<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
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 Section240.14a-11(c) or
Section240.14a-12
COMMUNICATIONS SYSTEMS, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/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:
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(4) Date Filed:
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</TABLE>
<PAGE>
COMMUNICATIONS SYSTEMS, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 2000
------------------------
Notice is hereby given that the Annual Meeting of Shareholders of
Communications Systems, Inc. will be held at the Radisson Hotel South and Plaza
Tower, 7800 Normandale Boulevard, Minneapolis, Minnesota 55439, on Thursday,
May 18, 2000 at 3:00 p.m., Central Daylight Time, for the following purposes:
1. To elect three (3) directors to hold office until the 2003 Annual
Meeting of Shareholders or until their successors are elected.
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 24, 2000 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 14, 2000
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
(320) 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 Radisson Hotel South and Plaza Tower,
7800 Normandale Boulevard, Minneapolis, Minnesota 55439 on Thursday, May 18,
2000, 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 14, 2000.
The total number of shares outstanding and entitled to vote at the meeting
as of March 24, 2000 consisted of 8,793,297 shares of $.05 par value Common
Stock. Only shareholders of record at the close of business on March 24, 2000
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 17,
2000.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------ -------------------- --------
<S> <C> <C>
Curtis A. Sampson 1,637,191(1) 18.7%
213 South Main Street
Hector, MN 55342
Putnam Investments, Inc. 688,032 7.8%
Putnam Advisory Company, Inc.
One Post Office Square
Boston, MA 02109
Dimensional Fund Advisors, Inc. 450,300 5.1%
1299 Ocean Avenue
Santa Monica, CA 90401
John C. Ortman 545,350 6.2%
1506 17th Street
Lawrenceville, IL 62439
All directors and executive officers 2,661,391(2) 30.4%
as a group (16 persons)
</TABLE>
- ------------------------
(1) Includes 13,898 shares owned by Mr. Sampson's spouse, as to which beneficial
ownership is disclaimed, 88,500 shares which may be purchased within sixty
days from the date hereof pursuant to outstanding stock options, and 315,273
shares owned by the Communications Systems, Inc. Employee Stock Ownership
Plan ("CSI ESOP") of which Mr. Sampson is a Trustee and 18,267 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 22,610 shares allocated to his
account as of December 31, 1999.
(2) Includes 1,799,528 shares owned by officers and directors as a group
directly, 66,218 shares held by their respective spouses, 462,105 shares
which may be purchased by directors and officers within 60 days from the
date hereof pursuant to outstanding stock options, 315,273 shares owned by
the CSI ESOP and 18,267 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 ten director positions,
divided into three classes, with each class of directors serving staggered three
year 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 each being renominated for a three year
term expiring in 2003. 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 24, 2000. 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 AMOUNT OF PERCENT OF
CURRENT COMMON OUTSTANDING
DIRECTOR TERM STOCK COMMON
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE EXPIRES OWNERSHIP STOCK
- --------------------- -------------------------------------------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
NOMINEES PROPOSED FOR ELECTION FOR TERMS EXPIRING IN 2003
Paul J. Anderson Private Investor. 1975 2000 175,618(1) 2.0%
(68)
Wayne E. Sampson+ Management consultant; director of Hector 1981 2000 344,723(2) 3.9%
(70) Communications Corporation.
Frederick M. Green Chairman of the Board, President and Chief 1996 2000 9,000(3) 0.1%
(57) Executive Officer of Ault Incorporated
(power conversion products).
DIRECTORS SERVING UNEXPIRED TERMS
Curtis A. Sampson+ Chairman of the Board, President and Chief 1969 2001 1,637,191(4) 18.7%
(66) 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 119,000(5) 1.4%
(80) Investor.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR AMOUNT OF PERCENT OF
CURRENT COMMON OUTSTANDING
DIRECTOR TERM STOCK COMMON
NAME AND AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE EXPIRES OWNERSHIP STOCK
- --------------------- -------------------------------------------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Gerald D. Pint Telecommunications Consultant since 1997 2001 7,000(6) 0.1%
(64) 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).
Edwin C. Freeman Vice President and General Manager, 1988 2002 29,100(7) 0.3%
(44) Bro-Tex, Inc. (paper and cloth wiper
products, and fiber product recycler) since
March, 1992.
Luella Gross Goldberg Trustee, University of Minnesota Foundation, 1997 2002 8,000(5) 0.1%
(63) 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; Director 1981 2002 39,000(8) 0.4%
(73) 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).
Randall D. Sampson+ Chief Executive Officer of Canterbury Park 1999 2002 49,724(9) 0.6%
(42) Holding Corporation (thoroughbred race
track).
</TABLE>
- ------------------------
+ W.E. Sampson and C.A. Sampson are brothers, and R.D. Sampson is the son of
C.A. Sampson.
(1) Includes 30,309 shared owned by Mr. Anderson's wife, as to which beneficial
ownership is disclaimed, and 19,000 shared which may be purchased pursuant
to outstanding and presently exercisable stock options. Mr. Anderson has
received a loan from the corporation of $83,564 which bears interest at 8%
per annum, is payable on demand and is secured by an airplane.
4
<PAGE>
(2) Includes 14,150 shares owned by Mr. Sampson directly, 300 shares owned by
his spouse, as to which beneficial ownership is disclaimed, 315,273 shares
owned by the CSI ESOP of which Mr. Sampson is a Trustee and 15,000 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) Includes 9,000 shares which may be purchased pursuant to currently
exercisable stock options.
(4) See footnote 1 under "Security Ownership of Certain Beneficial Owners and
Management."
(5) Includes 6,000 shares which may be purchased pursuant to currently
exercisable stock options.
(6) Includes 7,000 shares which may be purchased pursuant to currently
exercisable stock options.
(7) Includes 2,100 shares owned by Mr. Freeman's spouse, as to which beneficial
ownership is disclaimed, and 19,000 shares which may be purchased pursuant
to outstanding and presently exercisable stock options.
(8) Includes 19,000 shares which may be purchased pursuant to currently
exercisable stock options.
(9) Includes 31,524 shares owned by Mr. Sampson directly and 18,200 shares owned
by his children as to which beneficial ownership is disclaimed.
INFORMATION REGARDING BOARD AND BOARD COMMITTEES
The Board of Directors met four times during 1999. Each director nominee and
continuing director attended at least 75% of the 1999 meetings of the Board and
each committee on which such director served, except for Mr. Strickland who
attended 60% of the meetings of the Board and the committee on which he 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 Pint, 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 3,000
shares of the Company's Common Stock. 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 Edwin C. Freeman,
Luella Gross Goldberg, Frederick M. Green 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, 1999,
1998 and 1997, the cash and other compensation paid to or accrued by the Company
for each executive officer whose total cash compensation exceeded $100,000 with
respect to fiscal 1999 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 COMPENSATION(2)
- --------------------------- -------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Curtis A. Sampson,..................... 1999 $202,913 $ 50,000 18,000 13,712
Chief Executive Officer(3)(5) 1998 $203,077 $ 29,000 24,000 17,348
1997 $182,876 $ 40,000 19,500 19,040
C. S. Mondelli, President and.......... 1999 $161,967 $ 43,750 115,000 10,941
Chief Operating Officer; President, 1998 $ 10,833 $ -0- -- --
Transition Networks, Inc.(4)
Thomas J. Lapping...................... 1999 $101,351 $ 50,000 10,005 7,291
Jeffrey K. Berg, President............. 1999 $125,867 $ 31,250 15,000 9,957
Suttle Apparatus Corporation(5)(6) 1998 $122,308 $ 25,500 21,000 12,324
1997 $113,493 $ 35,000 18,000 14,883
</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) Bonuses indicated for each year have generally been determined in the first
three months of the following year. See "Compensation Committee Report"
below.
(2) All other compensation for Messrs. Sampson, Berg, Mondelli and Lapping
consisted of Company contributions to the Company's 401(k) Plan and Employee
Stock Ownership Plan.
(3) 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.
(4) Mr. Mondelli became an employee of the Company in December, 1998 when it
acquired Transition Networks, Inc., where he served and continues to serve
as President and CEO. Mr. Mondelli was also paid a retention bonus of
$51,080 related to the Company's acquisition of Transition Networks, Inc. in
December, 1998.
(5) 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
6
<PAGE>
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.
(6) 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
$185,111. The loan is secured by a mortgage on real estate.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED
OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED 1999 PER SHARE DATE 5% 10%
- ---- ---------- --------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Curtis A. Sampson................ 18,000 3% $11.07 3/12/04 $ 31,849 $ 92,371
C. S. (Sal) Mondelli............. 115,000 19.1% $10.18 3/05/06 $476,592 $1,110,663
Jeffrey K. Berg.................. 15,000 2.5% $10.06 3/12/04 $ 41,691 $ 92,126
Thomas J. Lapping................ 10,005 1.7% $10.13 3/17/04 $ 28,001 $ 61,875
</TABLE>
AGGREGATED OPTION EXERCISES IN 1999
No options were exercised by executive officers in 1999.
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.
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
7
<PAGE>
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
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 with respect to 1999 was $252,913, an increase of 9% over total
cash compensation related to 1998. In addition, Mr Sampson was granted options
to purchase 18,000 shares of Company common stock in 1999, compared to options
covering 24,000 shares granted to Mr. Sampson in 1998. 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. The salary and bonus compensation payable to Mr. Sampson for 1999 as
compared to 1998 reflects the Committees' evaluation of Mr. Sampson and the
Company's performance for the 1999 fiscal year when the Company posted a 64%
increase in revenues compared to 1998 and experienced a 18% increase in net
income compared to 1998. The Compensation Committee believes, based upon their
general knowledge of compensation paid to other chief executives and a review of
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 Louella Gross Goldberg Frederick M. Green 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 NASDAQ Telecommunications Stock Total Return Index,
assuming, in each case, the investment of $100 on the last business day before
January 1, 1994 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
1994 100 100 100
1995 128 140 117
1996 125 172 129
1997 151 210 165
1998 103 291 148
1999 118 545 146
</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 1999 and 1998 HCC paid the
Company $270,000 and $300,000, 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.
9
<PAGE>
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, 1999 to
December 31, 1999, 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 2001 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, 2001
and proxy materials in connection with that meeting are expected to be mailed on
or about March 31, 2001. 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 30, 2000, in order to be
considered for inclusion in the Board of Directors' Proxy Statement and proxy
card for the 2000 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 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.
10
<PAGE>
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, 1999. SHAREHOLDERS MAY RECEIVE, WITHOUT CHARGE, A
COPY OF THE COMPANY'S 1999 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 18, 2000
The undersigned hereby appoints Curtis A. Sampson, Edwin C. Freeman, and
Luella Gross Goldberg, 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 18, 2000, at
3:00 p.m. Central Daylight Time at the Radisson Hotel South and Plaza Tower,
Minneapolis, Minnesota 55439, or at any adjournments thereof, hereby revoking
all former proxies, as follows:
1. Election of Directors for terms expiring at the Company's 2003 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.)
PAUL J. ANDERSON WAYNE E. SAMPSON FREDERICK M. GREEN
- --------------------------------------------------------------------------------
(Continued and to be signed on reverse side)
<PAGE>
(Continued from previous side)
2. 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 SUMMARIZED ON THE
REVERSE SIDE OF THIS CARD.
Dated _______________________, 2000
___________________________________
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.
