<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Communications Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
COMMUNICATIONS SYSTEMS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1997
------------------------
Notice is hereby given that the Annual Meeting of Shareholders of
Communications Systems, Inc. will be held at The Marquette Hotel, 50th Floor IDS
Center, 7th and Marquette, Minneapolis, Minnesota 55402, on Thursday, May 22,
1997 at 3:00 p.m., Central Daylight Time, for the following purposes:
1. To elect three directors of the Company to hold office for a term of
three years, one director for a term of one year and one director for a
term of two years.
2. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 31, 1997 as
the record date for determination of shareholders entitled to notice of and to
vote at the meeting.
By Order of the Board of Directors
Richard A. Primuth,
SECRETARY
Hector, Minnesota
April 15, 1997
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND IN
PERSON. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN
PERSON IF THEY SO DESIRE.
<PAGE>
COMMUNICATIONS SYSTEMS, INC.
213 SOUTH MAIN STREET
HECTOR, MINNESOTA 55342
(612) 848-6231
---------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished to the shareholders of Communications
Systems, Inc. ("CSI" or the "Company") in connection with the solicitation of
proxies by the Board of Directors of the Company to be voted at the Annual
Meeting of Shareholders to be held at The Marquette Hotel, 50th Floor IDS
Center, 7th and Marquette, Minneapolis, Minnesota 55402 on Thursday, May 22,
1997, beginning at 3:00 p.m. or at any adjournment or adjournments thereof. The
cost of this solicitation will be paid by the Company. In addition to
solicitation by mail, officers, directors and employees of the Company may
solicit proxies by telephone, telegraph or in person. The Company may also
request banks and brokers to solicit their customers who have a beneficial
interest in the Company's Common Stock registered in the names of nominees and
will reimburse such banks and brokers for their reasonable out-of-pocket
expenses.
Any proxy may be revoked at any time before it is voted by receipt of a
proxy properly signed and dated subsequent to an earlier proxy, or by revocation
of a written proxy by request in person at the Annual Meeting. If not so
revoked, the shares represented by such proxy will be voted by the persons
designated as proxies in favor of the matters indicated. In the event any other
matters which properly come before the meeting require a vote of shareholders,
the persons named as proxies will vote in accordance with their judgment on such
matters. The Company's corporate offices are located at 213 South Main Street,
Hector, Minnesota 55342, and its telephone number is (612) 848-6231. The mailing
of this Proxy Statement to shareholders of the Company commenced on or about
April 15, 1997.
The total number of shares outstanding and entitled to vote at the meeting
as of March 31, 1997 consisted of 9,191,213 shares of $.05 par value Common
Stock. Only shareholders of record at the close of business on March 31, 1997
will be entitled to vote at the meeting. Each share of Common Stock is entitled
to one vote. Cumulative voting in the election of directors is not permitted.
The presence in person or by proxy of the holders of a majority of the shares
entitled to vote at the Annual Meeting of Shareholders constitutes a quorum for
the transaction of business.
Under Minnesota law, each item of business properly presented at a meeting
of shareholders generally must be approved by the affirmative vote of the
holders of a majority of the voting power of the shares present, in person or by
proxy, and entitled to vote on that item of business. However, if the shares
present and entitled to vote on any particular item of business would not
constitute a quorum for the transaction of business at the meeting, then that
item must be approved by holders of a majority of the minimum number of shares
that would constitute such a quorum. Votes cast by proxy or in person at the
Annual Meeting of Shareholders will be tabulated at the meeting to determine
whether or not a quorum is present. Abstentions on a particular item of business
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but as unvoted for purposes of determining
approval of the matter. If a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with respect
to that matter.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's Common
Stock owned by each person known by the Company to own of record or beneficially
five percent (5%) or more of the Company's Common Stock and all officers and
directors of the Company as a group using information available as of March 15,
1997.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ----------------------------------------- -------------------- ------------
<S> <C> <C>
Curtis A. Sampson 1,656,699(1) 18.0%
213 South Main Street
Hector, MN 55342
First Bank System, Inc. 712,800 7.8%
601 Second Avenue South
Minneapolis, MN 55402
John C. Ortman 541,350(2) 5.9%
1506 17th Street
Lawrenceville, IL 62439
Thomson Horstmann & Bryant 502,000 5.5%
Saddle Brook, NJ 07663
All directors and executive officers
as a group (13 persons) 2,816,689(3) 30.6%
</TABLE>
- ------------------------
(1) Includes 13,898 shares owned by Mr. Sampson's spouse, as to which beneficial
ownership is disclaimed, 65,100 shares which may be purchased within sixty
days from the date hereof pursuant to outstanding stock options, and 310,649
shares owned by the Communications Systems, Inc. Employee Stock Ownership
Plan ("CSI ESOP") of which Mr. Sampson is a Trustee and 21,149 shares of
Company common stock owned by the Hector Communications Corporation Employee
Stock Ownership Plan ("Hector ESOP") of which Mr. Sampson is a Trustee. Mr.
Sampson disclaims any beneficial ownership of shares owned by the CSI ESOP
and the Hector ESOP in excess of the 20,662 shares allocated to his account
as of December 31, 1996.
(2) Includes 12,000 shares which may be purchased within sixty days from the
date hereof pursuant to outstanding stock options.
(3) Includes 2,141,856 shares owned by officers and directors as a group
directly, 48,218 shares held by their respective spouses, 294,817 shares
which may be purchased by directors and officers within 60 days from the
date hereof pursuant to outstanding stock options, 310,649 shares owned by
the CSI ESOP and 21,149 shares of Company common stock owned by the Hector
ESOP. Messrs. Curtis A. Sampson, Wayne E. Sampson and Paul N. Hanson serve
as Trustees of the CSI ESOP and Mr. Curtis A. Sampson and Mr. Paul N. Hanson
serve as Trustees of the Hector ESOP; except for shares allocated to the
respective accounts of Mr. Curtis Sampson and Mr. Paul N. Hanson, Messrs.
Sampson, Sampson and Hanson disclaim beneficial ownership of the shares held
by such ESOPs.
2
<PAGE>
1. ELECTION OF DIRECTORS
The Board of Directors is presently comprised of eight director positions,
divided into three classes, each of which serve for staggered three years terms.
The Board of Directors has nominated and recommends for reelection as directors
Messrs. Paul J. Anderson, Wayne E. Sampson and Frederick M. Green, who currently
serve as directors and are being renominated for a three year term expiring in
2000. In addition, the Board has increased the size of the two classes of
directors serving unexpired terms by one director each and proposes the election
of the following individuals to fill these newly created positions: Mr. Gerald
D. Pint is proposed for election for a one year term expiring in 1998 and Ms.
Luella Gross Goldberg is proposed for election for a two year term expiring in
1999. The Board of Directors believes that each nominee named below will be able
to serve, but should a nominee be unable to serve as a director, the persons
named in the proxies have advised that they will vote for the election of such
substitute nominee as the Board of Directors may propose.
Information regarding the nominees and other directors filling unexpired
terms is set forth on the following page, including information regarding their
principal occupations currently and for the preceding five years. Ownership of
Common Stock of the Company is given as of March 15, 1996. To the best of the
Company's knowledge, unless otherwise indicated below, the persons indicated
possess sole voting and investment power with respect to their stock ownership.
<TABLE>
<CAPTION>
YEAR
CURRENT AMOUNT OF PERCENT OF
DIRECTOR TERM COMMON STOCK OUTSTANDING
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE EXPIRES OWNERSHIP COMMON STOCK
- ------------------------- -------------------------------------------- --------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
NOMINEES PROPOSED FOR ELECTION FOR TERM EXPIRING IN 2000
Paul J. Anderson Private Investor. 1975 1997 174,618(1) 1.9%
(65)
Wayne E. Sampson Management consultant; director of Hector 1981 1997 334,424(2) 3.6%
(67)* Communications Corporation.
Frederick M. Green Chairman of the Board, President and Chief 1996 1997 2,000(3) --
(54) Executive Officer of Ault Incorporated
(power supply and transformer manufacturer).
ADDITIONAL NOMINEE PROPOSED FOR ELECTION FOR TERM EXPIRING IN 1998
Gerald D. Pint Telecommunications Consultant since -- -- -- --
(61) September, 1993. Prior thereto Group Vice
President, Telecom Systems Group, 3-M
Company, 1989-1993.
ADDITIONAL NOMINEE PROPOSED FOR ELECTION FOR TERM EXPIRING IN 1999
Luella Gross Goldberg Chair, Board of Trustees, University of -- -- -- --
(60) Minnesota Foundation since 1996; Trustee
since 1975. Trustee Emeritus of Wellesley
College since 1996; Trustee, 1978 to 1996;
Acting President during 1993; Chair of the
Board of Trustees, 1985 to 1993. Director,
TCF Financial Corporation, Reliastar
Financial Corp, Hormel Foods Corporation.
Piper Funds Inc., Piper Global Funds Inc.,
Piper Institutional Funds Inc. and other
related closed-end investment companies.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR
CURRENT AMOUNT OF PERCENT OF
DIRECTOR TERM COMMON STOCK OUTSTANDING
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE EXPIRES OWNERSHIP COMMON STOCK
- ------------------------- -------------------------------------------- --------- --------- -------------- ---------------
DIRECTORS SERVING UNEXPIRED TERMS
<S> <C> <C> <C> <C> <C>
Curtis A. Sampson Chairman of the Board, President and Chief 1969 1998 1,656,699(4) 18.0%
(63)* Executive Officer of the Company; Chairman
of the Board of Hector Communications
Corporation (independent telephone
companies); Chairman, Canterbury Park
Holding Corp. (pari-mutuel horse racing).
Joseph W. Parris Attorney, Mediator, Arbitrator and Private 1995 1998 112,000(5) 1.2%
(77) Investor.
Edwin C. Freeman Vice President and General Manager, Bro-Tex, 1988 1999 22,100(6) .2%
(41) Inc. (paper and cloth wiper products, and
fiber product recycler) since March, 1992.
Edward E. Strickland Business and management consultant; Director 1981 1999 32,000(7) --
(70) of: Green Isle Environmental Services, Inc.
(manufacturing); Bio-Vascular, Inc. (medical
devices); Intercim, Inc. (factory management
software); Hector Communications Corporation
(independent telephone companies); and,
Avecor Cardiovascular, Inc. (medical
devices).
John C. Ortman Private Investor.Vice President-Sales of 1990 1999 541,350(7) 5.9%
(75) Suttle Apparatus Corporation (CSI's
telephone station apparatus subsidiary) from
1968 to 1986.
</TABLE>
- --------------------------
* Wayne E. Sampson and Curtis A. Sampson are brothers.
(1) Includes 30,309 shares owned by Mr. Anderson's wife, as to which beneficial
ownership is disclaimed, and 12,000 shares which may be purchased pursuant
to outstanding and presently exercisable stock options.
(2) Includes 15,775 shares owned by Mr. Sampson directly, 500 shares owned by
his spouse, as to which beneficial ownership is disclaimed, 310,649 shares
owned by the CSI ESOP of which Mr. Sampson is a Trustee and 8,000 shares
which may be purchased pursuant to outstanding and presently exercisable
stock options. Mr. Sampson disclaims any beneficial ownership of the shares
owned by the CSI ESOP.
(3) Represents currently exercisable options to purchase 2,000 shares.
(4) See footnote 1 under "Security Ownership of Certain Beneficial Owners and
Management."
(5) Includes 4,000 shares which may be purchased pursuant to currently
exercisable stock options.
(6) Includes 2,100 shares owned by Mr. Freeman's spouse, as to which beneficial
ownership is disclaimed and 12,000 shares which may be purchased pursuant to
outstanding and presently exercisable stock options.
(7) Includes 12,000 shares which may be purchased pursuant to outstanding and
presently exercisable stock options.
4
<PAGE>
INFORMATION REGARDING BOARD AND BOARD COMMITTEES
The Board of Directors met four times during 1996. Each director nominee and
continuing director attended at least 75% of the 1996 meetings of the Board and
each committee on which such director served.
Directors who are not otherwise directly or indirectly compensated by the
Company (currently Messrs. P. J. Anderson, E. C. Freeman, F. M. Green, J. C.
Ortman, W. E. Sampson and E. E. Strickland) receive a monthly retainer of $400
plus $400 for each Board, Audit Committee or Compensation Committee meeting
attended. Messrs. Freeman, W. E. Sampson and Strickland, in consideration for
their additional services as members of the Executive Committee, are paid an
additional monthly retainer of $350. Mr. C. A. Sampson received no additional
cash compensation for service on the Board.
Each non-employee member of the Board of Directors receives at the time of
the annual meeting of the shareholders an option to purchase 2,000 shares of the
Company's Common Stock. Each director's option is at a price equal to the fair
market value of the Company's Common Stock on the date of grant exercisable over
a ten-year period beginning six months after the date the option is granted.
The Company has an Audit Committee consisting of Messrs. Paul J. Anderson,
W. E. Sampson and E. E. Strickland which met once during the last fiscal year.
The Audit Committee recommends to the full Board of Directors the selection of
independent accountants and reviews the activities and reports of the
independent accountants, as well as the internal accounting controls of the
Company
The Company has a Compensation Committee consisting of Messrs. C. A.
Sampson, Edwin C. Freeman and W. E. Sampson. The Compensation Committee met
twice during the last fiscal year.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following tables show, for the fiscal years ending December 31, 1996,
1995 and 1994, the cash and other compensation paid to or accrued by the Company
for each executive officer whose total cash compensation exceeded $100,000
during fiscal 1996 in all capacities served, as well as information relating to
option grants, option exercises and fiscal year end option values applicable to
such persons.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- -------------------------------------------------- --------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Curtis A. Sampson, Chief Executive 1996 $ 176,520 $ 25,000 15,000
Officer of the Company (1) 1995 $ 160,666 $ 25,000 12,000
1994 $ 147,360 $ 40,000 8,000
John C. Hudson, Managing Director 1996 $ 87,105 $ 46,045 6,000 $ 38,144
Austin Taylor Communications (2) 1995 $ 87,130 $ 74,861 6,000 $ 41,017
1994 $ 85,475 $ 99,530 6,000 $ 57,035
Jeffrey K. Berg, President 1996 $ 106,979 $ 25,000 15,000
Suttle Apparatus Corporation 1995 $ 99,132 $ 20,000 12,000 (3)
1994 $ 91,934 $ 20,000 12,000
</TABLE>
- ------------------------
Note: Certain columns have not been included in this table because the
information called for therein is not applicable to the Company or the
individual named above for the periods indicated.
(1) Mr. Sampson devotes approximately 60% of his working time to the Company.
The balance of his working time Mr. Sampson serves as Chairman and Executive
Officer of Hector Communications Corporation, for which he is separately
compensated.
(2) For each of the three years, more than 60% of the amounts listed under "All
Other Compensation" represents the Company's contribution to Mr. Hudson's
pension plan.
(3) In July, 1994 the Company loaned Mr. Berg $100,000 at 8% per annum under a
promissory note providing for annual interest payments and for repayment of
the principal amount in July, 1998. The current balance of the loan is
$61,000. The loan is secured by options to acquire 22,000 shares of Company
common stock which were granted to Mr. Berg and which have an aggregate,
in-the-money value of approximately $79,625 as of date hereof.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------
NAME GRANTED IN 1996 SHARE DATE 5% 10%
- ---------------------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Curtis A. Sampson 15,000 9.5% $ 15.95 3/26/01 $ 38,341 $ 111,036
John C. Hudson 6,000 3.8% 14.50 3/26/01 24,036 53,114
Jeffrey K. Berg 15,000 9.5% 14.50 3/26/01 60,091 132,786
</TABLE>
6
<PAGE>
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE VALUE OF UNEXERCISED
REALIZED IN-THE- MONEY OPTIONS AT
(MARKET PRICE NUMBER OF UNEXERCISED FY-END (BASED ON FY-END
SHARES AT EXERCISE OPTIONS AT FY-END PRICE OF $15.00/SH)
ACQUIRED ON LESS EXERCISE -------------------------- --------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Curtis A. Sampson -- -- 45,000 14,000 $ 176,537 --
John C. Hudson 3,683 23,510 13,317 6,000 31,643 $ 4,000
Jeffrey K. Berg -- -- 35,000 14,000 112,121 9,000
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, Curtis A. Sampson and Wayne E. Sampson served as members
of the Company's Compensation Committee. Mr. C. A. Sampson is the President and
Chief Executive Officer of the Company and Mr. W. E. Sampson, a director, is his
brother.
COMPENSATION COMMITTEE REPORT
The Compensation Committee appointed by the Company's Board of Directors has
primary responsibility in regard to determinations relating to executive
compensation and administration of the Company's stock option plans. All
decisions by the Compensation Committee pertaining to the compensation of the
Company's executive officers are reviewed and approved by the full Board. Mr.
Curtis A. Sampson, the Company's Chairman and Chief Executive Officer, did not
participate in any discussions or decisions of either the Compensation Committee
or the Board of Directors relating to any aspect of his compensation.
COMPENSATION POLICIES
It is the objective of the Compensation Committee to pay compensation at
levels which will attract, retain and motivate executives with superior
leadership and management abilities and to structure the forms of compensation
paid such that their interests will be closely aligned with achievement of
superior financial performance by the Company. With these objectives in mind,
the compensation currently paid to the Company's executive officers principally
consists of three elements: base salary, bonus and periodic stock option awards.
COMPENSATION ELEMENTS
Base salaries of the Company's executive officers are generally established
by reference to base salaries paid to executives in similar positions with
similar responsibilities based upon publicly available compensation surveys and
limited informal surveys by Compensation Committee members. Base salaries are
reviewed annually. Adjustments to base salaries are determined by reference to
individual and company performance having in mind both measurable financial
factors, as well as subjective judgments by the Compensation Committee in regard
to factors such as development and execution of strategic plans, changes in
areas of responsibility and the development and management of employees. The
Compensation Committee does not, however, assign specific weights to these
various factors in reaching its decisions.
7
<PAGE>
Bonuses are intended to provide executives with an opportunity to receive
additional cash compensation, but only if they earn it through Company and
individual performance. After year end results are available, the Committee
determines each officer's bonus based on the Company's performance, as measured
by such factors as growth in earnings per share, as well as the Compensation
Committee's subjective assessment of individual performance in the executive's
area of responsibility, but without assigning specific weight to the various
factors considered.
Stock options are awarded to the Company's executives under the Company's
1992 Stock Plan. Stock options represent an additional vehicle for aligning
management's and stockholders' interests, specifically motivating executives to
remain focused on factors which will enhance the market value of the Company's
common stock. If there is no price appreciation in the common stock, the option
holders receive no benefit from the stock options, because options are granted
with an option exercise price at least equal to the fair market value of the
common stock on the date of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Curtis A. Sampson participates in the same executive compensation plans
provided to other senior executives and is evaluated by the same factors
applicable to the other executives as described above. Mr. Sampson's total cash
compensation for 1996 was $201,520, an increase of 8.6% over total cash
compensation in 1995. In addition, Mr Sampson was granted options to purchase
15,000 shares in 1996, a 20% increase from options granted in 1995. Because of
his significant holdings of Company common stock, under applicable IRS rules,
Mr. Sampson's options are priced at 110% of the market price on the date of
grant. While the Company's revenues and net income from continuing operations
were approximately the same as 1995, the two other members of the Compensation
Committee believe that the increase in Mr. C. A. Sampson's cash and option
compensation for 1996 is reasonable in relation to other accomplishments for
which Mr. C.A. Sampson provided leadership during the year and which position
the Company for future growth in revenues and profitability. These include the
acquistion of Automatic Tool & Connector, the disposition of Zercom Corporation
and the significant expansion of international sales initiatives. Finally, the
two other members of the Compensation Committee believe, based upon their
general knowledge of compensation paid to other chief executives and published
regional salary data (but without conducting a formal survey), that Mr.
Sampson's total compensation is below that which could be reasonably justified
in relation to the scope of his responsibilities, as well as the financial
performance of the Company and total shareholder return during the past several
years.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Edwin C. Freeman Curtis A. Sampson Wayne E. Sampson
8
<PAGE>
PERFORMANCE GRAPH
The following graph presents, at the end of each of the Company's last five
fiscal years, the cumulative total return on the common stock of the Company as
compared to the cumulative total return of the NASDAQ Stock Market Total Return
Index (U.S. Companies), and the NASDAQ Telecommunications Stock Total Return
Index assuming, in each case, the investment of $100 on December 31, 1990 and
the reinvestment of all dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMMUNICATIONS SYSTEMS, INC. NASDAQ STOCK MARKET NASDAQ TELECOMMUNICATIONS STOCK
<S> <C> <C> <C>
1991 $100 $100 $100
1992 111 116 123
1993 194 134 189
1994 186 131 158
1995 239 185 207
1996 233 227 212
</TABLE>
CERTAIN TRANSACTIONS
TRANSACTIONS AND SHARED MANAGEMENT WITH HECTOR COMMUNICATIONS CORPORATION
The Company makes available to Hector Communications Corporation ("HCC")
which prior to 1990 was a subsidiary of the Company certain staff services and
administrative systems, such as payroll and pension plan administration, with
the related costs and expenses being paid by HCC. In 1996 and 1995 HCC paid the
Company $258,000 and $279,000, respectively, for such services, amounts which
management believes are no less than the cost the Company incurred in connection
with providing such services.
Two of the Company's executive officers, Curtis A. Sampson and Paul N.
Hanson, each devote approximately 60% of their working time to the Company.
Messrs. Sampson and Hanson devote the remainder of their working time to HCC, of
which Mr. Sampson serves as Chairman and Chief Executive Officer and Mr. Hanson
serves as a director and Treasurer. These officers are separately compensated by
HCC for their services to HCC.
REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION
The Company's officers, directors and beneficial holders of 10% or more of
the Company's securities are required to file reports of their beneficial
ownership with the Securities and Exchange Commission on SEC Forms 3, 4 and 5.
According to the Company's records, during the period from January 1, 1996 to
December 31, 1996, officers, directors and ten percent beneficial holders of the
9
<PAGE>
Company filed all reports with the Securities and Exchange Commission required
under Section 16(a) related to their beneficial ownership. To the best of the
Company's knowledge, all such reports have been filed in a timely manner.
THE COMPANY'S AUDITORS
Deloitte & Touche have been the auditors for the Company since 1982 and have
been selected by the Board of Directors, upon recommendation of the Audit
Committee, to serve as such for the current fiscal year. A representative of
Deloitte & Touche is expected to be present at the Annual Meeting of
Shareholders and will have an opportunity to make a statement and will be
available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
The proxy rules of the Securities and Exchange Commission permit
shareholders of a company, after timely notice to the Company, to present
proposals for shareholder action in the Company's proxy statement where such
proposals are consistent with applicable law, pertain to matters appropriate for
shareholder action and are not properly omitted by Company action in accordance
with the Commission's proxy rules. The next annual meeting of the shareholders
of Communications Systems, Inc. is expected to be held on or about May 15, 1998
and proxy materials in connection with that meeting are expected to be mailed on
or about March 31, 1998. Shareholder proposals prepared in accordance with the
Commission's proxy rules to be included in the Company's Proxy Statement must be
received at the Company's corporate office, 213 South Main Street, Hector,
Minnesota 55342, Attention: President, by December 15, 1997, in order to be
considered for inclusion in the Board of Directors' Proxy Statement and proxy
card for the 1997 Annual Meeting of Shareholders. Any such proposals must be in
writing and signed by the shareholder.
The Bylaws of the Company establish an advance notice procedure with regard
to (i) certain business to be brought before an annual meeting of shareholders
of the Company and (ii) the nomination by shareholders of candidates for
election as directors.
PROPERLY BROUGHT BUSINESS. The Bylaws provide that at the annual meeting
only such business may be conducted as is of a nature that is appropriate for
consideration at an annual meeting and has been either specified in the notice
of the meeting, otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or otherwise properly brought before the
meeting by a shareholder who has given timely written notice to the Secretary of
the Company of such share-holder's intention to bring such business before the
meeting. To be timely, the notice must be given by such shareholder to the
Secretary of the Company not less than 45 days nor more than 75 days prior to a
meeting date corresponding to the previous year's annual meeting. Notice
relating to the conduct of such business at an annual meeting must contain
certain information as described in Section 2.9 of the Company's Bylaws, which
are available for inspection by shareholders at the Company's principal
executive offices pursuant to Section 302A.461, subd. 4 of the Minnesota
Statutes. Nothing in the Bylaws precludes discussion by any shareholder of any
business properly brought before the annual meeting in accordance with the
Company's Bylaws.
SHAREHOLDER NOMINATIONS. The Bylaws provide that a notice of proposed
shareholder nominations for the election of directors must be timely given in
writing to the Secretary of the Company prior to the meeting at which directors
are to be elected. To be timely, the notice must be given by such shareholder to
the Secretary of the Company not less than 45 days nor more than 75 days prior
to a meeting date corresponding to the previous year's annual meeting. The
notice to the Company from a shareholder who intends to nominate a person at the
meeting for election as a director must contain certain information as described
in Section 3.7 of the Company's Bylaws, which are available for inspection by
shareholders as described above. If the presiding officer of a meeting of
shareholders determines that a person was not nominated in accordance with the
foregoing procedure, such person will not be eligible for election as a
director.
10
<PAGE>
OTHER MATTERS
Management knows of no other matters that will be presented at the meeting.
If any other matters arise at the meeting, it is intended that the shares
represented by the proxies in the accompanying form will be voted in accordance
with the judgment of the persons named in the proxy.
The Company is transmitting with this Proxy Statement its Annual Report for
the year ended December 31, 1996. SHAREHOLDERS MAY RECEIVE, WITHOUT CHARGE, A
COPY OF THE COMPANY'S 1996 FORM 10-K REPORT AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION BY WRITING TO ASSISTANT SECRETARY, COMMUNICATIONS SYSTEMS,
INC., 213 SOUTH MAIN STREET, HECTOR, MINNESOTA 55342.
By Order of the Board of Directors,
Richard A. Primuth,
SECRETARY
11
<PAGE>
COMMUNICATIONS SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 22, 1997
The undersigned hereby appoints Edwin C. Freeman, Edward E. Strickland and
John C. Ortman, or any of them, as proxies, with full power of substitution to
vote all the shares of common stock which the undersigned would be entitled to
vote if personally present at the Annual Meeting of Shareholders of
Communications Systems, Inc., to be held Thursday, May 22, 1997, at 3:00 p.m.
Central Daylight Time at The Marquette Hotel, 50th Floor, 7th and Marquette,
Minneapolis, Minnesota 55402, or at any adjournments thereof, hereby revoking
all former proxies, as follows:
1. Election of Directors for terms expiring at the Company's Annual Shareholders
Meeting in the years respectively indicated
<TABLE>
<S> <C> <C> <C>
/ / WITH AUTHORITY to vote for all nominees / / WITHOUT AUTHORITY to vote for
listed below (except as indicated to the contrary) nominees listed below
</TABLE>
<TABLE>
<S> <C>
For one year term expiring in 1998: GERALD D. PINT For two year term expiring in 1999: LUELLA GROSS
GOLDBERG
</TABLE>
For three year term expiring in 2000: PAUL J. ANDERSON, FREDERICK M. GREEN,
WAYNE E. SAMPSON
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
________________________________________
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM PREVIOUS SIDE)
2. In their discretion upon any matters coming before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE
DIRECTORS NAMED ON THE REVERSE SIDE OF THIS CARD UNLESS OTHERWISE SPECIFIED.
PLEASE DATE AND SIGN exactly as
your name(s) appears below
indicating, where proper,
official position or
representative capacity in which
you are signing. When signing as
executor, administrator, trustee
or guardian, give full title as
such; when shares have been
issued in names of two or more
persons, all should sign.
Dated _____________________, 1997
_________________________________
Signature
_________________________________
Signature if held jointly
