<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Vaughn Communications, Inc.
- - - - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
VAUGHN COMMUNICATIONS, INC.
--------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 20, 1995
To the Shareholders of
Vaughn Communications, Inc.:
The 1995 Annual Meeting of Shareholders of Vaughn Communications, Inc.
(the "Company") will be held at The Marquette Hotel, Seventh and Marquette,
Minneapolis, Minnesota 55402, on Tuesday, June 20, 1995, at 4:00 p.m., for
the following purposes:
(1) To elect four directors as described in the accompanying Proxy
Statement.
(2) To consider and act upon a Proposal to approve the Company's 1995
Stock Option Plan.
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on May 2, 1995 will be
entitled to vote at the meeting or any adjournments. You are cordially
invited to attend the meeting.
Please sign, date and return the enclosed form of proxy whether or not
you plan to come to the meeting. Your cooperation in promptly signing and
returning your proxy will be helpful and appreciated and will help avoid
further solicitation expense.
By Order of the Board of Directors
M. Charles Reinhart
Secretary
Minneapolis, Minnesota
May 19, 1995
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
PAGE
----
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Voting Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Election of Directors . . . . . . . . . . . . . . . . . . . . . . 2
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Voting Securities and Principal Holders Thereof. . . . . . . . . . . . . 3
Compliance with Section 16(a) of the Securities Exchange Act . . . . . . 4
PROPOSAL 1 ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 4
Certain Information Regarding the Board of Directors and the Committees
Thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Compensation of Directors. . . . . . . . . . . . . . . . . . . . . . . . 8
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 10
Compensation Committee Report on Executive Compensation. . . . . 10
Comparative Stock Performance. . . . . . . . . . . . . . . . . . 13
Summary Compensation Table . . . . . . . . . . . . . . . . . . . 16
Option Grants and Exercises. . . . . . . . . . . . . . . . . . . 17
PROPOSAL 2 TO APPROVE THE 1995 STOCK OPTION PLAN . . . . . . . . . . . 19
Transactions with Management. . . . . . . . . . . . . . . . . . . . . . 23
E.D. Willette Stock Put Redemption Agreement, Including
Change of Control Provision. . . . . . . . . . . . . . . . . . . 23
Acquisition of Centercom from Jeffrey Johnson and Robert Harmon
and Related Transactions . . . . . . . . . . . . . . . . . . . . 24
Selection of Independent Auditors . . . . . . . . . . . . . . . . . . . 25
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . 25
(i)
<PAGE>
VAUGHN COMMUNICATIONS, INC.
5050 WEST 78TH STREET
MINNEAPOLIS, MINNESOTA 55435
------------------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
JUNE 20, 1995
------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Vaughn Communications, Inc. (the "Company") of
proxies in the accompanying form from holders of shares of Common Stock to be
voted at the Annual Meeting of Shareholders to be held at the Marquette
Hotel, Seventh and Marquette, Minneapolis, Minnesota 55402, on June 20,
1995, commencing at 4:00 p.m., and at any adjournment thereof.
As of the close of business on May 2, 1995, the record date for the
meeting, the Company had outstanding 3,096,441 shares of its $.10 par value
Common Stock entitled to vote at the meeting. The presence of 1,548,221, in
person or by proxy, will constitute a quorum for the transaction of business.
Each share is entitled to one non-cumulative vote for each director to be
elected and on any additional proposals and matters of business to be brought
before the meeting
A shareholder may revoke a proxy at any time before it is exercised by
filing with the Secretary of the Company a revoking statement, by executing a
proxy bearing a later date or by voting in person at the meeting. When a
proxy in the accompanying form is returned properly signed, the shares
represented will be voted in accordance with the shareholder's instructions.
If no instructions are indicated on the proxy, the shares will be voted in
favor of the proposals to be considered at the meeting.
Expenses in connection with the solicitation of proxies will be paid by
the Company. Proxies are being solicited by mail, and, in addition,
directors, officers and regular employees of the Company (who will not
receive any additional compensation) may solicit proxies personally, by
telephone or by special correspondence. The Company will reimburse brokerage
firms and others for their expenses in forwarding proxy materials to the
beneficial owners of the Company's Common Stock.
This Proxy Statement will be mailed to each shareholder on or about May
19, 1995, together with the Company's Annual Report to Shareholders,
including the audited financial statements of the Company for the year ended
January 31, 1995, reported on by Ernst & Young LLP, independent certified
public accountants.
<PAGE>
VOTING PROCEDURES
ELECTION OF DIRECTORS
Under the Minnesota Business Corporation Act, directors are elected by
a plurality of the votes cast by the shares present in person or represented
by proxy at the meeting of shareholders. Consequently, only the shares that
are voted in favor of a particular nominee will be counted toward such
nominee's achievement of a plurality. Shares present at the meeting that are
not voted for a particular nominee or shares present by proxy where the
shareholder properly withholds authority to vote for such nominee (including
broker non-votes) will not be counted toward such nominee's achievement of a
plurality.
OTHER MATTERS
The affirmative vote of the majority of shares present in person or
represented by proxy at this or any Annual Meeting of Shareholders in favor
of any proposal is required under the Minnesota Business Corporation Act and
the Company's Restated Articles of Incorporation ( the "Articles") for
approval of the proposal as the act of the shareholders, other than a
proposal for the election of directors (as described above) or for approval
of certain matters relating to a change of control of the Company for which
an affirmative 80% majority vote of all issued and outstanding shares may be
required. [It is not expected that any proposal relating to a change of control
will be presented to the shareholders at this Annual Meeting.] Shares
abstaining from voting on a particular proposal are considered present at
the meeting for purposes of determining a quorum, but are treated as having
voted against the proposal at the meeting. Shares for which a broker
non-vote is recorded are not considered present at the meeting for the
particular proposal as to which the broker withheld authority. Consequently,
broker non-votes are not counted for quorum or for voting purposes with
respect to each such proposal, but they do have the effect of reducing the
number of affirmative votes required to achieve a majority for such matters
by reducing the total number of shares from which the majority vote is
calculated.
2
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of May 2, 1995, the only person to the knowledge of the Board of
Directors who owned beneficially 5% or more of the Company's outstanding
shares of Common Stock, its only class of voting security, the Common Stock
beneficially owned by the named officers of the Company set forth in the
Summary Compensation Table and by the Company's officers and directors as a
group were:
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER AND NATURE OF PERCENT
OR IDENTITY OF GROUP BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- - - - -------------------- ----------------------- -----------
E. David Willette 894,255(3) 26.5%
5050 West 78th Street
Minneapolis, MN 55435
Donald J. Drapeau 55,710(4) 1.8%
5050 West 78th Street
Minneapolis, MN 55435
Dwight A. Porter 159,800(5) 5.2%
and Christina A. Porter
42 Kenwood Parkway
St. Paul, MN 55105
All Officers and 1,637,026(6) 45.6%
Directors as a Group
(12 persons)
- - - - --------------------------------
(1) Each person or group has sole voting and investment power with respect
to all shares beneficially owned by such person or group.
(2) The percentage of beneficial ownership assumes full exercise of the
outstanding options reported for only the respective individual or
group.
(3) Includes options to purchase 283,910 shares of Common Stock, none of
which may be voted at the meeting
(4) Includes options to purchase 34,500 shares of Common Stock, none of
which may be voted at the meeting.
(5) Information was derived from the shareholders' Schedule 13D as of
September 7, 1994 and information as to shares subsequently acquired
provided by the shareholders.
3
<PAGE>
(6) Includes 493,210 shares, none of which may be voted at the meeting,
which the officers and directors have the right to acquire upon
exercise of presently outstanding stock options. Of the number of
shares beneficially owned by the group, 1,143,816 were outstanding on
the record date and are entitled to vote at the meeting (approximately
36.9% of all shares entitled to vote.)
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who beneficially own
more than 10% of its outstanding Common Stock, to file with the Securities
and Exchange Commission (SEC) initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Officers and greater than 10% shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) reports
they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no
other reports were required, during the fiscal year ended January 31, 1995,
all Section 16(a) filing requirements applicable to its officers, directors
and greater than 10% shareholders were complied with in a timely manner,
except that director Michael R. Sill did not file a Statement of Changes in
Beneficial Ownership of Securities on Form 4 to report his market purchase
of 5,000 shares of the Company's Common Stock on December 7, 1994. Mr. Sill
subsequently reported this previously unreported transaction in his Annual
Statement of Changes in Beneficial Ownership on Form 5. Mr. Sill's Form 5
should have been filed with the SEC on or before March 17, 1995, but was not
filed until April 19, 1995. Mr. Sill's Form 5 also reported his acquisition
on September 27, 1994 of an option granted by the Company to purchase 10,000
shares of the Company's Common Stock. Mr. Sill did not buy or sell any
shares of the Company's Common Stock during the period from the original due
date of the Form 4 to the actual filing date of the Form 5.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Articles (as amended at the 1993 Annual Meeting of
Shareholders) provides for a Board of Directors (sometimes referred to herein
as the "Board") of not fewer than three nor more than fifteen members. The
Board has set the number of directors at nine. The Articles also classify
the Board into three classes, as nearly equal in number as possible, with
each director, except as provided in the following paragraph with regard to
vacancies, serving a three-year term and with the terms of each class
staggered so that, except as provided in the following paragraph with regard
to vacancies, only one class is elected at each year's Annual Meeting of
Shareholders.
Vacancies that occur during a term and vacancies that result from any
newly created directorships may be filled solely by an affirmative two-thirds
majority vote of the continuing directors. In either case, any director
appointed to fill such a vacancy is required to stand for
4
<PAGE>
election at the next meeting of shareholders. If re-elected, such director's
term would end with the term of his or her respective class of directors.
At this year's Annual Meeting of Shareholders, a single member of one
class (reelection of one of two newly created directorships filled by the
Board on April 4, 1995) and three members of the regular class to be elected
at the Annual Meeting (including reelection of the second newly created
directorship) are to be elected to the Board to hold office until their
successors are elected at the Annual Meeting in 1996 (the single member to be
elected) and the Annual Meeting in 1998 (the regular class of directors to be
elected). The proxies named on the enclosed proxy intend to vote for the
election of nominees Robert Harmon as the single member to be elected for the
term expiring at the 1996 Annual Meeting and Laurence F. LeJeune, Harold G.
Wahlquist and Jeffrey Johnson as the directors to be elected for the term
expiring at the 1998 Annual Meeting. Messrs. Harmon and Johnson are the
members who were elected by the Board to fill the two new directorships
created on April 4, 1995. Each must stand for reelection at this year's
Annual Meeting. Messrs. LeJeune and Wahlquist are the members of the regular
class of directors elected by the shareholders, the term of which will expire
at this year's Annual Meeting.
The two additional directorships newly created by the Board on April 4,
1995, were established in accordance with the Stock Purchase Agreement dated
April 4, 1995, between the Company and Jeffrey Johnson and Robert Harmon (the
"Centercom Purchase Agreement"), pursuant to which the Company acquired the
capital stock and videotape duplication businesses of Centercom, Inc. and
Centercom South, Inc. (referred to herein collectively as "Centercom"). (See
"Transactions With Management" below). The Centercom Purchase Agreement
entitles Messrs. Johnson and Harmon to be nominated by the Company's Board of
Directors and serve as directors of the Company and members of the Audit
Committee of the Board, until the latter of April 4, 1999, or the date on
which they collectively cease to beneficially own at least 1% of the
Company's then outstanding Common Stock. In accordance with the Centercom
Purchase Agreement, E. David Willette, the Company's President and Chief
Executive Officer, has agreed to vote the Company's outstanding Common Stock
which he beneficially owns for the election of Messrs. Johnson and Harmon as
directors of the Company. (See Mr. Willette's current ownership in the
nominees table below.)
Proxies cannot be voted for a greater number of directors than the four
directors to be elected at this year's Annual Meeting. Each nominee named
above has indicated a willingness to serve; however, in the event any of the
nominees should become unable to serve as a director, the proxy will be voted
in accordance with the best judgment of the persons acting under the proxy.
Five other current directors have terms that do not expire at this
year's Annual Meeting of Shareholders. Each will continue to serve his full
term. Information concerning the persons nominated for election as
directors, as well as those continuing in office, is set forth in the
following table
5
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
MAY 2, 1995
-------------------------------
NUMBER OF
SHARES AND
SERVED AS NATURE OF
DIRECTOR BENEFICIAL PERCENT OF
NAME AND AGE(1) PRINCIPAL OCCUPATION(2) SINCE OWNERSHIP(3)(4) CLASS(4)
- - - - --------------- ----------------------- --------- --------------- ----------
<S> <C> <C> <C> <C>
Rodney P. Burwell Chairman of the Board, Xerxes 1993 117,000 3.8%
56 Corporation (Manufacturer of
fiberglass underground fuel
storage tanks) Minneapolis,
Minnesota(5)
Robert Harmon Retired former President of 1995 100,000 3.2%
48 Centercom (video tape duplicator)
Milwaukee, Wisconsin(6)
Roger F. Heegaard Chairman, Homestyles Publishing 1973 29,000 .9%
68 & Marketing (magazine publishing)
Minneapolis, Minnesota
Jeffrey Johnson Retired former Vice President of 1995 100,000 3.2%
49 Centercom (video tape duplicator),
Milwaukee, Wisconsin(6)
Laurence F. LeJeune President, LeJeune Investment Co. 1983 60,600 1.9%
59 (diversified investments)
Minneapolis, Minnesota
Michael R. Sill Chairman, Chief Executive Officer 1990 32,000 1.0%
63 of Road Machinery & Supplies Co.
(distribution of construction
equipment and services)
Minneapolis, Minnesota
William D. Smith Vice President and Chief Operating 1983 13,019 .4%
44 Officer, Pace, Inc. (environmental
testing) Minneapolis, Minnesota (7)
Harold G. Wahlquist President and Chief Executive 1983 22,900 .7%
56 Officer, First Community Bank Group,
Inc. (bank holding company)
Minneapolis, Minnesota
E. David Willette Chairman of the Board, President 1971 894,255 26.5%
59 and Chief Executive Officer and
Treasurer of the Company
<FN>
- - - - -----------------------------------------------------------------------------
- - - - ------------------------------------------------------------------------------
(1) Messrs. Harmon, Johnson, LeJeune and Wahlquist are the nominees for
election as directors at this year's Annual Meeting of Shareholders,
Mr. Harmon for a one-year term expiring at the 1996 Annual Meeting and
Messrs. Johnson, LeJeune and Wahlquist for a three-year term expiring at
the 1998 Annual Meeting. Directors Heegaard and Smith will continue in
office for the term expiring at the 1996 Annual Meeting. Directors
Burwell, Sill and Willette will continue in office for the term expiring
at the 1997 Annual Meeting.
(2) Except as indicated in the following notes, each person has been
engaged in his principal occupation for more than the past five years.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
(3) Each person has sole voting and investment power with respect to all
shares beneficially owned by him.
(4) Included in the number of shares are the following stock options with
respect to each person: Mr. Burwell - 10,000 shares; Mr. Harmon -
10,000 shares; Mr. Johnson - 10,000 shares; Mr. LeJeune - 22,000
shares; Mr. Sill - 20,000 shares; Mr. Smith - 3,500 shares;
Mr. Wahlquist - 12,000 shares; and Mr. Willette - 283,910 shares.
The percentage of beneficial ownership assumes full exercise of the
outstanding options reported for only the respective individual.
(5) Mr. Burwell also owns hotel properties in Snowmass Village, Colorado
and Madison, Wisconsin, and is a director of Children's Broadcasting
Network.
(6) Messrs. Harmon and Johnson formed Centercom as a partnership in 1979
and incorporated the business in 1987. They held the positions with
Centercom indicated above until the Company acquired Centercom from
them on April 4, 1995, at which time they were elected directors of the
Company.
(7) From 1988 to 1990, Mr. Smith was Vice President of Dealer Operations
and Administration of Data Card Corporation, a credit card products
company based in Minneapolis, Minnesota. He joined Pace, Inc. as Vice
President, Finance and Administration in 1991 and assumed his present
position with Pace, Inc. in 1993.
</TABLE>
CERTAIN INFORMATION REGARDING THE BOARD
OF DIRECTORS AND THE COMMITTEES THEREOF
During the past fiscal year, all members of the Board of Directors
attended all four of its meetings, except Messrs. LeJeune and Heegaard who
attended three of the four meetings. The Compensation Committee met once
with all members present. The Audit Committee, established in late 1994, did
not hold any meetings during the past fiscal year. The Board of Directors
does not have a separate Nominating Committee.
The Compensation Committee, which is composed entirely of directors who
are not officers or employees of the Company, determines the cash
compensation of the Company's executive officers based upon recommendations
submitted to it by the Chief Executive Officer. It also administers the
Company's Performance Incentive Compensation Bonus Program and the stock
option plans in which the Company's employees participate. The current
members of the Compensation Committee are Roger F. Heegaard (Chair), Laurence
F. LeJeune and Harold G. Wahlquist.
The Audit Committee, which is also composed entirely of directors who
are not officers or employees of the Company, will be responsible for (i)
recommendation to the Board of Directors of independent auditors for the
Company; (ii) review of the timing, scope and results of the audit
examination conducted by the independent auditors and related fees; (iii)
review of the scope and adequacy of the Company's internal accounting
controls; and (iv) review of periodic comments and recommendations by the
independent auditors. The current members of the Audit Committee are William
D. Smith (Chair), Rodney P. Burwell, Robert Harmon, Jeffrey Johnson and
Michael R. Sill. The Audit Committee held its initial meeting on April 18,
1995 with all members attending.
7
<PAGE>
COMPENSATION OF DIRECTORS
The eight non-employee members of the Company's Board of Directors
(Messrs. Burwell, Harmon, Heegaard, Johnson, LeJeune, Sill, Smith and
Wahlquist) are paid directors' fees of $500 per meeting attended, but not
more than $500 per quarter.
The non-employee directors are also entitled to receive option grants
under the Company's 1990 Non-Employee Directors Stock Option Plan. The Plan
provides for non-statutory options (NSOs) covering a total of 150,000 shares
of the Company's Common Stock and is intended to provide the Company a means
to attract and retain persons of ability as members of the Board and motivate
them to advance the Company's interests.
Each of the Company's non-employee directors is eligible to participate
in the Plan and is automatically granted NSOs for a fixed number of shares on
the date of such director's first election or appointment to the Board, and
on the dates of completion of stated additional terms of service as director,
as follows:
NUMBER OF SHARES
COVERED BY NSO DATE OF GRANT
---------------- -------------
10,000 shares Date of first election or appointment as a
director
10,000 shares Date of completion of four (4) years of
service
2,000 shares Date of completion of nine (9) years of
service
2,000 shares Date of completion of fourteen (14) years
of service and each fifth (5th) year
service completion anniversary date
thereafter
The exercise price for all NSOs granted under the Plan is the fair
market value of the Company's Common Stock on their dates of grant. Each NSO
is issued for a term of seven years and may be exercised at any time, except
that it may not be exercised for six months after the date of grant.
NSOs for an aggregate of 142,000 shares have been granted to the
Company's eight current non-employee directors, none of which have been
exercised, other than NSOs for 22,000 shares purchased by Mr. Heegaard in
December, 1992; 1,000 shares purchased by Mr. Smith in April, 1993; 4,000
shares purchased by Mr. Heegaard in October, 1993; 8,500 shares purchased by
Mr. Smith in June, 1994; 10,000 shares purchased by Mr. Wahlquist in
February, 1995 and 8,019 purchased by Mr. Smith in April, 1995. The net
value of the shares (market value less exercise
8
<PAGE>
price) realized from these exercises was $7,250 in the case of Mr. Heegaard,
$97,875 in the case of Mr. Smith and $57,500 in the case of Mr. Wahlquist.
Eight thousand shares are available for grant of additional NSOs under the
Plan.
The outstanding NSOs under the Plan include NSOs for 20,000 shares
granted to Mr. LeJeune, 10,000 shares granted to Mr. Wahlquist and 1,500
shares granted to Mr. Smith on June 26, 1990, and 10,000 shares granted to
Mr. Sill on September 27, 1990, each at a $.75 per share exercise price.
Each such NSO will expire, if not exercised, on June 25, 1997, except Mr.
Sill's NSO, which will expire on September 26, 1997. Additional NSOs for
2,000 shares each were granted to Mr. LeJeune at an exercise price of $2.25
per share on June 21, 1992 (expiring June 20, 1999), Mr. Smith at an exercise
price of $2.00 per share on December 14, 1992 (expiring December 13, 1999)
and Mr. Wahlquist at an exercise price of $2.25 per share on June 21, 1992
(expiring June 20, 1999), for 10,000 shares each to Mr. Burwell at an
exercise price of $3.50 per share on June 22, 1993 (expiring June 21, 2000),
Mr. Sill at an exercise price of $6.25 per share on September 27, 1994
(expiring September 26, 2001) and Messrs. Harmon and Johnson at an exercise
price of $6.50 on April 4, 1995 (expiring April 3, 2002).
EXECUTIVE OFFICERS
Information regarding the executive officers of the Company, including
their names, ages, positions with the Company, and a brief description of
their business experience during the past five years, is presented below.
Executive officers are elected annually by the Board of Directors.
E. DAVID WILLETTE, 59, has been President and Chief Executive Officer
and Treasurer of the Company since 1971, becoming Chairman of the Board in
1972.
DONALD J. DRAPEAU, 41, Vice President and General Manager of Vaughn
Duplication Services, joined the Company in 1986 as General Manager of Sales
and Marketing for the rental and duplication departments of Vaughn
Communications Group. In 1987 he was promoted to General Manager of the
rental division and in 1988 to General Manager of the duplication division,
becoming a Vice President in 1989.
WILLIAM D. DORNBUSCH, 48, Vice President and General Manager of the
Vaughn Products Division, joined the Company's former Bloom Brothers
Company's subsidiary in 1976 and assumed his present position in 1984.
M. CHARLES REINHART, 44, Controller and Secretary, is a certified
public accountant. He joined the Company's accounting staff in 1982,
becoming Controller in 1983 and Secretary in 1987.
9
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION:
The objectives of the Company's Compensation policies are to:
* Attract and retain highly qualified and motivated executive
officers, which is critical to both the Company's near-term and
long-term success.
* Reinforce strategic performance objectives through the use of
incentive compensation programs.
* Create a mutuality of interests between the Company's executive
officers and shareholders through compensation structures that
share the risks and rewards of strategic decision making.
* Provide compensation that will continue to be deductible by the
Company for federal income tax purposes.
The Committee's approach to base compensation is to offer competitive
salaries in comparison to market practices. The Committee annually examines
market compensation levels as a form of reference for annual salary
adjustments. Salary decisions are determined in a structural annual review
with recommendations from the Company's Chief Executive Officer. For the
fiscal year ending January 31, 1995 ("fiscal 1995"), average base salaries of
the Company's executive officers named under "Executive Officers" above,
other than the Chief Executive Officer, increased 4.6% compared to 3.8% for
the prior fiscal year ("fiscal 1994").
The Company's Performance Incentive Compensation Bonus Program is an
annual incentive bonus plan established to reward executive officers for
their respective contributions in accomplishing the Company's annual
financial objectives. The financial measures (e.g., pre-tax income, return
on assets and cash flow) and target bonuses are set in the beginning of the
fiscal year. Adjustments may be made during the year should unforeseen
events occur.
The recommendations of the Company's Chief Executive Officer are the
primary consideration reviewed by the Committee when setting the annual goals
and target bonuses for the other executive officers. The Committee seeks to
strike a balance between overall corporate performance and performance of the
specific areas of the Company under a participant's direct control. Balance
supports the accomplishment of overall objectives and rewards individual
contributions.
10
<PAGE>
Individual annual bonus level targets are generally consistent with
market practices for positions with comparable decision making
responsibilities. Target performance levels are also based upon historic
patterns of Company performance and strategic objectives.
A performance measure qualification threshold for each financial
measure ensures that bonuses are not paid for substandard accomplishments.
Each financial measure also has a cap to limit the Company's potential
executive compensation expense. The average Performance Incentive
Compensation bonus paid in fiscal 1995 to the executive officers named under
"Executive Officers" above, other than the Chief Executive Officer, was 16%
of their base salaries compared to 15.8% in fiscal 1994.
The base salary and Performance Incentive Compensation bonus goals for
E. David Willette, the Company's Chief Executive Officer, are also determined
by the Committee in the manner described above. Mr. Willette's base salary
increase was 1.9% for fiscal 1995, and 3.1% for fiscal 1994. The financial
measures determining Mr. Willette's Performance Incentive Compensation
include improvement in Company earnings and returns on assets and cash flow
performance. In fiscal 1995, Mr. Willette earned a Performance Incentive
Compensation bonus equal to 19.1% of his base salary compared to a bonus of
14.5% of his base salary in fiscal 1994. The greater percentage amount is
the result of increases in return on assets and earnings which offset a
decrease in cash flow.
The Committee also seeks to match executive officer and shareholder
interests in the Company's longer term performance by periodically granting
executive officers NSOs and incentive stock options ("ISOs"). ISOs are
entitled to favorable income tax treatment under the Internal Revenue Code.
The Company has several stock option plans administered by the Committee
under which these options are generally granted for terms of five or seven
years. The exercise prices of the ISOs are not less than the fair market of
the Company's Common Stock on the date of grant. NSOs may be granted at
exercise prices of not less than 85% of the stock's fair market value on the
date of grant. The options may be exercised only while, and for certain
periods after, the executive officer is employed by the Company. (See
Proposal 2 to Approve the Company's 1995 Stock Option Plan below.)
The Committee administers the Company's 1990 Discounted Stock Option
Plan, together with the Performance Incentive Compensation Program. Under
the Discounted Stock Option Plan, seven-year NSOs are granted to the
Company's executive officers during the first half of a fiscal year at an
"Original Option Price" equal to the fair market value of the Company's
Common Stock on the date of grant. Upon the grant of an officer's first
option under the Plan, the officer elects what percentage from 10% to 100% of
the officer's annual Performance Incentive Compensation bonuses, if and to
the extent later awarded, shall be applied on a cumulative basis to reduce
the Original Option Prices of the options which may be granted to the officer
under the Plan. The elected percentage may be changed only in the sole
discretion of the Committee prior to the start of the fiscal year for which
it is first to be effective.
11
<PAGE>
At the end of each fiscal year, the Committee determines the aggregate
portion of the corresponding target bonus awarded. Each NSO is subject to
discount for each of three fiscal years after grant. The "Final Discount
Option Price", determined on a cumulative basis with respect to such third
fiscal year, becomes the exercise price of the NSO for the five year balance
of the seven year option term.
All options granted under the Company's plans are exercisable in whole
or in part throughout their respective terms, commencing six months following
the date of first vesting, except as described in the following paragraph,
and except for ISOs and NSOs granted under the 1990 Company Wide Stock Option
Plan (which does not cover the Company's officers) and under the Company's
1995 Stock Option Plan (described in Proposal 2 below) all of which vest on a
five-year cumulative year-to-year basis as to one-fifth of the shares covered
thereby commencing on the date of grant. The Committee from time to time may
also establish individual vesting performance goals for options though none
have been separately established during the last three fiscal years.
NSOs granted under the Discounted Stock Option Plan also vest for
exercise purposes, on a year-to-year cumulative basis, as to one-third of the
number of shares covered by the NSO. The vesting and discount pricing
provisions of this Plan operate to permit the grant of an NSO to an officer
only once in a period of three fiscal years and will generally induce the
officer to defer exercise until after such third fiscal year. Application by
the executive officers named in the Summary Compensation table below of their
respective annual Performance Incentive Compensation bonuses awarded for the
last three fiscal years to reduce the exercise prices of their respective
NSOs under the 1990 Discount Stock Option Plan is shown below in footnote (1)
to the table.
To further induce exercise and acquisition of the Company's Common
Stock by its executive officers, in 1992 the Committee adopted a so-called
"reload policy" with respect to option grants. Under this policy, ISOs and
NSOs which an officer may elect to exercise by paying the exercise price with
previously owned Company stock will qualify the officer for a new grant equal
to the number of payment shares surrendered on exercise. The exercise price
of the reload option is established at or with respect to the fair market
value of the Company's stock at the time of the reload grant.
Section 162(m) of the Internal Revenue Code generally limits the
corporate tax deduction for compensation paid to the named executive officers
in the Summary Compensation Table below to $1 million, unless certain
requirements are met. The Compensation Committee has determined that it is
not presently necessary to modify any of the Company's current compensation
programs or incentive plans, because compensation paid to the named executive
officers thereunder would
12
<PAGE>
either be exempted under transition rules or be less than the $1 million limit
and, therefore, deductible for federal income tax purposes. The Compensation
Committee will continue to monitor this situation and will take appropriate
action if it is warranted in the future.
Members of the Compensation Committee:
Roger F. Heegaard, Chairman
Laurence F. LeJeune
Harold G. Wahlquist
COMPARATIVE STOCK PERFORMANCE
The Performance Graph set forth below compares the cumulative total
shareholder return on the Company's Common Stock for the last five fiscal
years with the cumulative total return on the Center for Research in Security
Prices (CRSP) Index for NASDAQ Stock Market (U.S. Companies) and the CRSP
Index for NASDAQ Non-Financial Stocks published by The University of Chicago
Graduate School of Business. The cumulative total shareholder return
computations set forth in the Performance Graph assume the investment of $100
in the Company's Common Stock, the CRSP Index for NASDAQ Stock Market (U.S.
Companies) and the CRSP Index for NASDAQ Non-Financial Stocks on January 31,
1990, and reinvestment of all dividends. No dividends were paid on the
Company's Common Stock during the comparison period.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
Comparison of Five-Year Cumulative Total Returns
Performance Report for
Vaughn Communications, Inc.
Prepared by the Center for Research in Security Prices
Produced on 03/08/95 including data to 01/31/95
Company Index: CUSIP Ticker Class Sic Exchange
92238310 VGHN 5060 NASDAQ
92238320 VGHNU 3660 NASDAQ
Fiscal Year-end is 01/31/95
Market Index: Nasdaq Stock Market (US Companies)
Peer Index: Nasdaq Non-Financial Stocks
SIC 0100-5999, 7000-9999 US & Foreign
Date Company Index Market Index Peer Index
01/31/90 100.000 100.000 100.000
02/28/90 144.444 102.755 102.835
03/30/90 144.444 105.726 106.920
04/30/90 144.444 102.261 103.816
05/31/90 155.556 111.898 116.074
06/29/90 166.667 112.724 117.626
07/31/90 166.667 107.065 111.818
08/31/90 138.889 93.559 96.626
09/28/90 155.556 84.695 87.974
10/31/90 122.222 81.365 84.609
11/30/90 122.222 89.116 92.138
12/31/90 111.111 92.963 96.201
01/31/91 111.111 103.252 107.945
02/28/91 122.222 113.187 118.003
03/28/91 177.778 120.745 126.373
04/30/91 211.111 121.527 125.810
05/31/91 333.333 127.091 131.931
06/28/91 333.333 119.362 122.766
07/31/91 344.444 126.414 130.101
08/30/91 466.667 132.686 136.344
09/30/91 400.000 133.171 137.830
10/31/91 422.222 137.588 142.622
11/29/91 422.222 132.979 137.365
12/31/91 400.000 149.188 154.880
01/31/92 466.667 157.949 164.399
02/28/92 477.778 161.531 167.268
03/31/92 544.444 153.917 157.325
04/30/92 466.667 147.329 147.670
05/29/92 455.556 149.257 148.613
06/30/92 400.000 143.338 141.169
07/31/92 400.000 148.407 145.580
08/31/92 366.667 143.863 140.535
09/30/92 300.000 149.198 145.655
10/30/92 344.444 155.082 151.588
11/30/92 355.556 167.415 164.287
12/31/92 400.000 173.603 169.289
01/29/93 366.667 178.548 173.838
02/26/93 333.333 171.861 165.140
03/31/93 533.333 176.861 169.605
04/30/93 555.556 169.308 162.603
05/28/93 644.445 179.391 175.759
06/30/93 600.000 180.232 175.943
07/30/93 611.111 180.468 174.453
08/31/93 577.778 189.798 184.703
09/30/93 555.556 195.402 189.665
10/29/93 733.334 198.632 194.211
11/30/93 911.111 192.703 188.519
12/31/93 888.889 198.074 194.083
01/31/94 955.556 204.080 200.595
02/28/94 933.334 202.222 198.583
03/31/94 888.889 189.777 184.813
04/29/94 888.889 187.319 180.567
05/31/94 1000.000 187.797 179.200
06/30/94 933.334 180.951 170.456
07/29/94 888.889 184.661 174.932
08/31/94 1200.000 196.415 186.853
09/30/94 1177.778 195.915 187.371
10/31/94 1355.556 199.694 192.802
11/30/94 1088.889 193.068 186.563
12/30/94 1300.000 193.667 186.089
01/31/95 1222.223 194.801 185.644
The index level for all series was set to 100.0 on 1/31/90
14
<PAGE>
The Company selected the indices set forth in the Performance Graph
above, rather than the S&P 500 Index and a peer group index, for two reasons.
The Company's market capitalization is closer to the average market
capitalization of the corporations in the CRSP Indices, and there is no
published peer group index which includes corporations engaged in the Company's
principal business segment, high volume video tape reproduction. Accordingly,
the CRSP Index for NASDAQ Non-Financial Stocks is a more meaningful comparison.
[Balance of page intentionally left blank.]
15
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for
each of the last three fiscal years ended January 31 earned by or awarded to
the Chief Executive Officer of the Company and the other executive officer of
the Company who had annual salary and bonus compensation during the last
fiscal year in excess of $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
SECURITIES
RESTRICTED UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS LTIP ALL OTHER
POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS(3) SARS(4) PAYOUTS COMPENSATION(3)
- - - - ------------------ ---- ------ -------- --------------- ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. David Willette 1995 $166,740 $34,325 $1,785 -0- -0- -0- -0-
President and Chief 1994 163,574 23,634 1,887 -0- 38,025 -0- -0-
Executive Officer 1993 158,632 41,642 2,224 -0- -0- -0- -0-
Donald J. Drapeau 1995 $105,933 $24,107 $4,800 -0- -0- -0- $1,057
Vice President and 1994 104,213 25,051 4,800 -0- 7,500 -0- 1,044
General Manager, 1993 98,068 23,178 4,800 -0- -0- -0- -0-
Vaughn Duplication
Services
<FN>
- - - - ------------------------
(1) Includes the following amounts awarded under the Company's Performance
Incentive Compensation Program described in the Compensation Committee
Report on Executive Compensation which the named executive officers
elected to apply to reduce the Original Option Prices of their respective
NSOs under the Company's 1990 Discounted Stock Option Plan:
Mr. Willette - $17,000 in fiscal 1995, $12,317 in fiscal 1994, and $16,000
in fiscal 1993; and Mr. Drapeau - $9,105 in fiscal 1995, $14,336 in fiscal
1994 and $13,399 in fiscal 1993.
(2) The amounts shown are the amounts of perquisites and other personal
benefits received by the named executive officers in fiscal years 1993
through 1995.
(3) No awards of restricted stock have been made to the Company's executive
officers during the last three fiscal years.
(4) No stock appreciation rights ("SARS") have been granted to the
Company's executive officers during the last three fiscal years and no
SARS were outstanding on January 31, 1995.
(5) The amounts shown are Company contributions to the respective 401(k)
Plan accounts of the Company's named executive officers.
</TABLE>
16
<PAGE>
OPTION GRANTS AND EXERCISES
The following tables summarize for fiscal 1995 the option grants and
exercises to or by the executive officers named in the Summary Compensation
Table, and the value of the options held by such persons at January 31, 1995.
No SARs have been granted since 1985, nor were any SARs exercised or
outstanding during or at the end of fiscal 1995. The terms and conditions of
the ISOs and NSOs under the Company's stock option plans are summarized in
the Compensation Committee Report on Executive Compensation.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1995
----------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATE OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTIONS IN FISCAL EXERCISE EXPIRATION ---------------------
NAME GRANTED YEAR PRICE DATE 0% 5% 10%
- - - - ------------------ ---------- ----------- --------- ----------- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
E. David Willette -0-
Donald J. Drapeau -0-
</TABLE>
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17
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND VALUE AT 1/31/95
---------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED 1/31/95 AT 1/31/95
ON VALUE EXERCISABLE(E) EXERCISABLE(E)
NAME EXERCISE REALIZED UNEXERCIABLE(U) (UNEXERCIABLE(U)
- - - - ----------------- --------- -------- --------------- ----------------------
<S> <C> <C> <C> <C>
E. David Willette -0- 277,077 E $1,466,556 E
6,833 U $ 25,624 U
Donald J. Drapeau 12,000 $65,331 32,000 E $ 157,125 E
2,500 U $ 9,375 U
</TABLE>
[Balance of page intentionally left blank.]
18
<PAGE>
PROPOSAL 2
TO APPROVE THE 1995 STOCK OPTION PLAN
ADOPTION AND PURPOSE. The Company's 1995 Stock Option Plan was adopted
by the Board of Directors on April 18, 1995 (as described in this Proposal,
the "Plan"). The Plan is intended to provide a means, by offering options
for up to 200,000 shares of the Company's authorized but unissued or
reacquired Common Stock as incentives to selected management and other key
employees of the Company, and the Company's direct or indirect majority owned
subsidiaries, to attract and retain persons to such positions of ability and
motivate them to advance the interests of the Company. The persons eligible
to participate in the Plan may also be participants in one or more of the
Company's several other stock option plans described under "Executive
Compensation" above.
GENERAL DESCRIPTION. It is presently intended that substantially all
of the options granted under the Plan will be incentive stock options
eligible for the favorable federal income tax consequences provided pursuant
to Section 422 of the Internal Revenue Code described under "Tax
Consequences" below. The Plan is being submitted to the Company's
Shareholders for approval in accordance with said Section 422. The remaining
options which may be granted under the Plan will be nonstatutory options not
qualifying under said Section 422 or other similar provisions of the Internal
Revenue Code. The federal income taxation of the nonstatutory options is
also described under "Tax Consequences" below.
The last sale price of the Company's Common Stock on the NASDAQ,
National Market on May 2, 1995 was $6.375 per share. No options to date have
been granted under the Plan.
If the Shareholders approve this Proposal, the Company intends to
register with the Securities and Exchange Commission the 200,000 shares
reserved for issuance pursuant to the exercise of the options which may be
granted under the Plan. If the Shareholders do not approve this Proposal,
the Plan and all options theretofore issued under the Plan, if any, will
terminate without further force or effect.
ADMINISTRATION AND ELIGIBILITY. The Plan is administered by the
Compensation Committee of the Company's Board of Directors (the "Committee")
comprised of three non-employee directors who are not eligible to participate
in any Company stock plan other than the 1990 Non-Employee Directors Stock
Option Plan described under "Compensation of Directors" above. The Committee
will determine the optionees to whom, and the number of shares for which,
incentive stock options and/or non-statutory options will be granted under
the Plan. The Committee may consider any factors, including any
recommendations of the Company's Chief Executive Officer, which it deems
relevant to select and motivate those persons who it determines have
contributed materially to the success of the Company or are in a position to
contribute materially to the future success of the Company.
Because the employees who may participate in the Plan in the future and
the amount of their options are determined by the Committee in its
discretion, it is not possible to state the names or
19
<PAGE>
positions of, or the number of options that may be granted to, the Company's
officers or other employees in the future. There are currently approximately
40 employees (including the four officers of the Company named under "Executive
Officers" above) who may be eligible to participate in the Plan. There is no
limitation in the Plan as to the number of employees who are eligible to
receive options. No participant may receive options under the Plan in any
fiscal year of the Company which, when added to all other options granted to
the employee during the fiscal year under any of the Company's other stock
option plans, would exceed 50,000 shares of the Company's Common Stock (such
number subject to adjustment for stock dividends, stock splits and the like).
TYPES OF OPTIONS GRANTED. Options granted under the Plan may be either
(i) options which qualify as incentive stock options under Section 422 of the
Internal Revenue Code, and/or (ii) nonstatutory options which do not qualify
as incentive stock options under Section 422 of the Code. Incentive stock
options granted under the Plan will generally have an exercise price equal to
100% of the fair market value of the Company's Common Stock as of the date of
grant. No incentive stock option may be granted to any individual who owns
more than 10% of the Common Stock of the Company (see "Voting Securities and
Principal Holders Thereof" above), unless (i) the option exercise price is at
least 110% of the fair market value of the Common Stock as of the date of
grant and (ii) the option terminates five years after the date of grant. It
is intended that all other options granted under the Plan will have option
terms of seven years. Nonstatutory options granted under the Plan must have
an exercise price of at least 85% of the fair market value of the Common
Stock as of the date of grant.
One-fifth (1/5) of the total number of shares initially covered by each
option granted under the Plan vests and becomes exercisable on a year-to-year
cumulative basis commencing with the date of grant, except that the option is
not exercisable for a period of six months after the date of grant. The
option price shall be paid at the time of written exercise and, at the
optionee's election, may be paid in cash and/or by surrender to the Company
of shares of the Company's Common Stock already owned by the optionee valued
at the fair market value of the Common Stock on the date of exercise. The
Compensation Committee may also permit an optionee to utilize a so-called
"cashless exercise" procedure to exercise an option through a national bank
or trust company or brokerage firm which is a member of the National
Association of Securities Dealers, wherein any or all of the shares the
optionee is entitled to receive on exercise is sold by such institution, and
the exercise price for the shares purchased is credited to the Company's
account with the balance of the proceeds of sale, less all expenses and
interest charges, credited to the optionee's account.
Options granted under the Plan are nontransferable, except at death,
and during the optionee's life may be exercised only by the optionee. If the
optionee, until such time continuously employed by the Company or its
subsidiaries, is terminated by reason of death or disability or retires at or
after age 65, the option, to the extent not previously exercised, may be
exercised in whole or in part during the balance of the option term without
regard to the annual exercise vesting requirements (described above), except
that an incentive stock option may be exercised only within three months
after termination of employment by reason of such event and shall thereupon
expire, unless the optionee shall die during such period or while employed in
which case the option may be exercised within twelve months after the death
of the optionee. If the optionee's employment
20
<PAGE>
terminates for any other reason, the option shall be exercisable according to
its terms, but shall expire sixty days after the date the optionee's employment
terminates.
ADJUSTMENTS, TERMINATION AND AMENDMENT. The Plan provides for
equitable share and price adjustments in the event of a stock dividend, stock
split or similar change in the Company's capitalization. The Plan will
terminate on April 17, 2005, unless sooner terminated by the Company's Board
of Directors, or unless all shares reserved for issuance have been issued
prior to that time. Options then outstanding will remain in effect until
exercise or expiration.
The Company's Board of Directors may amend the Plan at any time as
determined to be in the best interests of the Company, including any
amendment to terminate the Plan. The Board may not, however, without
Shareholder approval, increase the maximum number of shares subject to the
Plan or restrict the class of persons eligible to be granted options under
the Plan.
MISCELLANEOUS. If any option granted under the Plan shall for any
reason lapse, terminate, expire or be canceled without having been exercised
in full, the shares not purchased under such option will again be available
for purposes of grants under the Plan.
The Plan is not qualified under Section 401 of the Internal Revenue
Code. In addition, the Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974.
TAX CONSEQUENCES. The following discussion of tax consequences is
meant for general information purposes only and should not be construed as
tax advice to or by any individual. The federal income tax consequences of
an employee's participation in the Plan are dependent on the particular tax
situation of each individual and are subject to change.
Taxation of Incentive Stock Options:
No income will be realized by an employee upon either the grant or
exercise of an option intended to qualify under the Plan as an incentive
stock option described in Section 422 of the Internal Revenue Code. Upon the
exercise of an incentive stock option, however, if the fair market value of
the shares of Common Stock received ("Incentive Option Stock"), calculated as
of the date of exercise of the option, exceeds the option price, then such
excess (the "Bargain Element") will constitute an adjustment for purposes of
the alternative minimum tax under Section 55 of the Internal Revenue Code.
Such adjustment may result in the imposition of the alternative minimum tax.
If Incentive Option Stock is disposed of by an employee after (a) a two-year
period beginning on the date the incentive stock option was granted and (b) a
one-year period beginning on the date the incentive stock option is exercised
("Required Holding Periods"), then any gain or loss realized upon such
disposition will be treated as a long-term capital gain or loss.
If Incentive Option Stock is disposed of prior to the end of either of
the Required Holding Periods, the employee will realize ordinary income in an
amount equal to the lesser of: (a) the Bargain Element, or (b) the amount
realized upon the disposition of the Incentive Option Stock
21
<PAGE>
minus the option exercise price. In the case of a disposition in the same
calendar year as the exercise of the incentive stock option, the Bargain
Element will not constitute an adjustment under the alternative minimum tax.
If such disposition is by sale, the employee may also realize capital gain,
in the amount of the excess (if any) of the amount realized from the sale
over the fair market value of the Incentive Option Stock on the date of
exercise of the incentive stock option.
In general, there will be no federal tax consequences to the Company
upon the grant or exercise of an incentive stock option. However, if an
employee sells Incentive Option Stock before the end of the Required Holding
Periods, the Company will be entitled to a federal income tax deduction in an
amount equal to the ordinary income, if any, recognized by the employee.
Taxation of Nonstatutory Options:
No income will be realized by an employee upon the grant of a
nonstatutory option under the Plan which is not intended to be an incentive
stock option under Section 422 of the Internal Revenue Code. Upon the
exercise of any such option, the amount by which the fair market value of the
shares of Common Stock received ("Non-Incentive Option Stock") exceeds the
option price will be taxed as ordinary income to the employee. Upon
subsequent sales of Non-Incentive Option Stock, an employee may realize
short-term or long-term capital gain or loss, depending upon the holding
period of the shares, measured by the difference between the selling price
and the tax basis of the shares sold. If the option price is paid in cash,
the tax basis for this purpose will be the sum of the exercise price and any
income recognized by the employee as a result of such exercise.
In general, there will be no federal tax consequences to the Company
upon the grant of a nonstatutory stock option under the Plan or upon the sale
by the employee of shares acquired from the exercise of a nonstatutory
option. However, upon the exercise of such an option, the Company will be
entitled to a federal income tax deduction in an amount equal to the ordinary
income, if any, recognized by the employee.
Exercise with Previously Owned Shares:
If an optionee pays the option exercise price of a nonstatutory or
incentive stock option with previously owned shares of the Company's Common
stock (a right available under the Plan) and the transfer of the payment
shares to the Company is not a disqualifying disposition (i.e., does not
occur before the Required Holding Periods have expired), the shares received
equal in number to the number of payment shares surrendered are treated as
having been received in a tax-free exchange. The shares received in excess
of the number of payment shares surrendered will not be taxable, if an
incentive stock option is being exercised, but will be taxable as ordinary
income to the extent of their fair market value, if a nonstatutory option is
being exercised. If the use of previously acquired incentive stock option
shares to pay the exercise price of another incentive stock option
constitutes a disqualifying disposition of the payment shares (because the
Required Holding Periods have not expired), the tax results are as described
in the preceding paragraph.
22
<PAGE>
Withholding:
Amounts described as being treated as ordinary income to the employee,
whether from a disqualifying disposition of Incentive Option Stock or from
the exercise of a non-statutory option, are subject to withholding. To
comply with the legal requirement to withhold, the Company may withhold
additional amounts from compensation otherwise due the employee or require a
cash payment by the employee sufficient to satisfy the withholding
requirement.
APPROVAL. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR APPROVAL OF THE 1995 STOCK OPTION PLAN. The proxy solicited by the board
of directors will be voted FOR approval of the Plan, unless otherwise
indicated. Assuming the presence of a quorum, the affirmative vote of a
majority of the shares present, or represented by proxy, and entitled to vote
at the meeting is necessary to approve the Plan.
TRANSACTIONS WITH MANAGEMENT
E.D. WILLETTE STOCK PUT REDEMPTION AGREEMENT, INCLUDING CHANGE OF CONTROL
PROVISION
Pursuant to a Stock Put Redemption Agreement between the Company and E.
David Willette dated August 27, 1986, as amended and restated June 24, 1992,
the Company has agreed to redeem shares of Common Stock having a value of up
to $1,500,000 from Mr. Willette's estate, following his death, or, unless the
Company's Board of Directors determines such redemption is not in the
Company's best interests, from Mr. Willette directly, if any purchaser other
than Mr. Willette (referred to as an "Interested Shareholder") should acquire
beneficial ownership of more than 20% of the Company without Board approval.
(See "Voting Securities and Principal Holders Thereof.")
The put option to require or request redemption by the Company may be
exercised at any time up to one year after the date of the event giving rise
to the option. The per share redemption price, in the event of Mr. Willette's
death, will be the greater of the fair market value or book value of the
Common Stock at the time of his death. The per share redemption price, in
the event an Interested Shareholder acquires more than 20% of the Company,
will be the greater of fair market value, the highest price paid by the
Interested Shareholder, or a multiple of ten (10) times the Company's last
year net pre-tax earnings per share. Any redemption from Mr. Willette's
estate will be paid out of the proceeds of a $1,500,000 life insurance policy
which the Company is required to carry on Mr. Willette's life.
The Company entered into the Stock Put Redemption Agreement with Mr.
Willette to induce him to continue his employment with the Company and to
permit an orderly disposition of shares which may be held by his estate. The
Agreement, as amended and restated, is also designed to encourage purchasers
seeking to acquire control of the Company to first negotiate with the Board
arrangements which are fair to all shareholders.
23
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Since the Agreement is designed in part to discourage accumulations of
large amounts of stock by such purchasers, the Agreement could tend to reduce
temporary increases in the market price of the Company's stock that could be
caused thereby. As a result, shareholders could be deprived of certain
opportunities to sell their shares at temporarily higher market prices. The
Board believes protecting its ability to negotiate with an Interested
Shareholder seeking to change control of the Company is preferable to
discouraging such a proposal.
The Stock Put Redemption Agreement is subject to termination upon the
occurrence of a number of events, including the bankruptcy or insolvency of
the Company, cessation of business, voluntary termination of employment by
Mr. Willette prior to age 60 or involuntary termination by the Company for
cause.
ACQUISITION OF CENTERCOM FROM JEFFREY JOHNSON AND ROBERT HARMON AND RELATED
TRANSACTIONS
Pursuant to a Stock Purchase Agreement of even date (the "Centercom
Purchase Agreement"), on April 4, 1995, the Company acquired by purchase all
of the capital stock of Centercom, Inc., a Wisconsin corporation, and
Centercom South, Inc., a Florida corporation, (collectively "Centercom").
Centercom is a national video tape duplication company with duplication
facilities in Milwaukee, Wisconsin, Chicago, Illinois and Tampa, Florida.
Except for specific customer identity and geographic concentration,
Centercom's business is substantially similar to the video tape duplication
business of the Company's Vaughn Communications Division of which Centercom
has become a part.
Centercom's two equal former shareholders are Jeffrey Johnson and
Robert Harmon. Pursuant to the Centercom Purchase Agreement, on April 4,
1995, the Company's Board of Directors elected Messrs. Johnson and Harmon to
two newly created directorships on the Company's Board (and the Audit
Committee thereof) (see "Election of Directors" and "Certain Information
Regarding the Board of Directors and the Committees Thereof" above).
The purchase price for the capital stock of Centercom was $6,420,000,
paid equally to Messrs. Johnson and Harmon. The Company paid $5,250,000 cash
at closing and issued 180,000 shares of the Company's Common Stock, valued at
$6.50 per share ($1,170,000 in the aggregate), equal to the closing sale
price of the stock on NASDAQ on April 3, 1995.
The Centercom Purchase Agreement grants Messrs. Johnson and Harmon
certain demand and participatory rights to have any or all of said 180,000
shares registered for resale by them under the Securities Act of 1933.
Messrs. Johnson and Harmon have demanded that all such shares be registered.
The Company has filed a registration statement therefor with the Securities
and Exchange Commission. After the registration statement has become
effective, the Company is required to keep it effective until April 4, 1997,
or, if earlier, until Messrs. Johnson and Harmon have sold all such shares.
The Centercom Purchase Agreement also provides that Messrs. Johnson and
Harmon will be paid $100,000 each per year for a period of seven years ending
April 3, 2002, under consulting and noncompete agreements. These agreements
provide that Messrs. Johnson and Harmon will each be on call to provide up to
500 hours of consulting services to the Company during the first year of
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the agreements and up to 300 hours in each of the six remaining years. Each
will also be prohibited from competing with the Company in any geographic
location within the United States for the seven-year term of the agreements.
The Company also entered into two ten-year leases for the video tape
duplication facilities owned by a partnership of Messrs. Johnson and Harmon
in Milwaukee, Wisconsin. The two leases expire April 3, 2005. One facility
totals approximately 22,847 feet at an annual net rent of $146,221. The
other adjacent facility totals approximately 15,144 square feet at an annual
net rent of $40,132 for the first three years and $53,004 for the remaining
seven years. The Company plans to merge its preexisting facilities in
Milwaukee into these Centercom facilities. Management of the Company
believes that the facilities leased from Messrs. Johnson and Harmon are
necessary for its video tape duplication business and that the lease terms
and conditions are no less favorable to the Company than could have been
obtained from an unrelated third party.
See "Compensation of Directors" above for a discussion of the option
grants to Messrs. Johnson and Harmon on April 4, 1995, under the Company's
1990 Non-Employee Directors Stock Option Plan.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Company has selected Ernst & Young LLP as
the auditors of the Company's financial statements for the fiscal year ending
January 31, 1996. Ernst & Young LLP, or a predecessor thereof, has audited
the Company's financial statements for a number of years and has no direct or
indirect financial interest in the Company. Representatives of Ernst & Young
LLP will be present at the meeting and will be available to respond to
appropriate questions.
SHAREHOLDER PROPOSALS
Any shareholder desiring to have an appropriate proposal for action
presented at next year's Annual Meeting of Shareholders, now scheduled for
June 1996, and who wishes to have it set forth in the Proxy Statement and
form of proxy for the meeting, must notify the Company and submit the
proposal in writing for receipt at the Company's executive offices noted
above not later than January 31, 1996. See SEC Rule 14a-8 for additional
applicable requirements and procedures.
The Board of Directors knows of no matters that will be presented for
consideration at the meeting other than those referred to in this Proxy
Statement. If any other matter properly comes before the meeting calling for
a vote of shareholders, it is intended that the proxies solicited by the
Board of Directors will be voted in accordance with the judgment of the
persons named in the proxies.
BY ORDER OF THE BOARD OF DIRECTORS
M. CHARLES REINHART
SECRETARY
Minneapolis, Minnesota
May 19, 1995
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VAUGHN COMMUNICATIONS, INC.
PROXY FOR
ANNUAL MEETING OF SHAREHOLDERS, June 20, 1995
The undersigned, revoking all prior proxies, appoints E. David Willette
and M. Charles Reinhart, or either of them, as proxies, with full power of
substitution and revocation, to represent the undersigned and to vote all
shares of the Common Stock of Vaughn Communications, Inc. which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be
held on June 20, 1995, at The Marquette Hotel, Seventh and Marquette,
Minneapolis, Minnesota 55402, commencing at 4:00 p.m., and any adjournment
thereof, upon the following matters:
1. ELECTION OF DIRECTORS
____ For all four nominees listed below (except as marked to the
contrary below).
____ Withhold authority to vote for all nominees listed below.
(INSTRUCTION: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name in the list
below.)
Robert Harmon, Jeffrey Johnson, Laurence F. LeJeune and Harold G.
Wahlquist
2. PROPOSAL TO APPROVE THE COMPANY'S 1995 STOCK OPTION PLAN
____ FOR ____ AGAINST ____ ABSTAIN
3. SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR OF
ANY ADJOURNMENT THEREOF.
(TO EXECUTE YOUR PROXY, PLEASE DATE AND SIGN BELOW, AND RETURN TO THE COMPANY
IN THE ENVELOPE PROVIDED.)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND, IF NO CHOICE IS
SPECIFIED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE APPROVAL OF
THE COMPANY'S 1995 STOCK OPTION PLAN AND IN THE DISCRETION OF THE PROXY HOLDER
ON ALL OTHER MATTERS.
Receipt of Notice of Meeting and Proxy Statement is hereby acknowledged.
Dated: ________________, 1995
_____________________________________
_____________________________________
Please sign this proxy exactly as your
name appears on your certificate. Joint
owners should each sign personally. Trustees
and executors and others signing in a
representative capacity should indicate the
capacity in which they sign.
APPENDIX TO PROXY STATEMENT DATED MAY 19, 1995
