SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
( ) Filed by the Registrant
( ) 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-b(e)(2))
(x ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to (section mark)240.14a-11(c) or
(section mark)240.14a-12
Span-America Medical Systems, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement If Other Than 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).
( ) $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:
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: *
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
(Set forth the amount on which the filing fee is calculated and state how
it was determined)
( ) Fee previously paid with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
(Span-America Logo appears here)
SPAN-AMERICA MEDICAL SYSTEMS, INC.
POST OFFICE BOX 5231
GREENVILLE, SOUTH CAROLINA 29606
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 16, 1996
TO THE SHAREHOLDERS OF SPAN-AMERICA MEDICAL SYSTEMS, INC.
Notice is hereby given that the Annual Meeting of Shareholders
(the "Annual Meeting") of Span-America Medical Systems, Inc. (the
"Company") will be held at the Hyatt Regency Greenville, 220 North
Main Street, Greenville, South Carolina, on February 16, 1996, at 9:00
a.m., for the purpose of considering and acting upon the following
matters:
(1) the election of four Directors; and
(2) the transaction of such other business as may properly come
before the Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on
December 20, 1995 as the record date for the determination of the
shareholders entitled to notice and to vote at the Annual Meeting.
YOU ARE REQUESTED TO COMPLETE AND SIGN THE ACCOMPANYING PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING IN PERSON. THE PROXY WILL BE RETURNED TO ANY SHAREHOLDER
WHO IS PRESENT IN PERSON AND REQUESTS SUCH RETURN.
By Order of the Board of
Directors,
(Signature of Richard C. Coggins)
RICHARD C. COGGINS
SECRETARY
December 28, 1995
Greenville, South Carolina
PLEASE RETURN THE ENCLOSED PROXY IMMEDIATELY
<PAGE>
SPAN-AMERICA MEDICAL SYSTEMS, INC.
POST OFFICE BOX 5231
GREENVILLE, SOUTH CAROLINA 29606 (803) 288-8877
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 16, 1996
SOLICITATION OF PROXIES
This Notice of Annual Meeting, Proxy Statement and Proxy (these "Proxy
Materials") are being furnished to shareholders in connection with the
solicitation of proxies by the management of Span-America Medical Systems, Inc.
(the "Company") to be voted at the annual meeting of shareholders (the "Annual
Meeting") to be held on February 16, 1996 at the Hyatt Regency Greenville, 220
North Main Street, Greenville, South Carolina. The approximate mailing date of
these Proxy Materials is January 9, 1996.
VOTING AT THE ANNUAL MEETING
Shareholders of record at the close of business on December 20, 1995 will
be entitled to notice of and to vote at the Annual Meeting. At the close of
business on such record date, there were outstanding 3,225,608 shares of the
Company's no par value Common Stock (the "Common Stock"). The Common Stock is
the only class of voting securities of the Company. Holders of shares of Common
Stock are entitled to one vote for each share held of record on all matters
presented for action by the shareholders. The presence, either in person or by
proxy, of the holders of a majority of the outstanding shares of Common Stock of
the Company as of December 20, 1995 is necessary to constitute a quorum at the
Annual Meeting. All shares represented by valid proxies received prior to the
Annual Meeting and not revoked before they are exercised will be voted in
accordance with specifications thereon. If no contrary instructions are
indicated, all shares represented by a proxy will be voted FOR the election to
the Board of Directors of the Nominees described herein, and in the discretion
of the proxy holders as to all other matters that may properly come before the
Annual Meeting.
Shares will be tabulated by inspectors appointed by the Company, with the
aid of the Company's transfer agent. The inspectors will not be a director or a
nominee for director. The inspectors shall determine, among other things, the
number of shares represented at the Annual Meeting, the existence of a quorum,
the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all shareholders. Abstentions and
broker non-votes are each included in the determination of the number of shares
present and voting. In connection with the election of directors, broker
non-votes are not counted for purposes of determining the votes cast for
directors.
REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by: (i) filing
with the Secretary of the Company, at or before the Annual Meeting, a written
notice of revocation bearing a later date than the proxy; (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of the Company at or before the Annual Meeting; or (iii) attending the Annual
Meeting and voting in person (although attendance at the Annual Meeting will not
in and of itself constitute a revocation of a proxy). Any written notice
revoking a proxy should be sent to: Span-America Medical Systems, Inc., Post
Office Box 5231, Greenville, South Carolina 29606, Attention: Secretary.
1
<PAGE>
COSTS OF SOLICITATION
The Company will bear the cost of this proxy solicitation, including the
cost of preparing, handling, printing and mailing these Proxy Materials.
Employees and officers will be reimbursed for the actual out-of-pocket expenses
incurred in connection with the solicitation. Proxies will be solicited
principally by mail but may also be solicited by telephone or through personal
solicitation conducted by regular employees of the Company. The Company has also
engaged Corporate Communications, Inc. in Nashville, Tennessee to assist in
investor relations activities, including distributing shareholder information
and contacting brokerage houses, custodians, nominees and fiduciaries.
BANKS, BROKERS AND OTHER CUSTODIANS
Banks, brokers and other custodians are requested to forward proxy
solicitation material to their customers where appropriate, and the Company will
reimburse such banks, brokers and custodians for their reasonable out-of-pocket
expenses in sending the proxy material to beneficial owners of the shares.
2
<PAGE>
ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of Directors may be increased
or decreased by action of the Board and shareholders at any annual meeting. The
number of Company Directors is currently set at nine persons in accordance with
the Company's Bylaws. As provided in the Company's Articles of Incorporation,
the Board is divided into three classes of Directors, with each class being
comprised of three persons who serve three-year terms. Accordingly, as set forth
below, Management has nominated Thomas F. Grady, Jr., J. Ernest Lathem, M.D.,
and James M. Shoemaker, Jr., to serve as Directors under terms which expire at
the 1999 annual meeting of shareholders or when their successors are duly
elected. Management has also nominated Thomas D. Henrion to serve as Director
until the 1997 annual meeting of shareholders to fill the unexpired term of
Raymond M. Tortolani who is retiring from the Board.
Unless authority to vote with respect to the election of one or more
Nominees is "WITHHELD," it is the intention of the persons named in the
accompanying proxy to vote such proxy for the election of the Nominees set forth
below. Each of these Nominees are United States citizens. In the event that any
of the Nominees for Director should become unavailable to serve as Directors,
which is not anticipated, the persons named in the accompanying proxy will vote
for other persons in their places in accordance with their best judgment. There
are no family relationships among the Directors and the executive officers of
the Company.
Directors will be elected by a plurality of votes cast at the Annual
Meeting. The Company's Articles of Incorporation provide that cumulative voting
is not available in the election of Directors.
INFORMATION REGARDING NOMINEES FOR DIRECTOR AND CONTINUING DIRECTORS
The following table sets forth the names and ages of the four Nominees for
Director and the Directors continuing in office, the positions and offices with
the Company held by each such person, and the period that each such person has
served as a Director of the Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION OR OFFICE WITH THE COMPANY SINCE
<S> <C> <C> <C>
NOMINEES FOR DIRECTOR WITH TERMS EXPIRING IN 1999
Thomas F. Grady, Jr. 53 Director 1975
J. Ernest Lathem, M.D. 62 Director --
James M. Shoemaker, Jr. 63 Director 1992
NOMINEE FOR DIRECTOR WITH TERM EXPIRING IN 1997
Thomas D. Henrion 53 Director --
CONTINUING DIRECTORS WITH TERMS EXPIRING IN 1998
Richard C. Coggins 38 Director, Chief Financial Officer 1993
Brien Laing 69 Director 1988
Charles B. Mitchell 58 Director, Chief Executive Officer, President 1983
CONTINUING DIRECTORS WITH TERMS EXPIRING IN 1997
Douglas E. Kennemore, M.D. 63 Director 1975
Robert A. Whitehorne 70 Director 1975
</TABLE>
BUSINESS EXPERIENCE OF NOMINEES AND DIRECTORS
Mr. Grady has been employed by Federal Paper Board Company, Inc. since
1971, serving in various sales and marketing management positions. He is
currently Vice President of Sales. Federal Paper Board Company is engaged in the
business of manufacturing paper products.
Dr. Lathem retired in 1993 from 28 years in the private practice of
urological surgery in Greenville, South Carolina. He is a Director of Southern
National Corporation and one of its subsidiaries, BB&T of South Carolina. He has
also served as a Director of several closely held corporations.
3
<PAGE>
Mr. Shoemaker has been a member of the law firm of Wyche, Burgess, Freeman
& Parham, P.A., since 1965 and specializes in corporate and securities law. Mr.
Shoemaker also serves as a director of One Price Clothing Stores, Inc., Palmetto
Bancshares, Inc., and Ryan's Family Steak Houses, Inc.
Mr. Henrion has been President and Chief Executive Officer of FoodService
Purchasing Cooperative, Inc. in Louisville, Kentucky since 1980. The Cooperative
provides equipment, food, packaging items, and financial services to quick
service restaurant operators including KFC, Taco Bell and Long John Silver's.
The Cooperative had 1994 sales of $528 million. Mr. Henrion also serves as a
Director for Brinly-Hardy Company, Wholesome & Hearty Foods, Inc. and the
National Cooperative Bank.
Mr. Coggins joined the Company as Controller in May 1986. He was elected
Treasurer in January 1987, Vice President of Finance in January 1989, and
Secretary in January 1990. He is the Company's Chief Financial Officer. Mr.
Coggins was previously employed by NCNB National Bank in Charlotte, N.C. from
1984 to 1986 where he served as Commercial Banking Officer and Metropolitan Area
Director.
Mr. Laing retired in 1988 from his most recent position as Corporate Vice
President of Corporate Distribution for Baxter Healthcare Corporation
("Baxter"). Baxter is engaged in the business of manufacturing and distributing
medical products. From 1949 until 1986, Mr. Laing was employed by American
Hospital Supply Corporation (which was acquired by Baxter in 1986) and served as
Sales Representative, Sales Training Director, Vice President of Sales,
President of American Hospital Supply Division and Corporate Group Vice
President of American Hospital Supply Corporation.
Mr. Mitchell has served as Chief Executive Officer of the Company since
November 19, 1993. Mr. Mitchell joined the Company as Director of Manufacturing
in February 1982. He was elected Executive Vice President and Secretary in April
1982 and a Director in March 1983. Mr. Mitchell was named President and Chief
Operating Officer of the Company in January 1990. Mr. Mitchell served as Acting
CEO from July 1993 until his appointment as Chief Executive Officer in November
1993.
Dr. Kennemore has been engaged in the private practice of neurosurgery in
Greenville, South Carolina since 1965.
Mr. Whitehorne has been a Senior Lecturer and Director of Business
Relations at the Graduate School of Business, College of William and Mary since
1985. From 1979 until joining the faculty at the College of William and Mary in
July 1985, Mr. Whitehorne served as a Distinguished Lecturer of Management at
the College of Business Administration at the University of South Carolina, as
well as Director of Placement and Alumni Affairs.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the 1995 fiscal year, the Board of Directors held five meetings. All
Directors, except Messrs. Grady and Tortolani, attended at least 75% of these
meetings and meetings of committees of the Board on which such Directors served.
The Audit Committee is comprised of Messrs. Shoemaker, Tortolani, Grady and
Kennemore. The Audit Committee met one time during the 1995 fiscal year. The
Audit Committee reviews the scope and results of the audit by the independent
auditors and the adequacy of the Company's system of internal accounting
controls and procedures, proposes the appointment of the independent auditors
subject to approval of the Board and approves the fees paid for services
rendered by such auditors.
The Compensation Committee is comprised of Messrs. Laing, Newberry, and
Whitehorne. The Compensation Committee met two times during the year. The
Compensation Committee reviews and approves the remuneration of officers of the
Company and reviews the overall compensation programs of the Company. The
Compensation Committee's report is included below under "Board Compensation
Committee Report On Executive Compensation."
The Board does not have a standing nominating committee. The functions of
the nominating committee are performed by the outside directors.
4
<PAGE>
The Executive Committee is comprised of Messrs. Laing, Newberry and
Whitehorne. It meets monthly. The Executive Committee serves in an advisory
capacity to the senior management of the Company.
EXECUTIVE OFFICERS
The following table sets forth all of the executive officers of the Company
as of the Record Date, their respective ages, their respective Company positions
and offices, and the respective periods during which they have served in such
positions and offices. There are no persons who have been selected by the
Company to serve as its executive officers who are not set forth in the
following table.
<TABLE>
<CAPTION>
COMPANY
NAME AGE COMPANY OFFICES CURRENTLY HELD OFFICER SINCE
<S> <C> <C> <C>
Charles B. Mitchell 58 President, Chief Executive Officer 1983
Richard C. Coggins 38 Vice President, Secretary and Chief 1987
Financial Officer
</TABLE>
The Company's executive officers are appointed by the Board of Directors
and serve at the pleasure of the Board.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Mr. Mitchell's business experience is set forth above under "Business
Experience of Nominees and Directors."
Mr. Coggins' business experience is set forth above under "Business
Experience of Nominees and Directors."
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth below is furnished as of December 20, 1995, with
respect to Common Stock owned beneficially or of record by (i) persons known to
the Company to be the beneficial owner of more than 5% of the Common Stock as of
the Record Date, each of the Directors and Nominees individually, by certain
named executive officers, and by all Directors and Officers as a group. Unless
otherwise noted, each person has sole voting and investment power with respect
to such person's shares owned. All share amounts in the table include shares
which are not outstanding but which are the subject of options exercisable in
the 60 days following the Record Date. All percentages are calculated based on
the total number of outstanding shares, plus the number of shares for the
particular person or group which are not outstanding but which are the subject
of options exercisable in the 60 days following the Record Date.
<TABLE>
<CAPTION>
AMOUNT/NATURE
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
<S> <C> <C> <C>
BENEFICIAL OWNERS OF MORE THAN 5% OF THE COMPANY'S COMMON STOCK
Common Donald C. Spann 345,580 10.7%(1)
358 East Parkins Mill Road
Greenville, SC 29607
Common Douglas E. Kennemore, M.D. 203,876 6.3%(2)
27 Memorial Medical Drive
Greenville, SC 29605
Common Dimensional Fund Advisors 173,900 5.4%(3)
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
<CAPTION>
DIRECTORS AND NOMINEES
<S> <C> <C> <C>
Common Richard C. Coggins 17,000 *(4)
Common Thomas F. Grady, Jr. 23,595 *(5)
Common Thomas D. Henrion 1,000 *
Common Douglas E. Kennemore, M.D. 203,876 6.3%(2)
Common Brien Laing 9,000 *(6)
Common J. Ernest Lathem, M.D. 6,000 *
Common Charles B. Mitchell 102,598 3.1%(7)
Common James M. Shoemaker, Jr. 19,000 *(2)
Common Robert A. Whitehorne 32,640 1.0%(2)
<CAPTION>
EXECUTIVE OFFICERS
<S> <C> <C> <C>
Common Richard C. Coggins 17,000 *(4)
Common Charles B. Mitchell 102,598 3.1%(7)
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
<S> <C> <C> <C>
Common All Directors and Officers 414,709 12.6%
of the Company as a group
(9 persons)
</TABLE>
(1) The figure shown as beneficially owned by Mr. Spann includes an aggregate of
7,200 shares owned by his spouse and excludes 620 shares owned by his
children. Mr. Spann disclaims beneficial ownership with respect to these
shares. This figure also includes 19,200 shares which are currently not
outstanding but which are subject to options held by Mr. Spann which are
exercisable within 60 days of the Record Date. The share information for Mr.
Spann is based upon records from the Transfer Agent dated December 20, 1995.
6
<PAGE>
(2) The shares shown as beneficially owned by Messrs. Kennemore, Shoemaker, and
Whitehorne include 3,000 shares which are currently not outstanding but
which are subject to options which are exercisable within 60 days of the
Record Date.
(3) The figure shown as beneficially owned by Dimensional Fund Advisors was
based on publicly available information as of September 30, 1995.
(4) The shares shown as beneficially owned by Mr. Coggins include 16,000 shares
which are currently not outstanding but which are subject to options held by
Mr. Coggins which are exercisable within 60 days of the Record Date.
(5) The figure shown as beneficially owned by Mr. Grady excludes an aggregate of
7,109 shares owned by his children. Mr. Grady disclaims beneficial ownership
with respect to these shares. This figure also includes 3,000 shares which
are currently not outstanding but which are subject to options held by Mr.
Grady which are exercisable within 60 days of the Record Date.
(6) The shares shown as beneficially owned by Mr. Laing are owned jointly with
his spouse. This figure also includes 3,000 shares which are currently not
outstanding but which are subject to options held by Mr. Laing which are
exercisable within 60 days of the Record Date.
(7) The figure shown as beneficially owned by Mr. Mitchell includes an aggregate
of 7,300 shares owned by his spouse and excludes an aggregate of 638 shares
owned by his children. Mr. Mitchell disclaims beneficial ownership with
respect to these shares. This figure also includes 44,000 shares which are
currently not outstanding but which are subject to options held by Mr.
Mitchell which are exercisable within 60 days of the Record Date.
* Less than one percent.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the 1995, 1994, and 1993 fiscal years, the
cash compensation paid by the Company, as well as certain other compensation
paid or accrued for those years, to the Company's chief executive officer and
vice president of medical sales at the end of fiscal 1995. No other Company
officer earned salary and bonus in excess of $100,000 during the 1995 fiscal
year. Consequently, compensation information for other executive officers is not
included.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARS (#) PAYOUTS COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. B. Mitchell 1995 $155,000 -- (1) -- -- -- $6,457(2)
President/CEO 1994 152,500 -- (1) -- 15,000 -- 6,462(2)
1993 127,739 -- (1) -- -- -- 6,686(2)
M. L. Hunt 1995 115,000 -- (1) -- -- -- 9,855(3)
VP-Medical Sales 1994 65,341 -- (1) -- 10,000 -- 70,022(3)
1993 (4)
</TABLE>
(1) Certain amounts may have been expended by the Company which may have had
value as a personal benefit to Messrs. Mitchell and Hunt. However, the total
value of such benefits did not exceed the lesser of $50,000 or 10% of the
annual salary and bonus for each person.
(2) This amount is comprised of (i) contributions of $1,938 (1995), $1,906
(1994) and $2,025 (1993) to the Company's 401(k) Plan by the Company on
behalf of Mr. Mitchell to match pre-tax deferral contributions, all of which
is vested, (ii) $2,370 (1995 estimate), $2,407 (1994) and $2,512 (1993) paid
to Mr. Mitchell through the Company's Employee Stock Ownership Plan, all of
which is vested, and (iii) $2,149 in annual
7
<PAGE>
premiums paid by the Company for the 1995, 1994 and 1993 fiscal years on
behalf of Mr. Mitchell with respect to life insurance not generally
available to all Company employees.
(3) This amount is comprised of (i) $7,108 (1995) and $69,035 (1994) paid to Mr.
Hunt or on his behalf for relocation expenses, (ii) $1,760 (1995 estimate)
and $0 (1994) paid to Mr. Hunt through the Company's Employee Stock
Ownership Plan, none of which is vested, and (iii) $987 in annual premiums
paid by the Company for the 1995 and 1994 fiscal years on behalf of Mr. Hunt
with respect to life insurance not generally available to all Company
employees.
(4) Mr. Hunt was not employed by the Company during fiscal year 1993.
OPTION/SAR GRANTS IN 1995 FISCAL YEAR
No stock options were granted to the named executive officers during fiscal
year 1995.
OPTION/SAR EXERCISES AND YEAR-END VALUE
The following table sets forth information with respect to Messrs. Mitchell
and Hunt concerning the exercise of options during the 1995 fiscal year and
unexercised options held as of the end of the 1995 fiscal year.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS AT FISCAL YEAR THE-MONEY OPTIONS/SARS AT
ACQUIRED ON VALUE END FISCAL YEAR END
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Charles B. Mitchell -0- -0- 44,000 11,000 $56,875 $ 0
Mark L. Hunt -0- -0- 4,000 6,000 250 375
</TABLE>
The "value" of any option set forth in the table above is determined by
subtracting the amount which must be paid upon exercise of the options from the
market value of the underlying Common Stock as of September 29, 1995 (based on
the closing sales price as reported by NASDAQ).
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions with respect to the compensation of the Company's executive
officers are made by the three-member Compensation Committee of the Board
comprised of Messrs. Laing, Newberry, and Whitehorne. Each member of the
Compensation Committee is a non-employee director. All decisions by the
Compensation Committee relating to the compensation of the Company's executive
officers are reviewed by the full Board. Set forth below is a report submitted
by the Compensation Committee in their capacity as such addressing the Company's
compensation policies for 1995 with respect to Mr. Mitchell as chief executive
officer, and Mr. Coggins as chief financial officer, who represent all the
executive officers of the Company (collectively the "Senior Executives"). The
Compensation Committee also approves compensation of all members of the senior
management team, which includes persons in addition to Messrs. Mitchell and
Coggins. However, the Company does not consider such other members of the senior
management team to be executive officers.
COMPENSATION COMMITTEE REPORT
GENERAL COMPENSATION POLICIES WITH RESPECT TO EXECUTIVE OFFICERS
The Compensation Committee does not maintain formal, written executive
compensation policies. However, in general, the Committee has structured officer
compensation so as to provide competitive levels of compensation that integrate
pay with the Company's annual and long-term performance goals, reward
above-average corporate performance, recognize individual initiative,
responsibility and achievements, and assist the Company in attracting and
retaining qualified executives. The Compensation Committee also endorses the
position that stock ownership by management and stock-based performance
compensation arrangements are beneficial in aligning managements' and
shareholders' interest in the enhancement of shareholder value.
The Senior Executives' overall compensation is intended to be consistent
with the compensation paid to executives of companies similar in size and
character to the Company, provided, that the Company's performance warrants the
compensation being paid. In determining the appropriate compensation, the
Compensation
8
<PAGE>
Committee has utilized a combination of salary, incentive cash compensation,
Company stock ownership and benefits. The Compensation Committee has also
attempted to maintain an appropriate relationship between the compensation among
the Senior Executives and their relative levels of responsibility with the
Company.
Compensation paid to the Company's executive officers in 1995, as reflected
in the foregoing compensation tables, consisted of the following elements: base
salary, matching contributions paid with respect to the Company's 401(k) Plan,
payments made pursuant to the Company's ESOP, payments made pursuant to the
Company's Management Bonus Plan, and certain benefits. Payments under the
Company's 401(k) Plan and ESOP are made to all employees on a non-discriminatory
basis.
RELATIONSHIP OF PERFORMANCE TO EXECUTIVE COMPENSATION
The Compensation Committee believes that a significant portion of the
Senior Executives' compensation should be based on individual and corporate
performance. The principal means through which the Company ties compensation to
performance is through the Company's Management Bonus Plan (the "Bonus Plan").
Participants in the Bonus Plan include officers and members of the Company's
senior management team. Pursuant to the Bonus Plan, prior to the beginning of
each fiscal year the Board of Directors approves the Company's operating plan
which contains target earnings projections for the coming year. The target
earnings projections must provide a reasonable increase over the prior year's
earnings and must be consistent with the Company's long-term growth goals. The
Bonus Plan is structured so that each participant has an opportunity to earn
approximately 30% of his or her base salary if the Company reaches 100% of the
target earnings performance. The percentage of salary potentially earned by each
participant under the Bonus Plan ranges from 0%, if the Company earnings are
less than 90% of the target earnings, to a maximum of 45% if the Company's
earnings exceed approximately 130% of target earnings and if certain predefined
individual goals are met. Approximately 30% of each participant's bonus earnings
is contingent on achievement of these specific individual goals. These
individual goals are determined by the CEO and reviewed by the Compensation
Committee.
Options to purchase Company stock are also granted periodically by the
Compensation Committee to officers and members of the senior management team.
The number of shares granted is based primarily on individual performance and,
secondarily, on Company performance relative to the Company's operating and
strategic plans. This form of compensation, however, is not as substantial as
payments pursuant to the Bonus Plan.
SALARIES, CASH BONUSES, STOCK OPTION GRANTS, INCENTIVE PAYMENTS
The 1995 salary levels of the Company's Senior Executives were determined
on the anniversary date of the employee's last performance review and were based
generally on the criteria set forth above. Each employee of the Company,
including the Senior Executives, is assigned a particular job grade level. The
job grade level is determined by a quantitative scoring system which considers
various factors under the major categories of job demands, knowledge, job
content, and level of responsibility. A salary range has been assigned to each
job grade level based on input from independent consultants and the Company's
management. The salary levels of the Senior Executives were based primarily on
individual performance, overall Company performance and achievement of specific
individual and corporate goals for the prior fiscal year. The salary levels of
the Senior Executives must fall within the designated salary ranges for the
appropriate job grade level, pursuant to the Company's salary administration
plan.
No cash bonuses were earned during fiscal 1995 by the Company's Senior
Executives because the Company did not meet its predetermined earnings goals.
OTHER COMPENSATION PLANS
The Company has adopted certain broad-based employee benefit plans in which
Senior Executives have been permitted to participate. The Company has also
adopted certain executive officer life and health insurance plans. The
incremental cost to the Company of the Senior Executives' benefits provided
under these plans (which is not set forth in any of the Tables) totalled less
than 10% of their cash compensation in 1995. Benefits under these plans
generally are not directly or indirectly tied to Company performance.
9
<PAGE>
MR. MITCHELL'S 1995 COMPENSATION
Mr. Mitchell's 1995 compensation consisted of a base salary $155,000 and
certain perquisites (which did not exceed 10% of his base salary and bonus) and
the various forms of other compensation set forth in the immediately preceding
paragraph which was available generally to all employees. Mr. Mitchell's base
salary was determined at the beginning of the 1995 year. It was based in part on
compensation levels of chief executive officers at comparable companies.
Mr. Mitchell was not paid a cash bonus during fiscal 1995 because the
Company did not meet its predetermined earnings goals.
Submitted by the Compensation
Committee
Brien Laing
W. Marcus Newberry, M.D.
Robert A. Whitehorne
COMPENSATION OF NON-EMPLOYEE DIRECTORS
Prior to January 1995, each Director of the Company who is not also an
officer of the Company received an annual fee of $5,000 plus $500 per board
meeting and committee meeting attended. Beginning in January 1995, the Company's
Directors chose to receive 1,000 shares of unregistered Company Common Stock in
lieu of their $5,000 annual compensation. Including the value of the Common
Stock received in January 1995, no Director received more than $15,000 in fiscal
1995 for his services as a Director.
Non-officer Directors received on December 15, 1994 an option to purchase
1,000 shares of the Company's Common Stock exercisable at the then fair market
value as provided in the Company's 1991 Stock Option Plan. However, beginning in
January 1995 and until further notice, the Board determined not to accept
additional options which would otherwise be payable annually under the 1991
Stock Option Plan.
Directors who are also employees of the Company do not receive compensation
for their service as Directors.
MITCHELL RETIREMENT AGREEMENT
On September 23, 1994 the Company entered into a retirement agreement (the
"Agreement") with Charles B. Mitchell, the Company's Chief Executive Officer.
The Agreement provides that Mr. Mitchell will be entitled to certain payments as
disclosed below (the "Payments") if he is continually employed by the Company
from September 23, 1994 until his 65th birthday and retires from his employment
with the Company thereafter. The Agreement further provides that Mr. Mitchell
will not receive any Payments if his employment with the Company is terminated
prior to his 65th birthday, unless a "change of control" (as defined in the
Agreement) has occurred, in which case, Mr. Mitchell will be entitled to receive
the Payments (i) beginning at age 65 (if his employment was terminated
voluntarily or involuntarily for any reason prior to his 65th birthday), or (ii)
upon retirement after age 65 if, following a "change of control", Mr. Mitchell
continues to be employed with the Company past his 65th birthday.
The Payments consist of the following: an annual payment equal to 50% of
Mr. Mitchell's average annual base salary and bonus for the five fiscal years
preceding his retirement. The Agreement provides that the Payments will
terminate at Mr. Mitchell's death, unless he makes certain insurance elections,
in which case, the Payments (following Mr. Mitchell's death) will be made to
Barbara P. Mitchell (Mr. Mitchell's wife) until her death.
The Agreement provides that upon retirement, Mr. Mitchell will not for a
period of three years compete with the Company or otherwise engage in any type
of business substantially similar to the business of the Company at any location
in the continental United States. In addition, Mr. Mitchell also agrees not to
interfere in the Company's business in any respect during such three-year
period.
10
<PAGE>
PERFORMANCE SHARE INCENTIVE PLAN
Effective October 3, 1994, the Board of Directors established a performance
share incentive plan to promote the growth and profitability of the Company. The
plan establishes the following financial performance goals which must be
achieved by fiscal year end 1997: (1) return on equity of 16%, (2) return on
sales of 6.8% and (3) a 15% annual increase in cash flow from operations. If all
three goals are achieved, the Company would issue 15,000 shares of Common Stock
and the cash equivalent of 30,000 shares of Common Stock to be divided among the
participants as defined in the plan. The participants in the Plan consist of the
Company's senior management team (8 persons).
PERFORMANCE GRAPH
The following graph sets forth the performance of the Company's Common
Stock for the five year period from September 28, 1990 through September 30,
1995 as compared to the Russell 2000 Index and a peer group index. The peer
group index was prepared by a unaffiliated third party and is comprised of all
exchange-listed companies having the standard industry classification code 3842
(which relates to medical products and supplies). All stock prices reflect the
reinvestment of cash dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG SPAN-AMERICA MEDICAL SYSTEMS, INC., A PEER GROUP,
AND THE RUSSELL 2000 INDEX
(The performance graph appears here. See the table below for the plot points.)
1991 1992 1993 1994 1995
Span-American Medical Systs 164.41 213.92 168.72 180.32 163.11
Peer Group 190.14 173.82 147.91 162.30 260.10
Russell 2000 145.08 158.05 210.46 216.08 266.59
11
<PAGE>
CERTAIN TRANSACTIONS
In 1983, the Company entered into an agreement with Donald C. Spann,
pursuant to which the Company acquired patents and patent rights relating to its
SPAN-AIDS products. Mr. Spann currently owns in excess of 5% of the Company's
common stock. Mr. Spann also served as the Company's chief executive officer
from its inception until July 1993. The agreement between the Company and Mr.
Spann provides that the Company is obligated to pay Mr. Spann royalties equal to
3% of gross sales net of returns on all SPAN-AIDS products covered by such
patents and patent applications. During 1995, the Company paid Mr. Spann royalty
payments of approximately $55,000. The Company believes that the royalty
payments to Mr. Spann were comparable to payments that would have been paid to
an unaffiliated third party for similar patents. Pursuant to the Resignation
Agreement between the Company and Mr. Spann dated July 30, 1993, the Company
will pay Mr. Spann amounts owed under the royalty agreements until January 1,
1996, at which time all patents subject to such royalty agreements shall become
property of the Company and the Company will have no further obligation to make
royalty payments.
The law firm of Wyche, Burgess, Freeman & Parham, P.A., whose members
include Mr. Shoemaker, a Director, serves as general counsel to the Company.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. To the Company's knowledge, based on a review of the copies of such
reports furnished to the Company and representations that no other reports were
required during the 1995 fiscal year, all Section 16(a) filing requirements
applicable to its executive officers, Directors and greater than 10% beneficial
owners were met.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP as the independent
public accountants for the Company for its 1996 fiscal year. Representatives of
Ernst & Young LLP will be present at the Annual Meeting and will have the
opportunity to make a statement and be available to respond to appropriate
questions from shareholders. Ernst & Young LLP has served the Company as
independent auditors since 1985. Neither the firm nor any of its members has any
relation with the Company except in the firm's capacity as auditors.
SHAREHOLDER PROPOSALS
Proposals by shareholders for consideration at the 1997 Annual Meeting of
Shareholders must be received at the Company's offices at Post Office Box 5231,
Greenville, South Carolina 29606 no later than September 20, 1996, if any such
proposal is to be eligible for inclusion in the Company's proxy materials for
its 1997 Annual Meeting of Shareholders. Under the regulations of the Securities
and Exchange Commission, the Company is not required to include shareholder
proposals in its proxy materials unless certain other conditions specified in
those regulations are satisfied.
PROXY SOLICITATION
The Company will bear the cost of this proxy solicitation. Such
solicitation will be made by mail and also may be made on behalf of the Company
by the Company's regular officers and employees in person or by
telecommunication. The Company will also reimburse banks, brokers and other
custodians holding shares in their names or in the names of nominees for their
reasonable out-of-pocket expenses incurred in sending proxy materials to
beneficial owners of the shares.
12
<PAGE>
FINANCIAL INFORMATION
THE COMPANY'S 1995 ANNUAL REPORT CONTAINING FINANCIAL STATEMENTS REFLECTING
THE FINANCIAL POSITION AND RESULTS OF OPERATIONS OF THE COMPANY FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1995 IS BEING MAILED TO SHAREHOLDERS CONCURRENTLY
HEREWITH. THE COMPANY WILL ALSO PROVIDE WITHOUT CHARGE TO ANY SHAREHOLDER OF
RECORD AS OF DECEMBER 20, 1995, WHO SO REQUESTS IN WRITING, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) FOR THE YEAR ENDED
SEPTEMBER 30, 1995 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH
REQUEST SHOULD BE DIRECTED TO SPAN-AMERICA MEDICAL SYSTEMS, INC., P.O. BOX 5231,
GREENVILLE, SOUTH CAROLINA 29606 ATTENTION: RICHARD C. COGGINS.
OTHER MATTERS
Management of the Company is not aware of any other matter to be brought
before the Annual Meeting. If other matters are duly presented for action, it is
the intention of the persons named in the enclosed proxy to vote on such matters
in accordance with their best judgment.
By Order of the Board of Directors,
(Signature of Richard C. Coggins)
RICHARD C. COGGINS
SECRETARY
December 28, 1995
Greenville, South Carolina
13
<PAGE>
(Span-America Logo appears here)
