<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
COMMUNICATIONS SYSTEMS,
INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
COMMUNICATIONS SYSTEMS,
INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Items 22(a)(2) of Schedule A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(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.)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
COMMUNICATIONS SYSTEMS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 1999
------------------------
Notice is hereby given that the Annual Meeting of Shareholders of
Communications Systems, Inc. will be held at the Carlson School of Management,
321 19th Avenue South, Room 2-260Z, Minneapolis, Minnesota, on Tuesday, May 18,
1999 at 3:00 p.m., Central Daylight Time, for the following purposes:
1. To elect three (3) directors to hold office until the 2002 Annual
Meeting of Shareholders or until their successors are elected.
2. To consider and act upon a proposal to ratify and approve an amendment
to the Company's 1992 Stock Plan to increase the number of shares
authorized to be issued under such plan by 500,000 shares to 1,900,000
shares.
3. To amend the Company's 1990 Stock Option Plan for Nonemployee Directors
to increase from 2,000 to 3,000 the number of shares purchasable upon
exercise of options automatically granted to each non-employee director
reelected at or continuing in office after the annual meeting of
shareholders.
4. 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 19, 1999 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, 1999
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 Carlson School of Management, 321 19th
Avenue South, Room 2-260Z, Minneapolis, Minnesota on Tuesday, May 18, 1999,
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 (320) 848-6231. The mailing
of this Proxy Statement to shareholders of the Company commenced on or about
April 15, 1999.
The total number of shares outstanding and entitled to vote at the meeting
as of March 19, 1999 consisted of 8,811,144 shares of $.05 par value Common
Stock. Only shareholders of record at the close of business on March 19, 1999
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,
1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- --------------------------------------- -------------------- ------------
<S> <C> <C>
Curtis A. Sampson 1,652,605(1) 18.8%
213 South Main Street
Hector, MN 55342
Thomson Horstmann & Bryant 600,700 6.8%
Saddle Brook, NJ 07663
First Bank System, Inc. 495,198 5.6%
601 Second Avenue South
Minneapolis, MN 55402
John C. Ortman 545,350(2) 6.2%
1506 17th Street
Lawrenceville, IL 62439
All directors and executive officers 3,141,042(3) 35.6%
as a group (15 persons)
</TABLE>
- ------------------------------
(1) Includes 13,898 shares owned by Mr. Sampson's spouse, as to which beneficial
ownership is disclaimed, 70,500 shares which may be purchased within sixty
days from the date hereof pursuant to outstanding stock options, and 308,645
shares owned by the Communications Systems, Inc. Employee Stock Ownership
Plan ("CSI ESOP") of which Mr. Sampson is a Trustee and 18,509 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 21,853 shares allocated to his account
as of December 31, 1998.
(2) Includes 16,000 shares which may be purchased within sixty days from the
date hereof pursuant to outstanding stock options.
(3) Includes 2,290,570 shares owned by officers and directors as a group
directly, 48,018 shares held by their respective spouses, 475,300 shares
which may be purchased by directors and officers within 60 days from the
date hereof pursuant to outstanding stock options, 308,645 shares owned by
the CSI ESOP and 18,509 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.
1. ELECTION OF DIRECTORS
The Board of Directors is presently comprised of ten director positions,
divided into three classes, each of which serve for staggered three year terms.
The Board of Directors has nominated and recommends for reelection as directors
Messrs. Edwin C. Freeman, Luella Gross Goldberg and Edward J. Strickland, who
currently serve as directors and are each being renominated for a three year
term expiring in 2002. The class of directors to be elected for terms expiring
in 2002 includes a fourth director position. No nominee is being submitted to
fill this fourth position and the resolution proposing the three nominees named
below will also provide for amending the bylaws of the Company to reduce the
size of the Board to
2
<PAGE>
nine directors and to reduce the class of directors with terms ending in 2002 to
three directors. 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 19, 1999. 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
PRINCIPAL OCCUPATION AND OTHER DIRECTOR TERM COMMON STOCK OUTSTANDING
NAME AND AGE DIRECTORSHIPS SINCE EXPIRES OWNERSHIP COMMON STOCK
- ------------------------- ------------------------------------------- --------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
NOMINEES PROPOSED FOR ELECTION FOR TERM EXPIRING IN 2002
Edwin C. Freeman Vice President and General Manager, 1988 1999 26,100(1) .3%
(43) Bro-Tex, Inc. (paper and cloth wiper
products, and fiber product recycler) since
March, 1992.
Luella Gross Goldberg Trustee, University of Minnesota 1997 1999 5,000(2) --
(62) Foundation, since 1975; Chair. from 1996 to
1998. Trustee Emerita 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. and Hormel Foods Corporation.
Edward E. Strickland Business and management consultant; 1981 1999 36,000(3) .4%
(72) Director of: Reuter Manufacturing, Inc.
(manufacturing); Bio-Vascular, Inc.
(medical devices); Intercim, Inc. (factory
management software); Hector Communications
Corporation (independent telephone
companies); and, Quantech, Ltd. (medical
devices).
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR
CURRENT AMOUNT OF PERCENT OF
PRINCIPAL OCCUPATION AND OTHER DIRECTOR TERM COMMON STOCK OUTSTANDING
NAME AND AGE DIRECTORSHIPS SINCE EXPIRES OWNERSHIP COMMON STOCK
- ------------------------- ------------------------------------------- --------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
DIRECTORS SERVING UNEXPIRED TERMS
Paul J. Anderson Private Investor. 1975 2000 172,618(4) 2.0%
(67)
Wayne E. Sampson Management consultant; director of Hector 1981 2000 335,095(5) 3.8%
(69)* Communications Corporation.
Frederick M. Green Chairman of the Board, President and Chief 1996 2000 6,000(6) --
(56) Executive Officer of Ault Incorporated
(power conversion products).
Curtis A. Sampson Chairman of the Board, President and Chief 1969 2001 1,652,605(7) 18.8%
(65)* Executive Officer of the Company; Chairman
of the Board of Hector Communications
Corporation (independent telephone
companies); Chairman of the Board of
Canterbury Park Holding Corporation
(thoroughbred racetrack).
Joseph W. Parris Attorney, Mediator, Arbitrator and Private 1995 2001 116,000(6) 1.3%
(79) Investor.
Gerald D. Pint Telecommunications Consultant since 1997 2001 4,000(2) --
(63) September, 1993. Prior thereto Group Vice
President, Telecom Systems Group, 3-M
Company, 1989-1993. Director of Norstan,
Inc. (telecommunications equipment and
service company) and Inventronics Ltd.
(telecommunications equipment company).
</TABLE>
- ------------------------
* Wayne E. Sampson and Curtis A. Sampson are brothers.
(1) Includes 2,100 shares owned by Mr. Freeman's spouse, as to which beneficial
ownership is disclaimed, and 16,000 shares which may be purchased pursuant
to outstanding and presently exercisable stock options.
(2) Includes 4,000 shares which may be purchased pursuant to currently
exercisable stock options.
(3) Includes 14,000 shares which may be purchased pursuant to currently
exercisable stock options.
(4) Includes 30,309 shared owned by Mr. Anderson's wife, as to which beneficial
ownership is disclaimed, and 16,000 shared which may be purchased pursuant
to outstanding and presently exercisable stock options.
4
<PAGE>
(5) Includes 14,150 shares owned by Mr. Sampson directly, 300 shares owned by
his spouse, as to which beneficial ownership is disclaimed, 308,645 shares
owned by the CSI ESOP of which Mr. Sampson is a Trustee and 12,000 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.
(6) Includes 6,000 shares which may be purchased pursuant to currently
exercisable stock options.
(7) See footnote 1 under "Security Ownership of Certain Beneficial Owners and
Management."
INFORMATION REGARDING BOARD AND BOARD COMMITTEES
The Board of Directors met five times during 1998. Each director nominee and
continuing director attended at least 75% of the 1998 meetings of the Board and
each committee on which such director served.
All directors, other than C. A. Sampson, receive a monthly retainer of $750,
plus $600 for each Board meeting and $500 for each 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 $250. Mr. C. A. Sampson received no additional
cash compensation for service on the Board.
Presently, 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. If Proposal 2 is adopted, this automatic
option grant will increase to cover 3,000 shares. Each director's option is
granted 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.
PROPOSAL 2
PROPOSAL TO AMEND THE COMPANY'S 1992 STOCK PLAN
INTRODUCTION
The shareholders of the Company approved the Communications Systems, Inc.
1992 Stock Plan (the "Stock Plan") on May 15, 1992, originally authorizing
400,000 shares of common stock (as adjusted for a stock split in 1993) for
issuance pursuant to options and other rights granted under the Stock Plan. At
the 1995 Annual Meeting of Shareholders, an amendment to increase the number of
shares available under the Stock Plan by 500,000 shares was ratified and
approved. At the 1998 Annual Meeting of Shareholders, the Stock Plan was further
amended to increase the number of shares available under the Stock Plan by
another 500,000 shares. The purpose of the Stock Plan is to enable the Company
and subsidiaries to retain and attract key employees who contribute to the
Company's success by their ability, ingenuity and industry and to enable such
key employees to participate in the long-term success and growth of the Company
by giving them a proprietary interest in the Company. The Stock Plan authorizes
the granting of awards in the
5
<PAGE>
following forms: (i) stock options, (ii) stock appreciation rights, (iii)
restricted stock, and (iv) deferred stock. On April 13, 1999, the last reported
sales price of the Company's common stock in the NASDAQ National Market was
$8.88.
AMENDMENT TO STOCK PLAN TO INCREASE AUTHORIZED SHARES
As noted above, the Stock Plan was amended in May 1998 to increase the
number of authorized shares by 500,000. Subsequent to the 1998 shareholders
meeting, the Company has substantially expanded its operations through its
acquisition of JDL Technologies, Inc. ("JDL"), Transition Networks, Inc.
("Transition"), and LANart Corporation ("LANart"). As a result of these
acquisitions, the Company now employs a greater number of executives and key
employees which it believes it is imperative to retain by offering, along with
other forms of compensation, stock option grants at levels commensurate with
comparable public companies. In addition, on March 5, 1999, the Compensation
Committee of the Board implemented a special five (5) year option program under
the 1992 Plan, whereby options covering 240,000 shares were granted to five
employees of Transition Networks, Inc. Under this special program, in addition
to vesting over time (20% per year), the options may only be exercised if
Transition achieves financial performance representing growth of 20% per year in
revenues and pre-tax earnings. After giving effect to this special program, as
well as regular option grants in 1999 to other Transition, JDL and LANart
employees comparable to option grants given to other Company employees in prior
years, only approximately 130,000 shares were available for future option
grants, including option grants to be awarded in 1999 to executives and key
employees of the Company's other business units, Suttle Apparatus Corporation,
Austin Taylor Limited, and Automatic Tool & Connector, consistent with past
practice. Accordingly, in order to continue its practice of awarding stock
options to retain, attract and motivate the Company's executives and key
employees consistent with past practice, the Board of Directors has again
amended the Stock Plan, subject to ratification and approval by the
shareholders, to increase the total number of shares available under the Stock
Plan by 500,000 shares to a total of 1,900,000.
SUMMARY OF TERMS OF STOCK PLAN
The following provides a summary of certain provisions of the Stock Plan:
SHARES AVAILABLE UNDER STOCK PLAN. The maximum number of shares of common
stock reserved and available under the Stock Plan for awards is currently
1,400,000 shares (subject to possible adjustment in the event of stock splits or
other similar changes in the common stock). Shares of common stock covered by
expired or terminated stock options and forfeited shares of restricted stock or
deferred stock may be used for subsequent awards under the Stock Plan.
ELIGIBILITY AND ADMINISTRATION. Officers and other key employees of the
Company and its subsidiaries who are responsible for or contribute to the
management, growth and profitability of the business of the Company and its
subsidiaries are eligible to be granted awards under the Stock Plan. The Stock
Plan will be administered by the Board or, in its discretion, by a committee of
not less than three "disinterested directors," as defined in the Stock Plan (the
"Committee"), who shall be appointed by the Board of Directors. The term "Board"
used in this section refers to the Board or, if the Board has delegated its
authority, the Committee. The Board will have the power to make awards,
determine the number of shares covered by each award and other terms and
conditions of such awards, interpret the Stock Plan, and adopt rules,
regulations and procedures with respect to the administration of the Stock Plan.
The Board may
6
<PAGE>
delegate its authority to officers of the Company for the purpose of selecting
key employees who are not officers of the Company to be participants in the
Stock Plan.
AWARDS UNDER STOCK PLAN
STOCK OPTIONS. The Board may grant stock options that either qualify as
"incentive stock options" under the Code or are "non-qualified stock options" in
such form and upon such terms as the Board may approve from time to time. Stock
options granted under the Stock Plan may be exercised during their respective
terms as determined by the Board. The purchase price may be paid by tendering
cash or, in the Board's discretion, by tendering promissory notes or common
stock. If the terms of an option so permits the optionee may elect to pay all or
part of the option price by having the Company withhold upon exercise of the
option a number of shares with a fair market value equal to the aggregate option
exercise price for the shares with respect to which such election is made. No
stock option shall be transferable by the optionee or exercised by anyone else
during the optionee's lifetime.
Stock options may be exercised during varying periods of time after a
participant's termination of employment, dependent upon the reason for the
termination. Following a participant's death, the participant's stock options
may be exercised to the extent they were exercisable at the time of death by the
legal representative of the estate or the optionee's legatee for a period of
three years or until the expiration of the stated term of the option, whichever
is less. The same time periods apply if the participant is terminated by reason
of disability or retirement. If the participant is involuntarily terminated
without cause, the participant's options may be exercised to the extent they
were exercisable at the time of termination for the lesser of three months or
the balance of the options' terms. If the participant's employment is terminated
for any other reason, the participant's stock options immediately terminate.
These exercise periods may be reduced by the Board for particular options. The
Board may, in its discretion, accelerate the exercisability of stock options
that would not otherwise be exercisable upon death, disability or retirement.
No incentive stock options shall be granted under the Stock Plan after March
1, 2002. The term of an incentive stock option may not exceed 10 years (or 5
years if issued to a participant who owns or is deemed to own more than 10% of
the combined voting power of all classes of stock of the Company, any subsidiary
or affiliate). The aggregate fair market value of the common stock with respect
to which an incentive stock option is exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000. The exercise price
under an incentive stock option may not be less than the fair market value of
the common stock on the date the option is granted (or, in the event the
participant owns more than 10% of the combined voting power of all classes of
stock of the Company, the option price shall be not less than 110% of the fair
market value of the stock on the date the option is granted). The exercise price
for non-qualified options granted under the Stock Plan may not be less than 50%
of the fair market value of the common stock on the date of grant.
STOCK APPRECIATION RIGHTS. The Board may grant stock appreciation rights
("SARs") in connection with all or part of any stock option either at the time
of the stock option grant, or, in the case of non-qualified options, later
during the term of the stock option. SARs entitle the participant to receive
from the Company the same economic value that would have been derived from the
exercise of an underlying stock option and the immediate sale of the shares of
common stock. Such value is paid by the Company in cash, shares of common stock
or a combination of both, in the discretion of the Board. SARS are exercisable
or transferable only at such times and to the extent stock options to which they
relate are
7
<PAGE>
exercisable or transferable. If an SAR is exercised, the underlying stock option
is terminated as to the number of shares covered by the SAR exercise.
RESTRICTED STOCK. The Board may grant restricted stock awards that result
in shares of common stock being issued to a participant subject to restrictions
against disposition during a restricted period established by the Board. The
Board may condition the grant of restricted stock upon the attainment of
specified performance goals or service requirements. The provisions of
restricted stock awards need not be the same with respect to each recipient. The
restricted stock will be held in custody by the Company until the restrictions
thereon have lapsed. During the period of the restrictions, a participant has
the right to vote the shares of restricted stock and to receive dividends and
distributions unless the Board requires such dividends and distributions to be
held by the Company subject to the same restrictions as the restricted stock.
Notwithstanding the foregoing, all restrictions with respect to restricted stock
lapse 60 days (or less as determined by the Board) prior to the occurrence of a
merger or other significant corporate change, as provided in the Stock Plan.
If a participant terminates employment during the period of the restriction,
all shares still subject to restrictions will be forfeited and returned to the
Company, subject to the right of the Board to waive such restrictions in the
event of a participant's death, total disability, retirement or under special
circumstances approved by the Board.
DEFERRED STOCK. The Board may grant deferred stock awards that result in
shares of common stock being issued to a participant or group of participants
upon the expiration of a deferral period. The Board may condition the grant of
deferred stock upon the attainment of specified performance goals. The
provisions of deferred stock awards need not be the same with respect to each
recipient.
Upon termination of employment for any reason during the deferral period for
a given award, the deferred stock in question shall be forfeited by the
participant, subject to the Board's ability to waive any remaining deferral
limitations with respect to a participant's deferred stock. During the deferral
period, deferred stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered and any dividends declared with respect to the number of
shares covered by a deferred stock award will either be immediately paid to the
participant or deferred and deemed to be reinvested in additional deferred
stock, as determined by the Board. The Board may allow a participant to elect to
further defer receipt of a deferred stock award for a specified period or until
a specified event.
GENERAL PROVISIONS. The Board may, at the time of any grant under the Stock
Plan, provide that the shares received by any participant under the Stock Plan
shall be subject to repurchase by the Company in the event of termination of
employment of the participant for any reason. Except as provided otherwise by
the Board, the repurchase price will be the fair market value of the stock or,
in the case of a termination for cause (as defined in the Stock Plan), the
amount of consideration paid for the stock. The Board may also, at the time of
grant, provide the Company with rights to repurchase, or require the forfeiture
of, shares of stock acquired under the Stock Plan by any participant who, at any
time within two years after termination of employment with the Company, directly
or indirectly competes with, or is employed by a competitor of, the Company.
FEDERAL INCOME TAX CONSEQUENCES
STOCK OPTION. An optionee will not realize taxable compensation income upon
the grant of an incentive stock option. In addition, an optionee generally will
not realize taxable compensation income
8
<PAGE>
upon the exercise of an incentive stock option if he or she exercises it as an
employee ir within three months after termination of employment (or within one
year after termination if the termination results from a permanent and total
disability). The amount by which the fair market value of the shares purchased
exceeds the aggregate option price at the time of exercise (or, in the case of
an executive officer, director or 10% shareholder, six months after the date the
option as granted, if later) shall be treated as alternative minimum taxable
income for purposes of the alternative minimum tax.
If stock acquired pursuant to an incentive stock option is not disposed of
prior to the date two years from the option grant date or prior to one year from
the option exercise date, any gain or loss realized upon the sale of such shares
will be characterized as capital gain or loss. If the applicable holding periods
are not satisfied, then any gain realized in connection with the disposition of
such stock will generally be taxable as compensation income in the year in which
the disposition occurred, to the extent of the difference between the fair
market value of such stock on the date of exercise and the option exercise
price. The Company is entitled to a tax deduction to the extent, and at the
time, that the participant realizes compensation income. The balance of any gain
will be characterized as a long-tem or short-tem capital gain, depending on
whether the shares were held for more than one year.
An optionee will not realize taxable compensation income upon the grant of a
non-qualified stock option. When an optionee exercises a non-qualified stock
option, he or she will realize taxable compensation income at that time equal to
the difference between the aggregate option price and the fair market value of
the stock on the date of exercise. If, however, an optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934 (i.e., is an executive
officer, director or 10% shareholder of the Company) and the optionee exercises
the option within six months after the date the option was granted, he or she
will not realize notable compensation income until six months after the grant of
the non-qualified stock option (subject to the right of the optionee to elect to
be taxed at the time of exercise). In the event realization of the income is
deferred, the amount of the optionee's compensation income will be equal to the
difference between the aggregate option price and the fair market value of the
stock on the date immediately preceding the sixth month anniversary of the date
of grant. The Company is entitled to a tax deduction to the extent and at the
time, that the participant realizes compensation income.
Upon the disposal of stock acquired pursuant to a nonqualified option, the
optionee's basis for determining taxable gain or loss will be the sum of the
option price paid for the stock plus my any related compensation income
recognized by the optionee, and such gain or loss will be long-term or
short-term capital gain or loss depending on whether the optionee has held the
shares for more than one year.
SARS. The grant of an SAR would not result in income for the participant or
in a deduction for the Company. Upon receipt of shares or cash from exercise of
an SAR, the participant would generally recognize compensation income, and the
Company would be entitled to a deduction, measured by the fair market value of
the shares plus any cash received.
RESTRICTED STOCK AND DEFERRED STOCK. The grant of restricted stock and
deferred stock should not result in immediate income for the participant or in a
deduction for the Company for federal income tax purposes, assuming the shares
are nontransferable and subject to restrictions or to a deferral period which
would result in a "substantial risk of forfeiture" as intended by the Company.
If the shares are transferable or there are no such restrictions or significant
deferral period, the participant will realize compensation income upon receipt
of the award. Otherwise, a participant will generally realize compensation
income upon any such restrictions or deferral period lapses. The amount of such
income will be the value of the common stock on that date less any amount paid
for the shares. Dividends paid on the common stock and
9
<PAGE>
received by the participant during the restricted period or deferral period
would also be taxable compensation income to the participant. In any event the
Company will be entitled to a tax deduction to the extent and at the time, that
the participant realizes compensation income. A participant may elect, under
Section 83(b) of the Code, to be taxed on the value of the stock at the time of
award. If this election is made, the fair market value of the stock at the time
of the award is taxable to the participant as compensation income, and the
Company is entitled to a corresponding deduction.
WITHHOLDING. The Stock Plan requires each participant, no later than the
date as of which any part of the value of an award first becomes includible as
compensation in the gross income of the participant, to pay to the Company any
federal, state or local taxes required by law to be withheld with respect to the
award. The Company shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the participant. With
respect to any award under the Stock Plan, if the terms of the award so permit,
a participant may elect to satisfy part or all of the withholding tax
requirements associated with the award by (i) authorizing the Company to retain
from the number of shares of stock which would otherwise be deliverable to the
participant, or (ii) delivering to the Company from shares of Company common
stock already owned by the participant, that number of shares having an
aggregate fair market value equal to part or all of the tax payable by the
participant. In this event, the Company would pay the tax liability from its own
funds.
REGISTRATION WITH SEC
The Company intends to file a Registration Statement covering the issuance
of the additional shares issuable under the Stock Plan, as amended, with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Company's common stock voting at the annual meeting in person or by proxy is
required for approval of the proposed amendment to the Company's Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT OF
THE 1992 STOCK PLAN TO INCREASE BY 500,000 SHARES THE NUMBER OF SHARES WHICH MAY
BE ISSUED UNDER OPTIONS AND OTHER AWARDS GRANTED UNDER THE 1992 STOCK PLAN.
10
<PAGE>
PROPOSAL 3
PROPOSAL TO AMEND THE COMPANY'S 1990 STOCK OPTION PLAN
FOR NONEMPLOYEE DIRECTORS
INTRODUCTION
The Shareholders of the Company approved the adoption of the Communication
Systems, Inc., 1990 Stock Option Plan for Nonemployee Directors (the "Director
Option Plan") on May 15, 1990. As adjusted for a stock split in 1993, the
Director Option Plan authorizes the issuance of up to 200,000 shares of common
stock pursuant to options granted automatically to non-employee directors of the
Company concurrent with each annual stockholder meeting if such director is
elected or re-elected at the annual shareholders meeting or continues in office
following the annual shareholders meeting. The purpose of the Director Option
Plan is to more effectively link the compensation of directors to the success of
the Company and to provide an additional incentive to attract and retain
qualified individuals to serve on the Board of Directors.
AMENDMENT TO DIRECTOR OPTION PLAN
The Board of Directors has amended the Director Option Plan, subject to
shareholder approval, to increase from 2,000 to 3,000 the number of shares
purchasable upon exercise of the option automatically granted concurrent with
each annual shareholders meeting. The Board of Directors believes that
increasing the number of shares purchasable upon exercise of the automatic
option grant will provide a more significant incentive to directors and enhance
the Company's ability to attract and retain qualified directors to serve on the
Board of Directors.
SUMMARY OF TERMS OF DIRECTOR OPTION PLAN
Currently the Director Option Plan provides an automatic grant of options to
purchase 2,000 shares of Common Stock annually to each non-employee director
concurrent with the annual stockholder meeting of the Company at an option
exercise price equal to the fair market value of the Company's common stock on
the date of grant. The Director Option Plan is administered by the Board. No
more than 200,000 shares of Common Stock may be issued under the Director Option
Plan.
The options are exercisable as to all or any part of the shares subject to
the option beginning six months after the date the option is granted. The term
of the option is ten years from the date of grant which term does not expire
upon termination of service as a director.
The tax consequences of an exercise of a stock option under the Director
Option Plan are the same as applicable to a non-qualified employee stock option
discussed under "Federal Income Tax Consequences--Stock Option" at page 8 above.
The Board of Directors may not reduce the option exercise price below the
full fair market value at the time of grant. The option price is subject to
adjustment upon certain events including any increase or decrease in the number
of issued shares of Common Stock of the corporation resulting from subdivision
or consolidation of shares or any other similar capital adjustments, the payment
of a stock dividend or other increase or decrease in shares effective without
receipt of consideration by or a merger or consolidation of the Company or the
distribution of shares of another corporation as a stock dividend.
11
<PAGE>
SHAREHOLDER APPROVAL
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock voting at the annual shareholders meeting in person or by
proxy is required for approval of the proposed amendment of the Director Option
Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT OF
THE DIRECTOR OPTION PLAN TO INCREASE FROM 2,000 TO 3,000 THE NUMBER OF SHARES
PURCHASABLE UPON EXERCISE OF EACH OPTION AUTOMATICALLY GRANTED TO NON-EMPLOYEE
DIRECTORS UPON ELECTION OR RE-ELECTION TO THE BOARD OF DIRECTORS.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following tables show, for the fiscal years ending December 31, 1998,
1997 and 1996, 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 1998 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(1) OPTIONS(1) COMPENSATION
- ---------------------------------------------------- --------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Curtis A. Sampson, Chief Executive.................. 1998 $ 203,077 $ 40,000 24,000
Officer of the Company(2) 1997 $ 182,876 $ 30,000 19,500 (4)
1996 $ 176,520 $ 25,000 15,000
John C. Hudson, Managing Director................... 1998 $ 92,783 $ 49,656 6,600 $ 22,838
Austin Taylor Communications(3) 1997 $ 89,486 $ 74,903 6,600 $ 39,237
1996 $ 87,105 $ 46,045 6,000 $ 38,144
Jeffrey K. Berg, President.......................... 1998 $ 122,308 $ 35,000 21,000
Suttle Apparatus Corporation 1997 $ 113,493 $ 30,000 18,000
1996 $ 106,979 $ 25,000 15,000 (5)
</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) Base salary, bonuses and stock option awards indicated for each year have
generally been determined in the first three months of the year and reflect
the Compensation Committee's decisions after evaluation of the executive's
performance and the Company's performance in the prior fiscal year.
(2) 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.
12
<PAGE>
(3) 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.
(4) In February 1998, pursuant to a Board of Director approval, the Company
loaned to Curtis A. Sampson and Jeffrey K. Berg, respectively, $93,881 and
$84,375 pursuant to a two-year promissory note bearing interest at 6.5% to
enable said individuals to exercise stock options granted by the Company.
The loans to Mr. Sampson and Mr. Berg are secured by the pledge of 10,600
shares and 10,000 shares, respectively, of the Company's common stock.
(5) In October 1998 the Company loaned Mr. Berg $190,000 at an adjustable
interest rate initially set at 6.5% per annum under a promissory note
providing for bi-weekly payments of $600. The current balance of the loan is
$188,593. The loan is secured by a mortgage on real estate.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED 1998 SHARE DATE 5% 10%
- --------------------------------------------- ----------- ----------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Curtis A. Sampson............................ 24,000 11.6% $ 18.91 4/14/03 $ 72,716 $ 210,570
John C. Hudson............................... 6,600 3.2% 17.19 4/14/03 31,341 69,251
Jeffrey K. Berg.............................. 21,000 10.1% 17.19 4/14/03 99,720 220,342
</TABLE>
AGGREGATED OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
VALUE REALIZED FY-END (BASED ON FY-END
(MARKET PRICE NUMBER OF UNEXERCISED PRICE OF $11.813
SHARES AT EXERCISE OPTIONS AT FY-END SHAREHOLDER)
ACQUIRED ON LESS -------------------------- --------------------------
NAME EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Curtis A. Sampson..................... 10,600 76,519 56,000 22,500 (1) (1)
John C. Hudson........................ 3,000 24,562 24,600 6,600 (1) (1)
Jeffrey K. Berg....................... 10,000 80,625 58,000 20,000 (1) (1)
</TABLE>
(1) All options granted to the named individuals provided for an exercise price
of more than $11.82, the market price of the Company's common stock at
December 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998 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.
13
<PAGE>
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 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 quantitative and qualitative factors in reaching its decisions.
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
qualitative and quantitative 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
manage-ment'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 1998 was $243,077, an increase of 14% over total cash
compensation in 1997. In addition, Mr Sampson was granted options to purchase
24,000 shares of Company common stock in 1998, compared to options covering
19,500 shares granted to Mr. Sampson in 1997. Because of his significant
holdings of Company common stock, under applicable IRS rules,
14
<PAGE>
Mr. Sampson's options are priced at 110% of the market price on the date of
grant. The salary and bonus compensation payable to Mr. Sampson in 1998 was
determined on April 9, 1998 and reflects the Committees' evaluation of Mr.
Sampson and the Company's performance for the 1997 fiscal year when the Company
experienced 10% increase in sales from continuing operations compared to 1996
and experienced a 22% increase in that net income from continuing operations
compared to 1996. After considering, among other factors, the 25% decline in
earnings of the Company in 1998 as compared to 1997, the Committee has
determined that Mr. Sampson's base compensation in 1999 will be maintained at
the same level paid in 1998 and that his bonus and stock option award in 1999
will be reduced (as compared to 1998 levels) to $29,000 and 18,000 shares,
respectively. 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 and financial
performance of the Company during the past several years.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Edwin C. Freeman Curtis A. Sampson Wayne E. Sampson
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 NASDAQ Telecommunications Stock Total Return Index,
assuming, in each case, the investment of $100 on the last business day before
January 1, 1993 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 NASDAQ NASDAQ
<S> <C> <C> <C>
DOLLARS Systems, Inc. Stock Market Telecommunications Stocks
1993 $100 $100 $100
1994 96.23 96.99 83.46
1995 123.45 136.24 109.26
1996 120.06 166.79 111.72
1997 145.19 203.98 165.43
1998 99.32 281.69 270.15
</TABLE>
15
<PAGE>
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 1998 and 1997 HCC paid the
Company $300,000 and $264,000, 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 substantially all of 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, 1998 to
December 31, 1998, officers, directors and ten percent beneficial holders of the
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 1999 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, 2000
and proxy materials in connection with that meeting are expected to be mailed on
or about March 31, 2000. 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, 1999, in order to be
considered for inclusion in the Board of Directors' Proxy Statement and proxy
card for the 1999 Annual Meeting of Shareholders. Any such proposals must be in
writing and signed by the shareholder.
16
<PAGE>
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 shareholder'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.
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, 1998. SHAREHOLDERS MAY RECEIVE, WITHOUT CHARGE, A
COPY OF THE COMPANY'S 1998 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
17
<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 18, 1999
The undersigned hereby appoints Curtis A. Sampson, Joseph W. Parris and
Gerald D. Pint, 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 Tuesday, May 18, 1999, at 3:00 p.m.
Central Daylight Time at the Carlson School of Management, 321 19th Avenue
South, Room 2-260Z, Minneapolis, Minnesota, or at any adjournments thereof,
hereby revoking all former proxies, as follows:
1. Election of Directors for terms expiring at the Company's 2002 Annual
Shareholders Meeting.
<TABLE>
<S> <C> <C> <C>
/ / WITH AUTHORITY to vote for all nominees listed below / / WITHOUT AUTHORITY to vote for
(except as indicated to the contrary) nominees listed below
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
EDWIN C. FREEMAN LUELLA GROSS GOLDBERG EDWARD E. STRICKLAND
- --------------------------------------------------------------------------------
2. Proposal to amend the Company's 1992 Stock Plan to increase the number of
shares authorized to be issued under the Company's 1992 Stock Plan by 500,000
shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to amend the Company's 1990 Stock Option Plan for Nonemployee
Directors to increase from 2,000 to 3,000 the number of shares purchasable upon
exercise of each option automatically granted to nonemployee directors upon
election or re-election to the Board of Directors.
/ / FOR / / AGAINST / / ABSTAIN
(Continued and to be signed on reverse side)
<PAGE>
(Continued from previous side)
3. In their discretion upon any matters coming before the meeting.
UNLESS OTHERWISE SPECIFIED, THE
SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF
THE DIRECTORS AND "FOR" PROPOSALS 2
AND 3 SUMMARIZED ON THE REVERSE
SIDE OF THIS CARD.
Dated _______________________, 1999
___________________________________
Signature
___________________________________
Signature if held jointly
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.
