<PAGE>
APPENDIX A
VAUGHN COMMUNICATIONS, INC.
PROXY FOR
ANNUAL MEETING OF SHAREHOLDERS, JUNE 17, 1997
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 17,
1997, 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 three 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.)
Rodney Burwell, Michael Sill, and E. David Willette
2. 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, AND IN THE DISCRETION OF
THE PROXY HOLDER ON ALL OTHER MATTERS.
Receipt of Notice of Meeting and Proxy Statement is hereby acknowledged.
Dated: ____________________, 1997
-----------------------------------------
-----------------------------------------
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.
<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] No fee required.
[ ] 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):
- --------------------------------------------------------------------------------
<PAGE>
(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 17, 1997
To the Shareholders of Vaughn Communications, Inc.:
The 1997 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 17, 1997, at 4:00 p.m., for
the following purposes:
(1) To elect three directors as described in the accompanying Proxy
Statement.
(2) 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, 1997 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
/s/ M. Charles Reinhart
M. Charles Reinhart
Secretary
Minneapolis, Minnesota
May 20, 1997
<PAGE>
VAUGHN COMMUNICATIONS, INC.
5050 WEST 78TH STREET
MINNEAPOLIS, MINNESOTA 55435
________________________________________
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
JUNE 17, 1997
________________________________________
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 17, 1997, commencing at
4:00 p.m., and at any adjournment thereof.
As of the close of business on May 1, 1997, the record date for the
meeting, the Company had outstanding 3,726,978 shares of its $.10 par value
Common Stock entitled to vote at the meeting. The presence of shareholders
owning at least 1,863,489 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 Annual 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 Annual 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 Annual 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, 1997 on or about May 20, 1997, together with
the Company's Annual Report to Shareholders, including the audited financial
statements of the Company for the year ended January 31, 1997, 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. 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 by Proxy at the Annual Meeting is required for the election of
each of the nominee directors and for approval of any other proposal that may be
presented at the Annual Meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of May 1, 1997, 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 875,114(3) 22.5%
5050 West 78th Street
Minneapolis, MN 55435
Donald J. Drapeau 68,010(4) 1.8%
5050 W. 78th Street
Minneapolis, MN 55435
William D. Dornbusch 64,657(5) 1.7%
1119 Mercer Street
Seattle, WA 98109
M. Charles Reinhart 90,085(6) 2.4%
5050 West 78th Street
Minneapolis, MN 55435
Douglas Olzenak 15,474(7) .4%
5050 West 78th Street
Minneapolis, MN 55435
2
<PAGE>
All Executive Officers and 1,596,509(8) 39.2%
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, 1997 for only the respective individual or group.
(3) Includes options to purchase 161,475 shares of Common Stock, none of which
may be voted at the Annual Meeting.
(4) Includes options to purchase 42,800 shares of Common Stock, none of which
may be voted at the Annual Meeting.
(5) Includes options to purchase 18,565 shares of Common Stock, none of which
may be voted at the Annual Meeting.
(6) Includes options to purchase 44,268 shares of Common Stock, none of which
may be voted at the Annual Meeting.
(7) Includes options to purchase 8,661 shares of Common Stock, none of which
may be voted at the
Annual Meeting.
(8) Includes options to purchase 355,269 shares of Common Stock, none of which
may be voted at the Annual Meeting. Of the number of shares beneficially
owned by the group, 1,245,590 were outstanding on the record date and are
entitled to vote at the Annual Meeting (approximately 33% of all shares
entitled to vote.)
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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,
directors, 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, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% shareholders were complied with in a timely manner.
3
<PAGE>
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 Rodney Burwell, Michael Sill, and E. David Willette as the directors
to be elected for the term expiring at the 2000 Annual Meeting. Messrs.
Burwell, Sill and Willette 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. In addition to being a director, Mr. Willette is the Chairman and
Chief Executive Officer of the Company.
A 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"), entitles Messrs. Johnson and Harmon to be
nominated as directors 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 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 Common Stock ownership in the table below.) Mr. Harmon was
appointed to the Board of Directors on April 4, 1995 in connection with the
acquisition of Centercom and elected as a director at last year's Annual Meeting
for a term expiring at the 1999 Annual Meeting. Mr. Johnson was appointed to
the Board of Directors on April 4, 1995 in connection with the Centercom
acquisition for a term expiring at the 1998 Annual Meeting.
Proxies cannot be voted for a greater number of directors than the three
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.
Seven 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:
4
<PAGE>
<TABLE>
<CAPTION>
Common Stock Beneficially Owned
May 1 , 1997
---------------------------------------
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 3.2%
58 (Manufacturer of fiberglass underground fuel
storage tanks), Minneapolis, Minnesota(5)
Donald J. Drapeau President and Chief Operating Officer of 1995 68,010 1.8%
43 the Company
Robert Harmon Retired former President of Centercom 1995 100,000 2.7%
50 (video tape duplicator), Milwaukee,
Wisconsin(6)
Roger F. Heegaard Chairman, Homestyles Publishing & 1973 31,000 .8%
70 Marketing (magazine publishing),
Minneapolis, Minnesota
Jeffrey Johnson Retired former Vice President of 1995 100,000 2.7%
51 Centercom (video tape duplicator),
Milwaukee, Wisconsin(6)
Laurence F. LeJeune President, LeJeune Investment Co. 1983 52,600 1.4%
61 (diversified investments), Minneapolis,
Minnesota
Michael R. Sill Chairman, Chief Executive Officer of Road 1990 44,000 1.2%
65 Machinery & Supplies Co. (distribution of
construction equipment and services),
Minneapolis, Minnesota
William D. Smith Chief Operating/Financial Officer, 1983 16,019 .4%
46 Viromed Laboratories, Inc. (laboratory
testing and products), Minneapolis,
Minnesota(7)
Harold G. Wahlquist President and Chief Executive Officer, First 1983 24,900 .7%
58 Community Bank Group, Inc. (bank holding
company), Minneapolis, Minnesota
E. David Willette Chairman of the Board and Chief Executive 1971 875,114 22.5%
61 Officer of the Company
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Messrs. Burwell, Sill and Willette are nominees for election as directors
at this year's Annual Meeting of Shareholders for three-year terms expiring
at the 2000 Annual Meeting. Directors Johnson, LeJeune and Wahlquist will
continue in office for the term expiring at the 1998 Annual Meeting.
Directors Harmon, Heegaard, Smith and Drapeau will continue in office for
the term expiring at the 1999 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.
5
<PAGE>
(4) Included in the number of shares are the following stock options with
respect to each person: Mr. Burwell - 12,000 shares; Mr. Drapeau - 41,750
shares; Mr. Harmon - 10,000 shares; Mr. Heegaard - 2,000 shares; Mr.
Johnson - 10,000 shares; Mr. LeJeune - 4,000 shares; Mr. Sill - 22,000
shares; Mr. Smith - 5,500 shares; Mr. Wahlquist - 14,000 shares; and Mr.
Willette - 159,275 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, 1997.
(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 1991 to 1996, Mr. Smith was Vice President and Chief Operating Officer
of Pace, Inc., an environmental testing company based in Minneapolis,
Minnesota.
MEETINGS OF THE BOARD OF DIRECTORS
AND THE COMMITTEES THEREOF
During the past fiscal year, the Board of Directors held four meetings.
With the exception of Mr. Harmon, who attended less than 75% of the meetings of
the Board of Directors, all of the members attended all of the meetings of the
Board of Directors and Committees of the Board of Directors. 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, 1997.
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 ended January 31, 1997.
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.
6
<PAGE>
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"). No options were granted during the past fiscal year under the
1995 Plan. As of the date of this Proxy Statement, 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 1995 Plan reserves a total of 100,000 shares of the Company's Common
Stock for issuance upon the exercise of the options granted under the 1995 Plan.
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 does not receive any cash or other
consideration for the granting of options under the 1995 Plan.
EXECUTIVE OFFICERS
Information regarding the executive officers of the Company as of the date
of this Proxy Statement, 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, 61, has been Chief Executive Officer of the Company
since 1971, and Chairman of the Board since 1972. He also served as President
from 1971 to 1995, and as Treasurer from 1971 to 1996.
DONALD J. DRAPEAU, 43, 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
Vaughn Communications Division, becoming a Vice President in 1989. He was
promoted to President and Chief Operating Officer in 1995.
WILLIAM D. DORNBUSCH, 50, 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, 46, Chief Financial Officer and Secretary, is a
certified public accountant. He joined the Company's accounting staff in 1982,
becoming Controller in 1983 and Secretary in 1987. He was promoted to Chief
Financial Officer in 1996.
7
<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, 1997 ("fiscal 1997"), average base salaries of the Company's
executive officers named under "Executive Officers" above, other than the Chief
Executive Officer, increased 8.4% compared to 5.9% for the prior fiscal year
("fiscal 1996").
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
8
<PAGE>
Compensation bonus paid in fiscal 1997 to the executive officers named under
"Executive Officers" above, other than the Chief Executive Officer, was 7.9% of
their base salaries compared to 29% in fiscal 1996.
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 10% for fiscal 1997, and 6.8% for fiscal 1996. The financial
measures determining Mr. Willette's Performance Incentive Compensation bonus
include improvement in Company earnings, returns on assets and cash flow. In
fiscal 1997, Mr. Willette earned a Performance Incentive Compensation bonus
equal to 10% of his base salary compared to a bonus of 39.6% of his base salary
in fiscal 1996. The decreased percentage is the result of a lower than planned
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 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
under "Executive Officers" above of their respective annual Performance
Incentive Compensation bonuses awarded for the last three fiscal years to
9
<PAGE>
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.
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, 1992, and reinvestment
of all dividends. No dividends were paid on the Company's Common Stock during
the
10
<PAGE>
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.
[Balance of page intentionally left blank]
11
<PAGE>
(Insert CRSP Comparison of Total Returns)
<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, 1997, 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, 1997.
[Balance of page intentionally left blank.]
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 and non-executive
officers of the Company who had annual salary and bonus compensation during the
last fiscal year in excess of $100,000 (collectively the "Named Executive
Officers").
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Annual Compensation(2) Long-Term
------------------- Compensation
Awards
------------
Securities
Underlying
Name and Principal Options/ All Other
Position Year Salary ($) Bonus(1) ($) SARs(3) (#) Compensation(4) ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
E. David Willette 1997 195,883 19,504 25,000 -0-
Chief Executive Officer 1996 178,313 78,485 34,000 -0-
1995 166,740 34,325 -0- -0-
- -----------------------------------------------------------------------------------------------------------------------------
Donald J. Drapeau 1997 124,948 13,733 12,000 2,636
President and 1996 113,588 37,198 12,500 1,290
Chief Operating Officer 1995 105,933 24,107 -0- 1,057
- -----------------------------------------------------------------------------------------------------------------------------
Douglas Olzenak 1997 101,161 - 263 2,010
General Manager of 1996 88,730 - 268 875
Vaughn Comm. Div. 1995 73,719 - 7,817 730
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</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 and $16,000 in fiscal 1995, Mr. Drapeau - $9,015 in
fiscal 1995.
(2) No Named Executive Officer received perquisites and other personal benefits
from the Company in excess of $50,000 or 10% of such officer's total annual
salary and bonus paid for the years indicated.
(3) No stock appreciation rights ("SARS") have been granted to the Company's
Named Executive Officers during the last three fiscal years and no SARS
were outstanding on January 31, 1997.
(4) The amounts shown are Company contributions to the respective 401 (k) Plan
accounts of the Company's Named Executive Officers.
14
<PAGE>
OPTION GRANTS AND EXERCISES
The following tables summarize for fiscal 1997 the option grants and
exercises to or by the Named Executive Officers and the value of the options
held by such persons at January 31, 1997. No SARs have been granted since 1985,
nor were any SARs exercised or outstanding during or at the end of fiscal 1997.
The terms and conditions of the ISOs and NSOs under the Company's stock option
plans are summarized in the Compensation Committee Report on Executive
Compensation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Potential Realizable
% of Total Value at Assumed
Number of Options/SARs Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise for Option Term
Options/SARs in Fiscal or Base Expiration
Name Granted (#) Year Price ($/Sh) Date 0 % ($) 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
E. David Willette 25,000 22% $11.05 June 19, 2006 55,000 263,321 582,927
- ------------------------------------------------------------------------------------------------------------------------------------
Donald J. Drapeau 12,500 10% $13.00 June 19, 2003 3,000 67,729 153,846
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas Olzenak 263 * $9.125-$13.00 Feb. 1, 2001 (58) 600 1,397
Nov. 16, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
[Balance of page intentionally left blank.]
15
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
--------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Options/SARs in-the-Money Options/SARs
Shares at Fiscal Year End (#) at Fiscal Year End ($) (1)
Acquired on Value Exercisable(E) Exercisable(E)
Name Exercise (#) Realized ($) Unexercisable(U) Unexercisable(U)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. David Willette 147,885 1,735,756 147,025 E 744,928 E
48,000 U 26,296 U
- ------------------------------------------------------------------------------------------------------------------------------------
Donald J. Drapeau 2,000 14,500 36,825 E 156,250 E
20,175 U - U
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas Olzenak 6,003 69,139 8,370 E 12,077 E
605 U 790 U
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on a fiscal year end of January 31, 1997 and a closing Common Stock
price of $6.875 per share on January 31, 1997. The value of in-the-money
options is calculated as the difference between the fair market value of
the Common Stock underlying the options and the exercise price of the
options at fiscal year end. Exercisable options refer to those options
that are exercisable at January 31, 1997, while unexercisable options refer
to those options not exercisable at January 31, 1997 but which will become
exercisable at various times in the future.
16
<PAGE>
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.
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 and video tape duplications business of Centercom, Inc., a
Wisconsin corporation, and Centercom South, Inc., a Florida corporation,
(collectively "Centercom").
Centercom's two equal former shareholders were 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 Meetings of the Board of Directors and the
Committees Thereof" above).
In accordance with the Centercom Purchase Agreement Messrs. Johnson and
Harmon each receive $100,000 per year for a period of seven years ending April
3, 2002, under consulting and noncompete agreements.
17
<PAGE>
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 are also 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.
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, 1998. 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.
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
1998, 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 15, 1998. 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 Annual Meeting other than those referred to in this Proxy
Statement. If any other matter properly comes before the Annual 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
/s/ M. Charles Reinhart
M. CHARLES REINHART
SECRETARY
Minneapolis, Minnesota
May 20, 1997
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