<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X] Commission File No. 0-15424
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of 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:
- --------------------------------------------------------------------------------
<PAGE>
(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:
- --------------------------------------------------------------------------------
[ ] 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 19, 1996
To the Shareholders of Vaughn Communications, Inc.:
The 1996 Annual Meeting of Shareholders of Vaughn Communications, Inc. (the
"Company") will be held at The Marquette Hotel, Seventh and Marquette,
Minneapolis, Minnesota 55402, on Wednesday, June 19, 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
Non-Employee Directors 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 1, 1996 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 20, 1996
<PAGE>
VAUGHN COMMUNICATIONS, INC.
5050 WEST 78TH STREET
MINNEAPOLIS, MINNESOTA 55435
__________________________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
JUNE 19, 1996
__________________________________
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 19, 1996, commencing at
4:00 p.m., and at any adjournment thereof.
As of the close of business on May 1, 1996, the record date for the
meeting, the Company had outstanding 3,303,295 shares of its $.10 par value
Common Stock entitled to vote at the meeting. The presence of shareholders
owning at least 1,651,648 shares of common stock, 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. Common
Stock is the only class of voting equity securities currently authorized.
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. Mere
attendance by the shareholder at the Annual Meeting does not have the effect of
revoking a Proxy previously given. 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 and the accompanying Proxy will be mailed to each
shareholder of record as of May 1, 1996 on or about May 20, 1996, together with
the Company's Annual Report to Shareholders, including the audited financial
statements of the Company for the year ended January 31, 1996, reported on by
Ernst & Young LLP, independent auditors.
<PAGE>
VOTING PROCEDURES
Where specific instructions are not indicated, the Proxy will be voted FOR
the election of all directors as nominated, and FOR the approval of the adoption
of the 1995 Non-Employee Director Stock Option Plan. Shareholder abstentions
and broker "non-votes" (proxies returned by a broker indicating a lack of voting
instruction by the beneficial holder of the shares and a lack of discretionary
authority on the part of the broker to vote a particular proposal) will be
counted as present or represented at the Annual Meeting of Shareholders for
purposes of determining the existence of a quorum. Abstentions with respect to
any matter brought to a vote at the Annual Meeting will be treated as shares
voted for purposes of calculating the votes cast with respect to such matter,
but shall not be deemed to have been voted in favor of such matter. Broker non-
votes with respect to any matter brought to a vote at the Annual Meeting will be
treated as shares not voted for purposes of determining whether the requisite
vote has been obtained. An affirmative vote of a majority of the shares present
or represented at the Annual Meeting is required for the election of each of the
nominee directors and for approval of each of the proposals presented at the
Annual Meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of May 1, 1996, the only persons to the knowledge of the Board of
Directors who owned beneficially 5% or more of the Company's outstanding shares
of Common Stock, the Common Stock beneficially owned by the named executive
officers of the Company set forth in the Summary Compensation Table and by the
Company's executive officers and directors as a group were:
Name and Address Number of Shares
of Beneficial Owner and Nature of Percent
or Identify of Group Beneficial Ownership(1) of Class(2)
E. David Willette 902,755(3) 25.1%
5050 West 78th Street
Minneapolis, MN 55435
Donald J. Drapeau 58,835(4) 1.8%
5050 W. 78th Street
Minneapolis, MN 55435
William D. Dornbusch 94,232(5) 2.8%
1119 Mercer Street
Seattle, WA 98109
M. Charles Reinhart 107,360(6) 3.2%
5050 West 78th Street
Minneapolis, MN 55435
2
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Dwight A. Porter 171,505(7) 5.2%
and Christina A. Porter
42 Kenwood Parkway
St. Paul, MN 55105
All Executive Officers and 1,653,701(8) 43.3%
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 includes shares that may be
acquired under outstanding options that are or will be exercisable on or
before July 1, 1996 for only the respective individual or group.
(3) Includes options to purchase 292,410 shares of Common Stock, none of
which may be voted at the meeting.
(4) Includes options to purchase 37,625 shares of Common Stock, none of which
may be voted at the meeting.
(5) Includes options to purchase 31,124 shares of Common Stock, none of which
may be voted at the meeting.
(6) Includes options to purchase 53,376 shares of Common Stock, none of which
may be voted at the meeting.
(7) Information was derived from the shareholders' Schedule 13D as of
September 7, 1994 and information as to shares subsequently acquired
provided by the shareholders.
(8) Includes options to purchase 514,035 shares of Common Stock, none of
which may be voted at the meeting. Of the number of shares beneficially
owned by the group, 1,139,666 were outstanding on the record date and are
entitled to vote at the meeting (approximately 34.5% 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 shares of 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.
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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, 1996, 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 failed to timely file one report with respect to one
transaction.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Articles 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 ten. 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 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.
The proxies named on the enclosed Proxy intend to vote for the election of
nominees Robert Harmon, Roger Heegaard, William Smith and Donald Drapeau as the
directors to be elected for the term expiring at the 1999 Annual Meeting. Mr.
Harmon was one of the persons who was elected by the Board to fill two new
directorships created on April 4, 1995, and was elected at last year's Annual
Meeting for a term expiring at this year's Annual Meeting. An additional
directorship was created by the Board on September 26, 1995, and Donald Drapeau
was elected to fill this opening after being elected President and Chief
Operating Officer of the Company. Mr. Drapeau succeeds Mr. Willette as
President. Mr. Willette remains Chairman and Chief Executive Officer of the
Company. Mr. Drapeau must stand for re-election at this year's Annual Meeting.
Messrs. Heegaard and Smith 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.
Two additional directorships were created by the Board on April 4, 1995, 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
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outstanding shares of Common Stock. In accordance with the Centercom Purchase
Agreement, E. David Willette, the Company's Chief Executive Officer, has agreed
to vote the shares of 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 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.
Six 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:
<TABLE>
<CAPTION>
Common Stock Beneficially Owned
May 1 , 1996
-------------------------------
Number of
Shares and
Served as Nature of
Name and Age(1) Director Beneficial Percent of
- --------------- Principal Occupation (2) Since Ownership(3)(4) Class(4)
------------------------ --------- --------------- --------------------
<S> <C> <C> <C> <C>
Rodney P. Burwell Chairman of the Board, Xerxes Corporation 1993 119,000 3.6%
57 (Manufacturer of fiberglass underground fuel
storage tanks), Minneapolis, Minnesota(5)
Donald J. Drapeau President and Chief Operating Officer of 1995 58,835 1.8%
42 the Company
Robert Harmon Retired former President of Centercom 1995 100,000 3.0%
49 (video tape duplicator), Milwaukee,
Wisconsin(6)
Roger F. Heegaard Chairman, Homestyles Publishing & 1973 31,000 .9%
69 Marketing (magazine publishing),
Minneapolis, Minnesota
Jeffrey Johnson Retired former Vice President of 1995 100,000 3.0%
50 Centercom (video tape duplicator),
Milwaukee, Wisconsin(6)
Laurence F. President, LeJeune Investment Co. 1983 62,600 1.9%
LeJeune (diversified investments), Minneapolis,
60 Minnesota
Michael R. Sill Chairman, Chief Executive Officer of Road 1990 37,000 1.1%
64 Machinery & Supplies Co. (distribution of
construction equipment and services),
Minneapolis, Minnesota
William D. Smith Chief Operating/Financial Officer, 1983 16,019 .5%
45 Viromed Laboratories, Inc. (laboratory
testing and products), Minneapolis,
Minnesota(7)
</TABLE>
5
<PAGE>
Harold G. President and Chief Executive Officer, First 1983 24,900.8%
Wahlquist Community Bank Group, Inc. (bank holding
57 company), Minneapolis, Minnesota
E. David Chairman of the Board and Chief Executive 1971 902,75525.1%
Willette Officer and Treasurer of the Company
60
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(1) Messrs. Harmon, Heegaard, Smith, and Drapeau are the nominees for election
as directors at this year's Annual Meeting of Shareholders for three-year
terms expiring at the 1999 Annual Meeting. Directors Burwell, Sill and
Willette will continue in office for the term expiring at the 1997 Annual
Meeting. Directors Johnson, LeJeune and Wahlquist will continue in office
for the term expiring at the 1998 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.
(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 - 12,000 shares; Mr. Drapeau - 37,625
shares; Mr. Harmon - 10,000 shares; Mr. Johnson - 10,000 shares; Mr.
LeJeune - 24,000 shares; Mr. Sill - 22,000 shares; Mr. Smith - 5,500
shares; Mr. Wahlquist - 14,000 shares; and Mr. Willette - 292,410 shares.
The percentage of beneficial ownership includes shares that may be acquired
under outstanding options that are or will be exercisable on or before July
1, 1996.
(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. From 1991 to 1996, he was Vice President
and Chief Operating Officer of Pace, Inc., an environmental testing company
based in Minneapolis, Minnesota.
CERTAIN INFORMATION REGARDING THE BOARD
OF DIRECTORS AND THE COMMITTEES THEREOF
During the past fiscal year, the Board of Directors held four meetings.
None of the members of the Board of Directors attended less than 75% of the
meetings of the Board of Directors and meetings of the Committees of the Board
of Directors, except Mr. Harmon. The Board of Directors does not have a
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 Compensation Committee held two meetings and acted by unanimous
written consent on one occasion during the fiscal year ended January 31, 1996.
6
<PAGE>
The Audit Committee, which is also composed entirely of directors who are not
officers or employees of the Company, is 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 one meeting
during the fiscal year ending January 31, 1996.
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
fees of $500 per meeting of the Board of Directors attended, but not more than
$500 per quarter. No fees are paid to such members for attendance at meetings
of Committees of the Board of Directors.
The non-employee directors are also entitled to receive nonstatutory stock
options under the Company's 1995 Non-Employee Directors' Stock Option Plan (the
"1995 Plan"). Pursuant to the terms of the 1995 Plan, in June 1995, Messrs.
Burwell, Heegaard, LeJeune, Sill, Smith and Wahlquist were each granted
nonstatutory stock options to purchase 2,000 shares of Common Stock at $6.875
per share. The exercise price for the stock options was equal to the fair
market value of the Company's Common Stock on the date of grant. These stock
options will become null and void if the shareholders do not approve adoption of
the 1995 Plan at the Annual Meeting. In addition, in April, 1995, Messrs.
Harmon and Johnson were each granted nonstatutory stock options to purchase
10,000 shares of Common Stock at $6.50 per share under the Company's then
existing 1990 Non-Employee Directors Stock Option Plan (the "1990 Plan"). The
1990 Plan was terminated in June, 1995. The exercise price of the options
granted under the 1990 Plan was equal to the fair market value of the Company's
Common Stock on the date of grant. (See "Proposal No. 2 - Approval Of 1995 Non-
Employee Directors Stock Option Plan."
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, 60, has been Chief Executive Officer and Treasurer of
the Company since 1971, and Chairman of the Board since 1972. He also served as
President from 1971 to 1995.
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<PAGE>
DONALD J. DRAPEAU, 42, President and Chief Operating Officer, 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. He was promoted to
President and Chief Operating Officer in 1995.
WILLIAM D. DORNBUSCH, 49, 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, 45, 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.
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, 1996 ("fiscal 1996"), average base salaries of the Company's
executive officers named under "Executive Officers" above, other than the Chief
Executive Officer, increased 5.9% compared to 4.6% for the prior fiscal year
("fiscal 1995").
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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.
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 1996 to the executive officers named under "Executive Officers" above,
other than the Chief Executive Officer, was 29% of their base salaries compared
to 16% in fiscal 1995.
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 6.8% for fiscal 1996, and 1.9% for fiscal 1995. The financial
measures determining Mr. Willette's Performance Incentive Compensation bonus
include improvement in Company earnings, returns on assets and cash flow. In
fiscal 1996, Mr. Willette earned a Performance Incentive Compensation bonus
equal to 39.6% of his base salary compared to a bonus of 19.1% of his base
salary in fiscal 1995. The increased percentage is the result of increases in
return on assets, earnings and 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 nonstatutory stock options ("NSOs") and incentive stock
options ("ISO"). ISOs are entitled to favorable income tax treatment under
the Internal Revenue Code. The Company has three stock option plans (the 1988
Stock Option Plan, the 1990 Discounted Stock Option Plan and the 1995 Stock
Option Plan), each 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 under the 1988
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<PAGE>
and 1995 Stock Option Plans, while the NSOs granted under the 1990 Discounted
Stock Option Plan are granted at exercise prices equal to the closing bid price
of the Company's Common Stock on the last trading date preceding the date of
grant. In general, the options may be exercised only while, and for certain
periods after, the executive officer is employed by the Company. All ISOs and
NSOs granted under the 1988 Stock Option Plan are exercisable in whole or in
part throughout a five-year term.
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. 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.
NSOs granted under the 1990 Discounted Stock Option Plan 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 Discounted Stock
Option Plan is shown below in footnote number one to the table.
All ISOs and NSOs granted under the Company's 1995 Stock Option Plan are
exercisable commencing six months after the date of grant subject to a five year
cumulative vesting schedule as follows: 10% of the options are exercisable
during the first year of the option term, an additional 15% of the options are
exercisable during the second year of the option term, and an additional 25% of
the options are exercisable during each of the third, fourth and fifth years of
the option term. 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.
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.
10
<PAGE>
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 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.
The foregoing Compensation Committee Report will not be deemed incorporated
by reference by any statement incorporating by reference this Proxy Statement
into any filing under the Securities Act of 1933 or under the Securities
Exchange Act of 1934 and shall not otherwise be deemed filed under such Acts.
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, 1991, and reinvestment
of all dividends. No dividends were paid on the Company's Common Stock during
the comparison period. The graph below shall not be deemed incorporated by
reference by any statement incorporating by reference this Proxy Statement into
any filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934 and shall not otherwise be deemed filed under such Acts.
11
<PAGE>
Insert CRSP Comparison of Total Returns
12
<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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company was, during the
fiscal year ended January 31, 1996, an officer, former officer or employee of
the Company. No executive officer of the Company served as a member of (i) the
compensation committee of another entity in which one of the executive officers
of such entity served on the Company's Compensation Committee, (ii) the Board of
Directors of another entity in which one of the executive officers of such
entity served on the Company's Compensation Committee, or (iii) the compensation
committee of another entity in which one of the executive officers of such
entity served as a member of the Company's Board of Directors, during the fiscal
year ended January 31, 1996.
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13
<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 officers of the
Company who had annual salary and bonus compensation during the last fiscal year
in excess of $100,000.
<TABLE>
<CAPTION>
Annual Compensation (2) Long-Term
Compensation
Awards
Securities
Underlying
Name and Principal Options/ All Other
Position Year Salary ($) Bonus(1) ($) SARs(3) (#) Compensation(4) ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
E. David Willette 1996 178,313 78,485 34,000 -0-
Chief Executive Officer 1995 166,740 34,325 -0- -0-
1994 163,574 23,634 38,025 -0-
Donald J. Drapeau 1996 113,588 37,198 12,500 1,290
President and 1995 105,933 24,107 -0- 1,057
Chief Operating Officer 1994 104,213 25,051 7,500 1,044
William D. Dornbusch 1996 88,446 22,740 5,500 959
Vice President and 1995 85,773 8,460 -0- 898
General Manager, 1994 81,369 4,691 9,765 874
Vaughn Products Div.
M. Charles Reinhart 1996 76,637 25,562 6,700 865
Secretary and Controller 1995 70,885 11,537 -0- 794
1994 64,754 9,745 8,868 771
</TABLE>
_________________________
(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 -
$16,000 in fiscal 1996, $16,000 in fiscal 1995, and $12,317 in fiscal 1994;
Mr. Drapeau - $9,015 in fiscal 1995 and $14,336 in fiscal 1994; Mr.
Dornbusch - $2,274 in fiscal 1996, $840 in fiscal 1995, and $469 in fiscal
1994; and Mr. Reinhart - $3,012 in fiscal 1996, $1,125 in fiscal 1995, and
$975 in fiscal 1994.
(2) No executive officer received perquisites and other personal benefits from
the Company in excess of $50,000 or 10% of such officer's total annual
salary and bonus paid for the years indicated.
14
<PAGE>
(3) No stock appreciation rights ("SARS") have been granted to the Company's
executive officers during the last three fiscal years and no SARS were
outstanding on January 31, 1996.
(4) The amounts shown are Company contributions to the respective 401 (k) Plan
accounts of the Company's named executive officers.
[Balance of page intentionally left blank.]
15
<PAGE>
OPTION GRANTS AND EXERCISES
The following tables summarize for fiscal 1996 the option grants and
exercises to or by the executive officers named in the Summary Compensation
Table, and the value of the options held by such persons at January 31, 1996.
No SARs have been granted since 1985, nor were any SARs exercised or outstanding
during or at the end of fiscal 1996. The terms and conditions of the ISOs and
NSOs under the Company's stock option plans are summarized in the Compensation
Committee Report on Executive Compensation.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
------------------------------------- Potential Realizable
% of Total Value at Assumed
Number of Options/SARs Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise for Option Term
Options/SARs in Fiscal or Base Expiration
Name Granted (#) Year Price ($/Sh) Date 0 % ($) 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
E. David Willette 34,000 25% 5.84375 June 20, 2005 35,062 182,067 407,600
Donald J. Drapeau 12,500 9% 6.875 June 20, 2002 0 34,985 81,530
William D. Dornbusch 5,500 4% 6.875 June 20, 2002 0 15,393 35,873
M. Charles Reinhart 6,700 5% 6.875 June 20, 2002 0 18,752 43,700
</TABLE>
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16
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Value
-------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Options/SARs in-the-Money Options/SARs
Shares at Fiscal Year End at Fiscal Year End
Acquired on Value Exercisable(E) Exercisable(E)
Name Exercise (#) Realized ($) Unexercisable(U) Unexercisable(U)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. David Willette -0- -0- 287,310 E 2,142,134 E
30,600 U 100,406 U
Donald J. Drapeau -0- -0- 35,750 E 246,938 E
11,250 U 25,312 U
William D. Dornbusch 1,350 9,281 30,299 E 201,947 E
4,950 U 11,137 U
M. Charles Reinhart 4,500 30,938 52,371 E 385,137 E
6,030 U 13,567 U
</TABLE>
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17
<PAGE>
PROPOSAL NO. 2
APPROVAL OF 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
PROPOSAL
The Board of Directors adopted the 1995 Non-Employee Directors Stock Option
Plan (the "1995 Plan") on June 20, 1995, subject to approval of the 1995 Plan by
the shareholders of the Company at the Company's 1996 Annual Meeting of
Shareholders, to replace the then existing 1990 Non-Employee Directors Stock
Option Plan (the "1990 Plan") adopted in 1990. The Board of Directors
terminated the 1990 Plan as of June 20, 1995, and released the 8,000 shares of
the Company's Common Stock reserved for issuance upon the exercise of options
not yet granted under the 1990 Plan from such reservation. The 1995 Plan is
intended to provide the Company with a means to provide incentives to attract
and retain persons of desired ability as independent directors of the Company.
The 1995 Plan is substantially similar to the 1990 Plan except with respect
to the number of shares of the Company's Common Stock reserved for issuance upon
the exercise of options granted under the 1995 Plan and the provisions
pertaining to the automatic grant of options under the 1995 Plan. See "Plan
Description" below.
As of the date of this Proxy Statement, and pursuant to the terms of the
1995 Plan, options to purchase an aggregate of 12,000 shares of the Company's
Common Stock have been granted under the 1995 Plan to six non-employee directors
of the Company. The exercise of these options is contingent upon approval of
the 1995 Plan by the shareholders of the Company at the Company's 1996 Annual
Meeting of Shareholders. Accordingly, these options will become null and void
if the shareholders do not approve of the adoption of the 1995 Plan.
PLAN DESCRIPTION
The 1995 Plan reserves a total of 100,000 shares of the Company's Common
Stock for issuance upon the exercise of options granted under the 1995 Plan.
The 1990 Plan reserved a total of 150,000 shares of the Company's Common Stock
for issuance upon the exercise of options granted under the 1990 Plan. The 1995
Plan provides for the issuance of nonstatutory options to directors who are not
employees of the Company at the time of the grant of the options, a group
currently consisting of eight persons. (See "Proposal No. 1 - Election Of
Directors.") Nonstatutory options do not qualify for favorable federal income
tax treatment under Section 422 of the Internal Revenue Code of 1986. (See
"Federal Income Tax Consequences" below.) The 1995 Plan is administered by the
Company's Compensation Committee. (See "Certain Information Regarding The Board
Of Directors and the Committees Thereof.") The 1995 Plan will terminate on June
20, 2005, unless the term is extended or terminated earlier by action of the
Board of Directors.
18
<PAGE>
The 1995 Plan provides that on the date of the 1995 Annual Meeting of
Shareholders and on the date of each Annual Meeting of Shareholders held in an
odd numbered calendar year thereafter options for 2,000 shares of Common Stock
shall be automatically granted to each non-employee director who (i) either is
elected at such Annual Meeting of Shareholders or whose term as a director
continues after such Annual Meeting of Shareholders and (ii) as of the date of
grant has served as a director of the Company for at least two calendar years
(as defined in the 1995 Plan). The Company will not receive any cash or other
consideration for the granting of options under the 1995 Plan. The 1990 Plan
provided for automatic grants of nonstatutory options to non-employee directors
in amounts ranging from 10,000 to 2,000 shares upon initial election as a
director and then upon completing four, nine and fourteen years of service as a
director of the Company.
The exercise price for options granted under the 1995 Plan must be equal to
the fair market value of the Company's Common Stock on the date of grant.
Options may be exercised through the payment of cash, by the transfer to the
Company of previously acquired shares of the Company's Common Stock valued at
fair market value on the date of exercise or any combination of cash and
previously acquired shares of Common Stock. Options granted under the 1995 Plan
are exercisable for a period commencing six months after the date of grant and
terminating seven years after the date of grant; provided, however, that options
granted prior to approval of the 1995 Plan by the Company's shareholders are not
exercisable until such approval.
Options granted under the 1995 Plan are nontransferable, except at death,
and during the optionee's life may be exercised only by the optionee. If the
optionee ceases to serve as a director of the Company by reason of death,
disability or retirement at or after the age of 55, the optionee (or his
personal representative in the case of death) may exercise any unexercised
portion of his option through the remaining term of the option. If the optionee
ceases to serve as a director of the Company for any other reason, the optionee
may exercise any unexercised portion of his option for a period of 60 days after
the date the optionee ceases to serve as a director of the Company.
If options granted under the 1995 Plan lapse, terminate, expire or become
canceled without having been exercised in full, the shares of Common Stock not
purchased under such options will be available for purposes of new option grants
under the 1995 Plan. The 1995 Plan provides for equitable adjustments in the
number of shares of Common Stock subject to, and the exercise price of,
outstanding options in the event of a stock dividend, stock split or other
change in the Company's capitalization affecting the Common Stock of the
Company.
The Company's Board of Directors may amend the 1995 Plan at any time as
determined to be in the best interests of the Company, which amendment may
include an extension or termination of the 1995 Plan. The Board of Directors
may not (i) increase the maximum number of shares of the Company's Common Stock
reserved for issuance under the 1995 Plan, (ii) modify the provisions concerning
the automatic grant of options or (iii) modify the requirements as to
eligibility for participation in the 1995 Plan, without further approval by the
shareholders of the Company.
19
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the Company's understanding of the
federal income tax consequences of the 1995 Plan. It is provided for general
informational purposes only and should not be construed as tax advice to or by
any individual.
An optionee will not realize taxable compensation income upon the grant of
a nonstatutory option. In general, an optionee who exercises a nonstatutory
option will realize taxable compensation income at that time equal to the
difference between the fair market value of the shares of Common Stock on the
date of exercise and the exercise price of the option. Any ordinary
compensation income realized by an optionee upon exercise of a nonstatutory
option will result in the Company being allowed a corresponding income tax
deduction at that time. When an optionee disposes of shares of Common Stock
acquired by the exercise of a nonstatutory option, any amount realized which is
in excess of the fair market value of the shares of Common Stock on the date of
exercise will be treated as short-term or long-term capital gain, depending on
the holding period of such shares.
CURRENT MARKET PRICE OF COMMON STOCK
The last sales price for shares of the Company's Common Stock on May 1,
1996 as reported by the NASDAQ National Market System was $9.13 per share.
OPTIONS TO EXECUTIVE OFFICERS, DIRECTORS AND EMPLOYEES
The following table sets forth certain information as of the date of this
Proxy Statement with respect to all options granted and to be granted (to the
extent that future grants of options are known as of the date of this Proxy
Statement) to (i) all current directors of the Company who are not also
executive officers of the Company and (ii) each nominee for election as a
director of the Company at the 1996 Annual Meeting of Shareholders. No
information is provided for (i) the Chief Executive Officer, (ii) any executive
officer of the Company whose annual salary and bonus for the year ended January
31, 1996 exceeded $100,000, (iii) all current executive officers of the Company
as a group, (iv) all employees of the Company, including all current officers
who are not executive officers, as a group, as none of these persons or groups
are eligible to participate in the 1995 Plan.
NAME OR GROUP OF HOLDERS NUMBER OF SHARES
------------------------ ----------------
Current directors who are not executive
officers as a group (8 persons) 12,000 (1)
Donald J. Drapeau
Current and nominee director 0
Robert Harmon
Current and nominee director 0
20
<PAGE>
NAME OR GROUP OF HOLDERS NUMBER OF SHARES
------------------------ ----------------
Roger F. Heegaard
Current and nominee director 2,000 (1)
William D. Smith
Current and nominee director 2,000 (1)
_________________________________
(1) These options will become null and void if the shareholders do not approve
the 1995 Plan at the 1996 Annual Meeting of Shareholders.
VOTE REQUIRED
The affirmative vote of shareholders of the Company owning in the aggregate
at least a majority of the Company's outstanding shares of Common Stock present
in person and by Proxy, and entitled to vote, at the 1996 Annual Meeting of
Shareholders is necessary to approve the adoption of the 1995 Plan.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF APPROVAL OF
THE ADOPTION OF THE 1995 PLAN, AND THE PROXIES WILL BE VOTED IN FAVOR OF SUCH
APPROVAL, UNLESS OTHERWISE DIRECTED.
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 Director's 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 pretax
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.
21
<PAGE>
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.
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.
22
<PAGE>
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 and 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 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 merged 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 then
existing 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, 1997. 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 Annual Meeting and will be available to respond to
appropriate questions.
23
<PAGE>
APPENDIX A
VAUGHN COMMUNICATIONS, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The Plan is intended to provide a means for Vaughn Communications, Inc.
(the Company), by offering incentives to non-employee Directors, to attract and
retain persons of ability as members of the Company's Board of Directors and
motivate them to advance the interests of the Company.
It is intended that the options granted under the Plan constitute
"nonstatutory options," i.e., options not qualifying under Section 422 or other
similar provisions of the Internal Revenue Code 1986, as from time to time
amended.
2. SHARES SUBJECT TO THE PLAN
A total of 100,000 shares of authorized but unissued or reacquired $.10 par
value Common Stock of the Company (the "Shares") is reserved for issuance upon
exercise of options under the Plan. If any option expires or terminates without
having been exercised in full, the unacquired Shares shall be available for the
grant of future options under the Plan.
3. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the Board
of Directors of the Company (the "Committee").
4. ELIGIBILITY AND AMOUNT OF GRANT
Options for 2,000 Shares each shall be automatically granted by the Company
under the Plan on June 20, 1995, the date of the Company's 1995 Annual Meeting
of Shareholders, and biannually on the date of each Annual Meeting of
Shareholders held in each odd calendar year thereafter, to each non-employee
director of the Company elected at each such Annual Meeting of Shareholders or
whose term of office as a director continues after such Annual Meeting of
Shareholders and who as of the date thereof has served for at least two (2)
calendar years (assuming for such purpose that the Annual Meeting of
Shareholders in each year is one calendar year after and prior to the date of
the preceding and subsequent Annual Meeting of Shareholders, notwithstanding the
actual calendar days then elapsed) (individually an "Optionee" and collectively
the Optionees").
<PAGE>
The only persons eligible to be Optionees under the Plan are persons who
are non-employee members of the Company's Board of Directors on the respective
dates of grant set forth above, but Optionees who cease to be such thereafter
may continue to hold and exercise the options granted to them hereunder in
accordance with the terms and conditions hereof.
5. OPTION PRICE
The option exercise price for the options granted under the Plan shall
equal One Hundred Percent (100%) of the fair market value of the Company's
Common Stock on the date of grant. Fair market value shall be determined by the
Committee based upon the last sale price per share of the Company's Common Stock
in the National Association of Securities Dealers Automated Quotations System
(NASDAQ) for National Market Issues or, as applicable, for Small-Cap Issues, as
reported by the National Association of Securities Dealers for the last business
trading day preceding the date of grant, or, if the Common Stock is not traded
on NASDAQ, through such other measure or means as the Committee may in good
faith determine to be appropriate to determine such fair market value. The
Committee may authorize the Chief Executive Officer or Secretary of the Company
to make any determinations required in this Section 5.
6. OPTION TERMS
The options granted hereunder shall be evidenced by an Option Agreement, in
the form attached hereto as Exhibit A, executed as of the date of grant by the
Company and the Optionee, on identical terms and conditions for each option,
except for the respective date of grant and corresponding option exercise price,
and including the following:
(a) The Option Agreement shall specify that the option is a
nonstatutory option for 2,000 Shares and shall set forth the option
exercise price. It shall also specify that the option shall not be
exercisable for a period of six (6) months after the date of grant and
shall first become exercisable on the last day of such six month period.
(b) The option price shall be paid at the time of exercise which
shall be in writing and, at the election of the Optionee, may be paid in
cash and/or by the sale and delivery of certificate(s) duly endorsed for
transfer, in shares of the Company's Common Stock already owned by the
Optionee. Any shares so sold to the Company in payment of the option price
shall be valued at fair market value on the exercise date as determined
by
2
<PAGE>
the Committee. Fair market value for this purpose shall be determined in
the same manner provided by Section 5 substituting the date of exercise for
the date of grant. Any fractional share not required for payment of the
option price shall be paid for the Company in cash on the basis of the same
value utilized for such exercise.
(c) Except as otherwise provided in this subsection and in
subsections (a) above and (e) below, the Optionee may exercise the option
in whole or in part at any time after grant of the option and prior to
seven (7) years from that date; provided, however, that the option shall
not be exercisable until, and shall be subject to, approval of the Plan by
the shareholders of the Company at a meeting duly called and held for such
purpose not later than the Annual Meeting of Shareholders in 1996.
Approval shall require a quorum and a majority vote of the shares owned by
those shareholders present, or represented, and entitled to vote at the
meeting.
(d) Unless the issuance of the Shares upon the exercise of an option
hereunder is registered under federal and state securities laws, the
Optionee shall be required to give an investment representation at the time
of exercise, and transfer of the Shares shall be appropriately restricted.
The Company shall not be obligated for but does currently anticipate
registration of the Shares issued under the Plan under federal and certain
state securities laws.
(e) If the Optionee, until such time continuously serving as a
Director of the Company, is terminated as a Director by reason of death or
disability or by retirement at or after age 55, the option, to the extent
not previously exercised, may be exercised in whole or in part during the
balance of term of the option, except that no option shall be exercisable
for a period of six (6) months after the date of grant. In the event of
the Optionee's death, the option may be exercised by the personal
representative of the Optionee's estate and/or by the Optionee's heirs, as
the case may be. If the Optionee's service as a Director terminates for
any other reason, the option shall be exercisable according to its terms,
but shall expire sixty (60) days after the date the Optionee's service as a
Director terminates. Notwithstanding anything herein to the contrary,
unless expiring
3
<PAGE>
earlier, all options granted under the Plan shall terminate and expire
seven (7) years after the date of grant.
(f) The options hereunder shall not be transferable by the Optionee
except by will or the laws of descent and distribution. During the
Optionee's life, the options shall be exercisable only by the Optionee and
only while and if continuously serving as a Director of the Company, except
as provided in Section 6(f) above.
7. TERMINATION
Unless extended or sooner terminated by action of the Company's Board of
Directors, the Plan shall terminate ten (10) years from its effective date.
Options outstanding under the Plan at the time of termination shall remain in
effect until exercise or expiration.
8. EFFECTIVE DATE
The effective date of the Plan shall be June 20, 1995, the date of adoption
by the Company's Board of Directors. Options under the Plan shall be
automatically granted in accordance with Section 6 hereof.
9. ADJUSTMENT OF SHARES
In the event of a recapitalization, merger, consolidation, reorganization,
stock dividend, stock split or other change in capitalization affecting the
Common Stock of the Company, appropriate equitable Share and per Share option
price adjustments in outstanding options shall be made by the Committee to
prevent dilution or enlargement of rights.
10. AMENDMENT
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 extend or terminate the Plan. The Board shall not, however, without
shareholder approval, increase the maximum number of Shares subject to the Plan,
or to the options to be automatically granted in accordance with the Plan, or
restrict the class of persons eligible to be granted options under the Plan.
Provided, further, in accordance with Rule 16b-3 (c) (2) (ii) under the
Securities Exchange Act of 1934, as said Rule may from time to time be amended,
that the amount and frequency of the option grants under the Plan shall not, in
any event, be amended more than once every six months, other than to comport
with changes in the Internal Revenue Code, the Employee Retirement Income
Security Act, or the rules thereunder.
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VAUGHN COMMUNICATIONS, INC.
1995 NON-EMPLOYEE DIRECTOR NONSTATUTORY
STOCK OPTION AGREEMENT
VAUGHN COMMUNICATIONS, INC., a Minnesota corporation (the "Company"),
pursuant to the 1995 Non-Employee Director Stock Option Plan previously adopted
by the Board of Directors of the Company (the "Plan"), and in consideration of
services as a member of the Board of Directors of the Company to be rendered by
__________________ (the "Optionee"), hereby grants to the Optionee a
nonstatutory stock option (the "Option") not in accordance with Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), to purchase 2,000
shares of the Company's $.10 par value Common Stock (the "Shares") at a price of
$____ per Share (the "Purchase Price"), equal to 100% of the fair market value
of the Common Stock on the date of grant (set forth at the end of this
Agreement), determined in accordance with Section 5 of the Plan. This grant is
made on the following terms and conditions.
NONSTATUTORY STOCK OPTION
1. The Optionee may first exercise the Option at any time on or after six
(6) months after the date of grant (set forth at the end of this Agreement) and
thereafter may exercise the Option at any time on or before ___________, 19___,
(seven (7) years after such date of grant); provided, however, that the Option
shall not be exercisable unless and until the Plan has been approved by the
shareholders of the Company as provided in the Plan.
2. The Option shall not be transferable by the Optionee, except by will
or the laws of descent and distribution. During the Optionee's life, the Option
shall be exercisable only by the Optionee and only while and if the Optionee is
continuously serving as a Director of the Company, except as provided in Section
4 of this Agreement.
3. The Option may be exercised in whole or in part, from time to time, by
delivery to the Secretary of the Company of a written notice specifying the
number of Shares desired to be purchased and accompanied by full payment of the
Purchase Price, at the election of the Optionee, in cash and/or by delivery of
certificate(s) duly endorsed for transfer, in shares of the Company's Common
Stock already owned by the Optionee. Any shares endorsed and delivered to the
Company in payment of the Purchase Price shall be valued at the fair market
value of the shares
<PAGE>
on the date of exercise. Fair market value for this purpose shall be determined
in accordance with Section 6(b) of the Plan. Any fractional share not required
for payment of the Purchase Price shall be paid for by the Company in cash on
the basis of the same value utilized for such exercise.
4. All unexercised rights under the Option shall expire at the end of the
term specified in Section 1 above or on such earlier date sixty (60) days after
termination of Optionee's directorship for any reason other than by reason of
death or disability or retirement at or after age 55. In the event of the
Optionee's death, the Option may be exercised by the personal representative of
the Optionee's estate and/or by the Optionee's heirs entitled by law to the
Optionee's rights under the Option, as the case may be.
5. Unless the issuance of the Shares purchased upon the exercise of the
Option is registered with federal and state securities authorities (which is
anticipated, but for which the Company has no obligation), or is determined by
counsel for the Company to be exempt from such registration without need
therefor, the Optionee shall be required to sign and be bound by a customary
"investment letter", setting forth the Optionee's investment representation and
securities law transfer restrictions consistent with federal and state
securities law exemptions from registration for issuance of the Shares on
exercise and consistent with Rule 144 under the Securities Act of 1933 and
requisite legends shall be placed upon the certificates for the Shares. Without
regard to registration or exemption therefrom on exercise, because the Optionee
may be an affiliate of the Company within the meaning of said Rule 144,
securities law transfer restrictions consistent with said Rule 144 shall in any
event be applicable and requisite legends and stop transfer orders shall be
placed upon or against the certificates for the Shares by the Company's Transfer
Agent and Registrar.
6. If prior to the expiration of the Option, the Shares then subject to
the Option shall be affected by any recapitalization, merger, consolidation,
reorganization, stock dividend, stock split, or other change in capitalization
affecting the present Common Stock of the Company, then the number and kind of
Shares covered by this Agreement, and the Purchase Price per Share, shall be
appropriately adjusted in accordance with the Plan to prevent dilution or
enlargement of the Optionee's rights which might otherwise result.
7. It is intended that the Plan and this nonstatutory Option comply and
be interpreted in accordance with Rule 16b-3 under the Securities Exchange
Act of 1934, as amended. The
2
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provisions of the Plan pertaining to Options, to the extent not set forth in
this Agreement, are incorporated herein by reference.
IN WITNESS WHEREOF, this Non-Employee Director Nonstatutory Stock Option
Agreement is hereby executed as of the ___ day of ____________, 199__ (date of
grant).
VAUGHN COMMUNICATIONS, INC.
By _______________________________
Its _________________________
OPTIONEE:
_________________________________
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<PAGE>
APPENDIX B
VAUGHN COMMUNICATIONS, INC.
PROXY FOR
ANNUAL MEETING OF SHAREHOLDERS, JUNE 19, 1996
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 19,
1996, 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.)
Donald Drapeau, Robert Harmon, Roger Heegaard and William Smith
2. PROPOSAL TO APPROVE THE COMPANY'S 1995 NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
____ FOR ____ AGAINST ____ ABSTAIN
3. SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR OF
ANY ADJOURNMENT THEREOF.
____ FOR ____ AGAINST ____ ABSTAIN
(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 NON-EMPLOYEE DIRECTOR 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: ____________________, 1996
_________________________________________
_________________________________________
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.
