a member of our Board of Directors and was appointed Chairman of our Board effective April 1, 2022.

Darren P. Beckett

Mr. Beckett served as an employee of the Company from September 25, 2017, until March 1, 2023 pursuant to an “at will” employment agreement with the Company, under which he was engaged to serve as our Engineering Manager. On October 18, 2018, his title was changed from Vice President of Engineering to Chief Technology Officer of the Company. On October 18, 2018, the Company also increased the annual base salary of Mr. Beckett from $135,000 to $180,000, effective retroactive to September 16, 2018, and granted Mr. Beckett an option to purchase 2,000 shares of common stock under the 2013 Plan at an exercise price of $12.10 per share. The option has a term of five years and vests in equal annual installments over four years from the date of grant subject, in each case, to Mr. Beckett being in the continuous employ of the Company on the applicable vesting date. Under the agreement, Mr. Beckett is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan. On October 13, 2017, in connection with his employment, Mr. Beckett was granted an option to purchase up to 1,500 shares of our common stock with an exercise price equal to $19.20 per share. Such option is fully vested and exercisable at December 31, 2022.

Frank D. Orzechowski

On July 1, 2019, we entered into an “at will” employment agreement, with Frank Orzechowski under which he was engaged to serve as our Chief Financial Officer, Treasurer, Principal Accounting Officer and Corporate Secretary of the Company. Under Mr. Orzechowski’s employment agreement, he was entitled to receive an annual base salary of $135,000, which was increased to $155,000 effective March 1, 2020, which was increased to $180,000 on January 1, 2021, and which was increased to $200,000 on October 1, 2021. Pursuant to the employment agreement, Mr. Orzechowski was granted (1) a stock option to purchase up to 250 shares of common stock of the Company, at an exercise price equal to $14.00 per share, which was the closing market price of the Company’s common stock on July 1, 2019 (i.e., the Effective Date), and (2) to purchase up to 6,000 shares of common stock of the Company, with an exercise price of $14.00, and will vest and become exercisable as follows: 387 shares vested and became exercisable on the one-year anniversary of the Effective Date, 900 shares vested and became exercisable on the second-year anniversary of the Effective Date, 1,413 shares will vest and become exercisable on the third-year anniversary of the Effective Date, and 3,300 shares will vest and become exercisable on the fourth-year anniversary of the Effective Date, provided, in each case, that Mr. Orzechowski remains an employee of the Company through such vesting dates. Further, Mr. Orzechowski is eligible to participate in the Company’s 2013 Equity Incentive Plan, and is eligible to receive medical and dental benefits, life insurance, short and long-term disability coverage, and to participate in the Company’s Section 125 cafeteria plan, vision plan and 401K plan.

Outstanding Equity Awards at 2022 Fiscal Year-End

The following table sets forth outstanding stock options granted under or outside of our 2013 Equity Incentive Plan and SARs under our 2020 Stock Appreciation Rights Plan that are held by our named executive officers as of December 31, 2022:

(1) On June 23, 2020, we adopted the 2020 Stock Appreciation Rights Plan. The Plan provides for incentive awards in the form of stock appreciation rights (“SARs”) payable in cash. No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan. Awards issued under the Plan are included in the table.

(2) On September 20, 2021, in conjunction with the hiring of Jacob Brunsberg, the Company’s current President and Chief Executive Officer, the Company granted to Mr. Brunsberg an option to purchase 100,000 shares of our common stock with an exercise price of $3.18, which was fully vested and exercisable on the date of the grant. On February 16, 2022, the Company granted an option to Mr. Brunsberg to purchase up to 70,000 shares of common stock with an exercise price of $2.50, which will vest in equal monthly installments over three years. As of December 31, 2022, 19,443 shares were fully vested and exercisable. Also on February 16, 2022, the Company granted 30,000 SARs to Mr. Brunsberg, with an exercise price of $2.50, which will vest in equal monthly installments over three years. As of December 31, 2022, 8,330 SARs were fully vested and exercisable. On July 1, 2022, we granted Mr. Brunsberg an option to purchase up to 15,200 shares of our common stock with an exercise price of $2.50. 4,104 shares were fully vested and exercisable on the date of the grant, and the remaining 11,096 shares will vest in equal monthly installments over the next three years. As of December 31, 2022, 5,372 shares were fully vested and exercisable. Also on July 1, 2022, we granted Mr. Brunsberg an option to purchase up to 49,800 shares of our common stock with an exercise price of $2.50. 12,450 shares were fully vested and exercisable on the date of the grant, and the remaining 37,350 shares will vest in equal monthly installments over the next three years. As of December 31, 2022, 17,635 shares were fully vested and exercisable. Additionally, on July 1, 2022 we granted Mr. Brunsberg 194,940 SARs with an exercise price of $2.50. 48,735 SARs were fully vested and exercisable on the date of the grant, and the remaining 146,205 SARs will vest in equal monthly installments over the next three years. As of December 31, 2022, 69,040 SARs were fully vested and exercisable. Last, on July 1, 2022, we granted Mr. Brunsberg 181,947 SARs in connection with his employment retention agreement. The SARs have an exercise price of $1.30 and will vest and become exercisable on March 15, 2025 if Mr. Brunsberg remains an employee of the Company on that date.

(3) On December 3, 2019, in conjunction with the hiring of Mark K. Ruport, the Company’s former President and Chief Executive Officer, the Company granted to Mr. Ruport (i) an option to purchase 10,000 shares of our common stock with an exercise price of $11.20, which fully vested and became exercisable on January 3, 2020; and (ii) an option to purchase up to 40,000 shares of our common stock, with an exercise price of $11.20, which became fully vested and exercisable as of December 31, 2022. On May 28, 2020, we granted Mr. Ruport an option to purchase 116,654 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50 and as of December 31, 2022 102,064 shares were fully vested and exercisable, and the remaining 14,590 shares will vest in equal monthly installments over the next six months. On November 24, 2020, we granted Mr. Ruport an option to purchase up to 114,915 shares of our common stock. The option has an exercise price of $2.55 and vests over three years in equal monthly installments beginning one month from the grant date. As of December 31, 2022, 79,800 shares were vested and exercisable. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 60,094 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2022, 40,062 SARs were vested and exercisable. On August 11, 2021, we granted Mr. Ruport an option to purchase 51,832 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and as of December 31, 2022, 30,238 shares were fully vested and exercisable, and the remaining 21,594 shares will vest in equal monthly installments over the next twenty months. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Ruport 77,748 SARs. The SARs have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2022, 25,916 SARs were fully vested and exercisable. On July 1, 2022, the Company granted Mr. Ruport an option to purchase up to 5,874 shares of our common stock with an exercise price of $2.50. 1,586 shares were fully vested and exercisable on the date of the grant, and the remaining 4288 shares will vest in equal monthly installments over the next three years. As of December 31, 2022, 2,078 shares were fully vested and exercisable. Also on July 1, 2022, the Company granted Mr. Ruport an option to purchase up to 19,242 shares of our common stock with an exercise price of $2.50. 4,810 shares were fully vested and exercisable on the date of the grant, and the remaining 14,432 shares will vest in equal monthly installments over the next three years. As of December 31, 2022, 6,815 shares were fully vested and exercisable. Additionally, on July 1, 2022 the Company granted Mr. Ruport 25,117 SARs. The SARs have an exercise price of $2.50. 6,279 SARs were fully vested and exercisable on the date of the grant, and the remaining 18,838 SARs will vest in equal monthly installments over the next three years. As of December 31, 2022, 8,894 SARs were fully vested and exercisable.

(4) On February 26, 2018 we granted Mr. Beckett an option to purchase up to 1,500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $15.60 and is fully vested and exercisable. On October 18, 2018, we granted Mr. Beckett an option to purchase up to 2,000 shares of our common stock. The option has an exercise price per share equal to $12.10 and is fully vested and exercisable. On January 1, 2019, we granted Mr. Beckett an option to purchase up to 375 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $15.00, and vests in equal installments on the first through the fourth anniversaries of the grant. As of December 31, 2022, 282 shares are vested and exercisable. On July 18, 2019, we granted Mr. Beckett an option to purchase up to 500 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $12.40. The option vests and will become exercisable in equal installments on the first through the fourth anniversaries of the date of grant. As of December 31, 2022, the option was vested as to 375 shares. On October 11, 2019, we granted Mr. Beckett an option to purchase up to 5,000 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price per share equal to $6.70 and is fully vested and exercisable. On May 28, 2020, we granted Mr. Beckett an option to purchase 46,661 shares of our common stock. The option has an exercise price per share equal to $2.50 and as of December 31, 2022, 40,825 shares were fully vested and exercisable. The remaining 5,836 shares will vest in equal monthly installments over the next six months. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Beckett 24,038 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2022, 16,026 SARs were vested and exercisable. On August 11, 2021, we granted Mr. Beckett an option to purchase 50,869 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and as of December 31, 2022, 29,677 shares were fully vested and exercisable, and the remaining 21,192 shares will vest in equal monthly installments over the next twenty months. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Beckett 76,304 SARs. The SARs have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2022, 25,435 shares were fully vested and exercisable. On July 1, 2022, we granted Mr. Beckett an option to purchase up to 15,849 shares of our common stock with an exercise price of $2.50. 4,279 shares were fully vested and exercisable on the date of the grant, and the remaining 10,246 shares will vest in equal monthly installments over the next three years. As of December 31, 2022, 5,603 shares were fully vested and exercisable. Also on July 1, 2022, we granted Mr. Beckett an option to purchase up to 51,927 shares of our common stock with an exercise price of $2.50. 12,982 shares were fully vested and exercisable on the date of the grant, and the remaining 38,945 shares will vest in equal monthly installments over the next three years. As of December 31, 2022, 18,392 shares were fully vested and exercisable. Additionally, on July 1, 2022 we granted Mr. Beckett 16,944 SARs with an exercise price of $2.50. 4,236 SARs were fully vested and exercisable on the date of the grant, and the remaining 12,708 SARs will vest in equal monthly installments over the next three years. As of December 31, 2022, 6,001 SARs were fully vested and exercisable. Last, on July 1, 2022, we granted Mr. Beckett 97,038 SARs in connection with his employment retention agreement. The SARs have an exercise price of $1.30 and will vest and become exercisable on March 15, 2025 if Mr. Beckett remains an employee of the Company on that date.

(5) On July 1, 2019, in conjunction with the hiring of Frank Orzechowski, the Financial Officer, the Company granted to Mr. Orzechowski (i) an option to purchase 250 shares of our common stock with an exercise price of $14.00, which fully vested and became exercisable on July 1, 2019; and (ii) an option to purchase up to 6,000 shares of our common stock, with an exercise price of $14.00. As of December 31, 2022, 2,700 shares were fully vested and exercisable, and the remaining 3,300 shares will vest and become exercisable on July 1, 2023. . On May 28, 2020, we granted Mr. Orzechowski an option to purchase 34,996 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $2.50. As of December 31, 2022, 30,619 shares were fully vested and exercisable, and the remaining 4,377 shares will vest in equal monthly installments over the next six months. On June 23, 2020, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Orzechowski 18,028 SARs. The SARs have an exercise price of $2.63 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2022, 12,018 SARs were vested and exercisable. On August 11, 2021, we granted Mr. Orzechowski an option to purchase 48,580 shares of our common stock under our 2013 Equity Incentive Plan in connection with his employment arrangement. The option has an exercise price of $3.42 and as of December 31, 2022, 28,337 shares were fully vested and exercisable, and the remaining 20,243 shares will vest in equal monthly installments over the next twenty months. On August 11, 2021, pursuant to our 2020 Stock Appreciation Rights Plan, we granted Mr. Orzechowski 48,580 SARs. The SARs have an exercise price of $3.42 and will vest and become exercisable in three equal installments on each of the first, second, and third anniversaries of the grant date. As of December 31, 2022, 16,193 SARs were fully vested and exercisable. . On July 1, 2022, we granted Mr. Orzechowski an option to purchase up to 15,924 shares of our common stock with an exercise price of $2.50. 4,299 shares were fully vested and exercisable on the date of the grant, and the remaining 11,625 shares will vest in equal monthly installments over the next three years. As of December 31, 2022, 5,627 shares were fully vested and exercisable. Also on July 1, 2022, we granted Mr. Orzechowski an option to purchase up to 52,170 shares of our common stock with an exercise price of $2.50. 13,042 shares were fully vested and exercisable on the date of the grant, and the remaining 39,128 shares will vest in equal monthly installments over the next three years. As of December 31, 2022, 18,477 shares were fully vested and exercisable. Additionally, on July 1, 2022 we granted Mr. Orzechowski 69,470 SARs with an exercise price of $2.50. 17,368 SARs were fully vested and exercisable on the date of the grant, and the remaining 52,102 SARs will vest in equal monthly installments over the next three years. As of December 31, 2022, 24,603 SARs were fully vested and exercisable. Last, on July 1, 2022, we granted Mr. Orzechowski 97,038 SARs in connection with his employment retention agreement. The SARs have an exercise price of $1.30 and will vest and become exercisable on March 15, 2025 if Mr. Orzechowski remains an employee of the Company on that date.

Potential Payments Upon Termination or Change-in-Control

On July 1, 2022, our Board of Directors, upon the recommendation of the Compensation Committee, adopted retention bonus and change in control plans for certain of our named executive officers as described below.

Retention Bonus Plan

The retention bonus plan consists of the award of retention bonuses to Mr. Brunsberg, and Mr. Orzechowski as an incentive to remain in our employ through the end of the retention period. The retention bonus amount for Mr. Brunsberg is $375,000, which is equal to 150% of his base salary in effect on July 1, 2022, and the retention bonus amount for Mr. Orzechowski is $200,000, which is equal to 100% of his base salary in effect on July 1, 2022. The retention bonuses are payable 50% in cash and 50% in SARs for each executive.

The SARs will have an exercise price of $1.30 (i.e., the closing price of our common stock on the grant date) and will vest, in full, on March 15, 2025, subject to the executive remaining in our continuous employ through such date.

The cash component of the retention bonuses will be paid upon the end of the retention period coinciding with the filing of the Company’s 2024 Annual Report on Form 10-K, subject to the executive’s continuous employment by the Company through the filing date. In the event of a “change in control” of the Company prior to such filing, the executives would be entitled to payment in cash of a pro rata portion of their total respective bonuses. The balance of the retention bonuses would terminate. Assuming a change in control had occurred on December 31, 2022, the amount of retention bonuses payable to Mr. Brunsberg and Mr. Orzechowski would have been $67,164 and $35,821, respectively.

Change in Control Plan

The change in control plan adopted on July 1, 2022, as modified by our Board of Directors on January 24, 2023, provides that following a “Change in Control” of the Company, Messrs. Brunsberg and Orzechowski each would be entitled to a cash payment equal to two times his base annual salary in effect on July 1, 2022 (i.e., $500,000 for Mr. Brunsberg and $400,000 for Mr. Orzechowski), less any base salary payments received between the date of the “change in control” and the termination date, if his employment is terminated by the Company without “cause” or the executive resigns for “Good Reason” within two years following the “Change in Control”. For purposes of the plan, “Change in Control” means: (i) a liquidation or dissolution of the Company; (ii) a merger or consolidation of the Company with or into another corporation or entity (other than a merger with a wholly owned subsidiary); (iii) a sale of all or substantially all of the assets of the Company; or (iv) a purchase or other acquisition of more than 50% of the outstanding stock of the Company by one person or by more than one person acting in concert. “Good Reason” means: (i) a reduction in the executive’s annual base salary as in effect on the date immediately prior to the Change in Control or a failure to make any scheduled base salary payment within fifteen days after its due date, unless the Company’s Board of Directors determines in good faith that such base salary reduction is more than offset by the aggregate value of any new compensation plans or other employment-related benefits that are provided to the Executive after the Change in Control; (ii) the Company’s requirement that the executive perform his employment duties at an office that is more than 25 miles from the Company’s office at which the executive was principally employed on the date immediately prior to the Change in Control; (iii) a change or diminution in executive’s employment duties that is materially inconsistent with the duties usually associated with their position at a corporation; or (iv) a failure by the Company to continue for the benefit of the executive any material compensation plan in which the executive participated on the date immediately prior to the Change in Control, unless the discontinuation of such plan was outside the Company’s reasonable control or unless the Company discontinues such plan for all of its executive officers.

Equity Awards

We offer stock options, stock appreciation rights, and stock awards to certain of our employees, including our executive officers, as the long-term incentive component of our compensation program. We generally grant equity awards to new hires upon their commencing employment with us. Our stock options allow employees to purchase shares of our common stock at a price per share equal to the fair market value of our common stock on the date of grant and may or may not be intended to qualify as “incentive stock options” for U.S. federal income tax purposes. Our stock appreciation rights allow employees to receive a cash payment for the difference between the market price of our common stock on the date of exercise and the strike price. We sometimes also offer stock options, stock appreciation rights and stock awards to our consultants in lieu of cash. Our stock options allow consultants to purchase shares of our common stock at a price per share equal to the fair market value of our common stock on the date of grant and are not intended to qualify as “incentive stock options” for U.S. federal income tax purposes. Our stock appreciation rights allow consultants to receive a cash payment for the difference between the market price of our common stock on the date of exercise and the strike price. Stock options, stock appreciation rights, and stock awards granted to our executive officers may be subject to accelerated vesting in certain circumstances.

Retirement Plans

We maintain a qualified 401(k) plan, in which all eligible employees may participate. We make safe harbor contributions to match 100% of each participant’s contribution up to 3% of salary, and 50% of the next 2% of salary contributed. Safe harbor contributions are 100% vested. We may also elect, on an annual basis, to make a discretionary contribution to the plan, but have not done so to date. Our elective matches and elective contributions vest to participant accounts as follows: 20% after two years of service, and 20% per year thereafter until the participant reaches 6 years of service, at which time, employer contributions vest 100%. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan.

No Tax Gross-Ups

We do not make gross-up payments to cover our executive officers’ personal income taxes that may pertain to any of the compensation paid or provided by our Company.

2013 Equity Incentive Plan

Plan Purpose

Our Board of Directors adopted the 2013 Plan, which terminated on March 15, 2023, to (1) encourage selected employees, officers, directors, consultants and advisers to improve our operations and increase our profitability, (2) encourage selected employees, officers, directors, consultants and advisers to accept or continue employment or association with us, and (3) increase the interest of selected employees, officers, directors, consultants and advisers in our welfare through participation in the growth in value of our common stock. All of our current employees, officers, directors and consultants were eligible to participate in the 2013 Plan.

Administration

The 2013 Plan is administered by the Board or by a committee to which administration of the Plan, or of part of thereof, is delegated by the Board. The 2013 Plan is currently administered by our Compensation Committee, which we refer to below as the “Administrator.” The Administrator is responsible for selecting the officers, employees, directors, consultants and advisers who will receive Options, Stock Appreciation Rights and Stock Awards. Subject to the requirements imposed by the 2013 Plan, the Administrator is also responsible for determining the terms and conditions of each Option and Stock Appreciation Right award, including the number of shares subject to the Option, the exercise price, expiration date and vesting period of the Option and whether the option is an Incentive Option or a Non-Qualified Option. Subject to the requirements imposed by the 2013 Plan, the Administrator is also responsible for determining the terms and conditions of each Stock Award, including the number of shares granted, the purchase price (if any), and the vesting, transfer and other restrictions imposed on the stock. The Administrator has the power, authority and discretion to make all other determinations deemed necessary or advisable for the administration of the 2013 Plan or of any award under the 2013 Plan.

The 2013 Plan is not subject to the Employee Retirement Income Security Act of 1974 and is not a qualified pension, profit sharing or bonus plan under Section 401(a) of the Internal Revenue Code.

Stock Subject to the 2013 Plan

As of March 29, 2023, there were 2,014,659 shares previously issued or subject to outstanding awards under the 2013 Plan. The plan expired on March 15, 2023 and therefore there are no shares available for future issuance under the 2013 Plan.

Vesting

Each Option, Stock Appreciation Right or Stock Award will become exercisable or non-forfeitable (that is, “vest”) under conditions specified by the Administrator at the time of grant. Vesting typically is based upon continued service as a director or employee but may be based upon any performance criteria and other contingencies that are determined by the Administrator. Shares subject to Stock Awards may be subject to specified restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions as may be determined by the Administrator.

Expiration Date

Each Option or Stock Appreciation Right must be exercised by a date specified in the award agreement, which may not be more than ten years after the grant date. Except as otherwise provided in the relevant agreement, an Option or Stock Appreciation Right ceases to be exercisable ninety days after the termination of the holder’s service with us.

Transfers of Options

Unless otherwise determined by the Administrator, Options are not transferable except by will or the laws of descent and distribution.

Purchase Price Payment

Unless otherwise determined by the Administrator, the purchase price of common stock acquired under the 2013 Plan is payable by cash or check at the time of an Option exercise or acquisition of a Stock Award. The Company does not charge participants any fees or commissions in connection with their acquisition of common stock under the 2013 Plan. The Administrator also has discretion to accept the following types of payment from participants:

Withholding Taxes

At the time of his or her exercise of an Option or Stock Appreciation Right, an employee is responsible for paying all applicable federal and state withholding taxes. A holder of Stock Awards is responsible for paying all applicable federal and state withholding taxes once the shares covered by the award cease to be forfeitable or at any other time required by applicable law.

Securities Law Compliance

Shares of common stock will not be issued pursuant to the exercise of an Option or the receipt of a Stock Award unless the Administrator determines that the exercise of the Option or receipt of the Stock Award and the issuance and delivery of such shares will comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933 (the “Securities Act”), applicable state and foreign securities laws and the requirements of any stock exchange on which our common stock is traded.

Effects of Certain Corporate Transactions

Except as otherwise determined by the Administrator, in the event of a “corporate transaction,” all previously unexercised Options and Stock Appreciation Rights will terminate immediately prior to the consummation of the corporate transaction and all unvested Restricted Stock awards will be forfeited immediately prior to the consummation of the corporate transaction. The Administrator, in its discretion, may permit exercise of any Options or Stock Appreciation Rights prior to their termination, even if those awards would not otherwise have been exercisable, or provide that outstanding awards will be assumed or an equivalent Option or Stock Appreciation Right substituted by a successor corporation. The Administrator, in its discretion, may remove any restrictions as to any Restricted Stock awards or provide that all outstanding Restricted Stock awards will participate in the corporate transaction with an equivalent stock substituted by the successor corporation subject to the restrictions. In general, a “corporate transaction” means:

Other Adjustment Provisions

If the stock of the Company is changed by reason of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification, appropriate adjustments shall be made by the Administrator, in its discretion, in (1) the number and class of shares of stock subject to the 2013 Plan and each Option and grant of Stock Awards outstanding under the 2013 Plan, and (2) the purchase price of each outstanding Option and (if applicable) Stock Award.

Termination of the Plan

The 2013 Plan terminated automatically on March 15, 2023, which was the tenth anniversary of the date of the 2013 Plan’s adoption by our Board of Directors.

2020 Stock Appreciation Rights Plan

On June 23, 2020, our Board of Directors adopted the Sigma Labs, Inc. 2020 Stock Appreciation Rights Plan (the “Plan”). The purposes of the Plan are to: (i) enable the Company to attract and retain the types of employees, consultants, and directors (collectively, “Service Providers”) who will contribute to the Company’s long-range success; (ii) provide incentives that align the interests of Service Providers with those of the shareholders of the Company; and (iii) promote the success of the Company’s business. The Plan only provides for incentive awards that are only made in the form of stock appreciation rights payable in cash (“SARs”). No shares of common stock were reserved in connection with the adoption of the Plan since no shares will be issued pursuant to the Plan.

Governance of the Plan

The Plan will be administered by the Compensation Committee of the Board or, in the Board’s sole discretion, by the Board. The Compensation Committee will have the authority to, among other things, (i) construe and interpret the Plan and apply its provisions; (ii) promulgate, amend, and rescind rules and regulations relating to the administration of the Plan; (iii) delegate its authority to one or more persons who is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder with respect to SARs that do not involve “insiders” within the meaning of Section 16 of the Exchange Act; (iv) determine when SARs are to be granted under the Plan and the applicable grant date; (v) prescribe the terms and conditions of each SAR, including, without limitation, the exercise price and medium of payment and vesting provisions, and to specify the provisions of the SAR Agreement relating to such grant; (vi) amend any outstanding SARs, subject, in certain cases, to the participant’s consent; and (vii) make all other determinations which may be necessary or advisable for the administration of the Plan.

Eligible Participants

SARS may be granted only to persons who are Service Providers, and those persons whom the Committee determines are reasonably expected to become Service Providers following the grant date. The Committee may from time to time designate those Service Providers, if any, to be granted SARs under the Plan, the number of SARs which will be granted to each such person, and any other terms or conditions relating to SARs as it may deem appropriate to the extent consistent with the provisions of the Plan. A participant who has been granted a SAR may, if otherwise eligible, be granted additional incentive awards at any time.

Grant. The Committee may grant SARs to any Service Provider. A SAR is the right to receive an amount equal to the Spread with respect to a share of the Company’s common stock upon the exercise of the SAR. The “Spread” is the difference between the exercise price per share specified in a SAR agreement on the date of grant and the fair market value per share on the date of exercise of the SAR.

General Provisions. The terms and conditions of each SAR will be evidenced by a SAR agreement. The exercise price per share will not be less than 100% of the fair market value of a Share on the date of grant of the SAR. The term of the SAR will be determined by the Committee but may not be greater than ten years from the date of grant.

Exercise. SARs are exercisable subject to such terms and conditions as the Committee may specify in the SAR agreement for the SAR. A SAR may be exercised by the delivery of a signed written notice of exercise to the Company, which must be received and accepted by the Company as of a date set by the Company in advance of the effective date of the proposed exercise. The notice must set forth the number of SARs being exercised, together with any additional documents the Company may require.

Settlement. Upon exercise of a SAR, the Grantee will receive an amount equal to the Spread. The Spread, less applicable withholdings, will be payable only in cash. In no event may any SAR be settled in any manner other than by delivery of a cash payment from the Company.

Form of SAR Agreement

Each participant to whom a SAR is granted will be required to enter into a SAR agreement with the Company, in such a form as is provided by the Committee. The SAR agreement will contain specific terms as determined by the Committee, in its discretion, with respect to the participant’s particular SAR. Such terms need not be uniform among all participants or any similarly situated participants. The SAR agreement may include, without limitation, vesting, forfeiture and other provisions particular to the particular participant’s SAR, as well as, for example, provisions to the effect that the participant must abide by all the terms and conditions of the Plan and such other terms and conditions as may be imposed by the Committee. A SAR will include such terms and conditions as are determined by the Committee, in its discretion, to be appropriate with respect to any participant.

The Committee may specify in a SAR agreement that the participant’s rights, payments, and benefits with respect to a SAR will be subject to forfeiture upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of the incentive award. Such events may include, but are not limited to, termination with cause or other conduct by the participant that is detrimental to the business or reputation of the Company.

Termination of Employment

Unless otherwise expressly provided in the participant’s SAR agreement, if the participant’s employment is terminated for any reason other than due to cause, death or disability, any non-vested portion of any outstanding SAR at the time of such termination will automatically expire and terminate and no further vesting will occur after the termination date. In such event, except as otherwise expressly provided in the SAR agreement, the participant will be entitled to exercise such participant’s rights only with respect to the portion of the SAR that was vested as of the termination date for a period that will end on the earlier of (i) the expiration date set forth in the SAR agreement or (ii) ninety days after the date of termination.

Termination for Cause

Unless otherwise expressly provided in the participant’s SAR agreement, in the event of the termination of a participant’s employment for cause, all vested and non-vested SARs granted to such participant will immediately expire, and will not be exercisable to any extent.

Disability or Death

Unless otherwise expressly provided in the participant’s SAR agreement, upon termination of employment as a result of the participant’s disability or death, (i) any non-vested portion of any outstanding SAR will immediately terminate upon termination and no further vesting will occur, and (ii) any vested SAR will expire on the earlier of either (A) the expiration date set forth in the SAR agreement or (B) 12 months following the participant’s termination of employment.

Continuation

Subject to the conditions and limitations of the Plan and applicable law, in the event that a participant ceases to be an employee, outside director or consultant, as applicable, for whatever reason, the Committee and participant may mutually agree with respect to any outstanding SAR then held by the participant (i) for an acceleration or other adjustment in any vesting schedule applicable to the SAR award; (ii) for a continuation of the exercise period following termination for a longer period than is otherwise provided under such SAR; or (iii) to any other change in the terms and conditions of the SAR. In the event of any such change to an outstanding SAR, a written amendment to the participant’s SAR agreement will be required. No amendment to a participant’s SAR will be made to the extent compensation payable pursuant thereto as a result of such amendment would be considered deferred compensation that is not excepted from taxation or penalties under Code Section 409A, unless otherwise determined by the Committee.

SARs granted under the Plan are not transferable other than to a designated beneficiary upon the Participant’s death or by will or the laws of descent and distribution.

Change in Control

Unless otherwise provided in a SAR Agreement, notwithstanding any contrary provision in the Plan, in the event of a Change in Control (as defined in the Plan), all outstanding SARs will become 100% vested and immediately exercisable.

Amendment

The Board at any time, and from time to time, may amend or terminate the Plan. The Committee at any time, and from time to time, may amend the terms of any one or more SAR agreements, except that the Committee may not affect any amendment which would otherwise constitute an impairment of the rights under any SAR unless the participant consents in writing.

As of March 29, 2023, there were 991,631 SARs outstanding under the 2020 Plan.

Director Compensation

We believe that a combination of cash and equity compensation is appropriate to attract and retain the individuals we desire to serve on our Board of Directors. Our cash compensation policies are designed to encourage frequent and active interaction between directors and our executives both during and between formal meetings as well as compensate our directors for their time and effort. Further, we believe it is important to align the long-term interests of our non-employee directors (i.e., directors who are not employed by us as officers or employees) with those of the Company and its stockholders, and that awarding equity compensation to, and thereby increasing ownership of our common stock by, our non-employee directors is an appropriate means to achieve this alignment. Directors who are also employees of our company do not receive compensation for their service on our Board of Directors.

Under our director compensation program for 2022, each non-employee director received annual compensation of $30,000, and an option to purchase 14,000 shares of our common stock, which is fully vested. All cash fees are paid quarterly. Also, each non-employee director may be reimbursed for his reasonable expenses incurred in the performance of his duties as a director as our Board of Directors determines from time to time. Our Compensation Committee intends to evaluate our director compensation program and determine whether any changes should be recommended to the Board.

The following table sets forth certain information concerning the compensation paid to non-employee directors in 2022 for their services as directors of the Company. The compensation of Mr. Brunsberg, who serves as a director and our President and Chief Executive Officer, is described in the Summary Compensation Table of Executive Officers. Our non-employee directors do not receive fringe or other benefits.