SCHEDULE 14A
(RULE 14a-101)
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]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
NORTECH FOREST TECHNOLOGIES, 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):
[ ] 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 transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
July 11, 1997
Dear Nortech Shareholder:
The Board of Directors of Nortech Forest Technologies, Inc., a Delaware
corporation (the "Company"), cordially invites you to attend its 1997 Annual
Meeting of Shareholders, to be held at 3:30 p.m. Central Daylight Time on
Thursday, August 14, 1997 at the Minneapolis Athletic Club, 615 Second Avenue
South, Minneapolis, Minnesota.
Please review carefully the formal Notice of Meeting, Proxy Statement, and Proxy
Card that are enclosed. In addition to voting on the matters described in the
accompanying Proxy Statement, we will review the Company's 1996 results and
share with you our plans for 1997. We have also enclosed the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996, including financial
statements and related footnotes.
At the Annual Meeting, shareholders will be asked to consider and vote on
matters relating to: (i) the election of five directors; (ii) approving the
addition of 100,000 shares of Common Stock to be reserved for issuance under the
Company's 1995-1996 Incentive Stock Option Plan and 1995-1996 Non-Qualified
Stock Option Plan; and, (iii) ratifying the appointment of the Company's
auditors for 1997. Details pertaining to each of these three proposals are
provided in the accompanying Proxy Statement.
REGARDLESS OF WHETHER OR NOT YOU ARE ABLE TO ATTEND THE 1997 ANNUAL MEETING IN
PERSON, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON
AS POSSIBLE IN THE STAMPED RETURN ENVELOPE PROVIDED SO THAT YOUR VOTE CAN BE
RECORDED. IF YOU ATTEND THE MEETING IN PERSON, YOU HAVE THE RIGHT TO REVOKE YOUR
PROXY AND VOTE YOUR SHARES IN PERSON, IF YOU SO DESIRE.
We look forward to seeing you at the Annual Meeting..
Sincerely,
/s/ Samuel D. Garst
Samuel D. Garst
Chief Executive Officer
<PAGE>
NORTECH FOREST
TECHNOLOGIES, INC.
7600 W. 27th Street, Suite B-11
St. Louis Park, Minnesota 55426
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
THURSDAY, AUGUST 14, 1997
3:30 P.M.
------------------------------
NOTICE IS HEREBY GIVEN, that the 1997 Annual Meeting of Shareholders of
Nortech Forest Technologies, Inc., a Delaware corporation (the "Company"), will
be held at 3:30 p.m. Central Daylight Time on Thursday, August 14, 1997 at the
Minneapolis Athletic Club, 615 Second Avenue South, Minneapolis, Minnesota, for
the following purposes:
(1) To elect five Directors of the Company: Calvin E. Blanchard, Samuel D.
Garst, Robert H. Gilbertson, Randy G. Hines, and Gary Borglund;
(2) To approve the addition of 100,000 shares of Common Stock to be
reserved for issuance under the Company's 1995-1996 Incentive Stock
Option Plan and 1995-1996 Non-Qualified Stock Option Plan;
(3) To ratify the appointment of Stirtz, Bernards, Boyden, Surdel, & Larter
as the Company's independent auditors for 1997; and,
(5) To transact such other business as may properly come before the 1997
Annual Meeting and any adjournment thereof.
The Company has fixed the close of business on July 1, 1997 as the
Record Date for the determination of Company shareholders entitled to receive
notice of, and to vote at, the Annual Meeting and any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Samuel D. Garst
Minneapolis, Minnesota Samuel D. Garst
July 11, 1997 Chief Executive Officer
TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING
IN PERSON. SHAREHOLDERS WHO ATTEND THE MEETING IN PERSON HAVE THE RIGHT TO
REVOKE THEIR PROXIES AND VOTE THEIR SHARES IN PERSON, IF THEY SO DESIRE.
----------------------------------
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
PROXY STATEMENT
FOR THE 1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 14, 1997
I. INTRODUCTION
The Board of Directors of Nortech Forest Technologies, Inc., a Delaware
corporation (the "Company"), is soliciting the accompanying Proxy in connection
with its 1997 Annual Meeting of Shareholders of the Company to be held at 3:30
p.m. Central Daylight Time on Thursday, August 14, 1997 at the Minneapolis
Athletic Club, 615 Second Avenue South, Minneapolis, Minnesota and any
adjournments thereof. This Proxy Statement, the Notice of Annual Meeting and
Proxy Card, as well as the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996, are being mailed to shareholders on or about July 12,
1997.
II. OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed the close of business on
July 1, 1997, as the record date for the determination of those holders of
Common Stock of the Company entitled to receive notice of, and vote at, the
Annual Meeting. Persons who were not shareholders on such date will not be
allowed to vote at the Annual Meeting. At the close of business on the record
date, there were 1,609,900 shares of the Company's Common Stock issued and
outstanding. The Common Stock is the only outstanding class of capital stock of
the Company entitled to vote at the Meeting. Each share of Common Stock is
entitled to one vote on each matter to be voted on at the meeting. Holders of
Common Stock are not entitled to cumulative voting rights. A majority of the
shares entitled to vote present in person or represented by proxy at the Annual
Meeting, is required for approval of each of the Company's three proposals.
Shares of Common Stock that are represented by properly executed
proxies, unless such proxies have previously been revoked, will be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated, such common shares will be voted "FOR" approval of each of the
four proposals and in the discretion of the proxy holders for any other matter
that may properly come before the Annual Meeting. If a shareholder abstains from
voting as to any matter, then the shares held by such shareholder shall be
deemed present at the meeting for purposes of determining a quorum, and for
purposes of calculating the vote with respect to such matter, but shall not be
deemed to have been voted in favor of such matter. Abstentions, therefore, as to
any proposal will have the same effect as votes against such proposal. If a
broker returns a "non-vote" proxy, indicating a lack of voting instructions by
the beneficial holder of the shares and a lack of discretionary authority on the
part of the broker to vote a particular matter, then in such instance, the
shares covered by such "non-vote" proxy shall be deemed to be present at the
meeting for purposes of determining a quorum, but shall not be deemed to be
represented at the meeting for purposes of calculating the vote required for
approval of such matter.
A shareholder who has given a proxy may revoke it at any time prior to
its exercise at the Annual Meeting by filing with the Chief Executive Officer of
the Company, Mr. Samuel D. Garst, at the address set forth above, a written
revocation of such proxy, or by executing and delivering a duly-executed proxy
bearing a later date, or by simply voting the common shares covered thereby by
separate written ballot to be disseminated at the Annual Meeting.
In addition to soliciting proxies by mail, officers, directors and
employees of the Company, without receiving additional compensation therefor,
may solicit proxies personally, or by telephone, telegram or other forms of
communication, including wire facsimile. The Company has not retained a proxy
solicitation firm, and instead, will use its own best efforts to solicit as many
proxies as practicable in the time available before the Annual Meeting.
III. PRINCIPAL SHAREHOLDERS; MANAGEMENT SHAREHOLDINGS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 1, 1997, by: (i) each
current director; each nominee for director, and executive officer of the
Company; (ii) all directors and executive officers as a group; and (iii) each
shareholder who owns more than five percent of the outstanding shares of the
Company's Common Stock. Except as otherwise indicated, the Company believes each
of the persons listed below possesses sole voting and investment power with
respect to the shares indicated.
<PAGE>
NAMES OF EXECUTIVE SHARES PERCENTAGE
OFFICER, DIRECTORS BENEFICIALLY BENEFICIALLY
AND 5% HOLDERS OWNED(1) OWNED
Gary Borglund 0(2) -
1510 Metropolitan Centre
333 S. Seventh Street
Minneapolis, MN 55402
Calvin E. Blanchard 112,836(3) 5.3%
7600 West 27th St., Suite B11
St. Louis Park, MN 55426
Samuel D. Garst 198,750(4) 9.3%
7600 West 27th St., Suite B11
St. Louis Park, MN 55426
Robert H. Gilbertson 48,856(5) 2.3%
7600 West 27th Street, Suite B11
St. Louis Park, MN 55426
William M. McGee 165,000(6) 7.8%
P.O. Box 1556
Burnsville, MN 55337
Randy L. Hines 3,750(7) *
7600 West 27th St., Suite B11
St. Louis Park, MN 55426
Richard Neslund 634,615(8) 30.0%
15500 Wayzata Blvd., Suite 742
Wayzata, MN 55391
R. Robert Wyant 1,250 *
------- ----
ALL DIRECTORS AND EXECUTIVE OFFICERS 365,442 17.2%
AS A GROUP (5 PERSONS) ======= ====
- -------------------------------------------------------------
* Indicates less than 1% ownership.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment
power with respect to the shares. Shares of Common Stock subject to
options or warrants currently exercisable, or exercisable within 60 days,
are deemed outstanding for computing the percentage of the person holding
such options or warrants, but are not deemed outstanding for computing
the percentage of any other person.
(2) Mr. Borglund is a principal of Red Oak Management Company, which has
accrued warrants to purchase 50,337 shares of the Company's Common Stock
at an average price of $1.50 per share. These warrants are under the
terms of a Management Consulting Agreement between the Company and Red
Oak Management, and are not considered beneficially owned under
Securities and Exchange Commission guidelines as explained in footnote
number 1 above.
(3) Includes (a) an Incentive Stock Option to purchase 75,000 shares of
Common Stock at $1.50 per share expiring April 15, 2007 and vesting on
October 16, 1997 and expiring April 15, 2007; (b) a fully vested
Incentive Stock Option to purchase 9,250 shares of Common Stock at $1.60
per share, expiring October 14, 2006; (c) an Incentive Stock Option to
purchase 9,250 shares of Common Stock at $1.60, vesting October 16, 1997
and expiring October 14, 2007; (d) a fully vested Non-Qualified Stock
Option to purchase 7,168 shares of Common Stock at $1.60 per share,
expiring October 14, 2006; and, (e) a Non-Qualified Stock Option to
purchase 7,168 shares of Common Stock at $1.60 per share vesting on
November 27, 1997 and expiring October 14, 2006.
(4) Includes (a) an Incentive Stock Option to purchase 25,000 shares of
Common Stock, at $1.50 per share, vesting on April 18, 1998 and expiring
April 17, 2007; (b) an Incentive Stock Option to purchase 25,000 shares
of Common Stock at $1.50 per share, vesting April
<PAGE>
18, 1999 and expiring April 17, 2007; (c) an Incentive Stock Option to
purchase 25,000 shares of Common Stock at $1.50 per share, vesting April
18, 2000 and expiring April 17, 2008; (d) a Warrant to purchase 30,000
shares of Common Stock at $1.60 per share, currently exercisable and
expiring on April 16, 2000. Mr. Garst's Warrant to purchase Common Stock
is in connection with an Investment Agreement with the Company dated
April 17, 1997.
(5) Includes (a) a fully vested Non-Qualified Stock Option issued to Mr.
Gilbertson to purchase 3,750 shares of Common Stock at $4.00 per share,
expiring October 14, 2006; (b) a Warrant issued to Robert H. Gilbertson
and Patricia Gilbertson (Mr. Gilbertson's spouse), as Joint Tenants, to
purchase 875 shares of Common Stock at $4.00 per share, all of which are
currently exercisable; and (c) Common Stock registered in Mr.
Gilbertson's name and Common Stock issued in the name of Mr. Gilbertson
and Mrs. Gilbertson as Joint Tenants.
(6) Includes a Warrant to purchase 40,000 shares of Common Stock at $1.60 per
share, expiring January 16, 2000.
(7) Includes a fully vested Non-Qualified Stock Option to purchase 3,750
shares of Common Stock at $4.00 per share, expiring October 14, 2006.
(8) Includes a Warrant to Purchase 100,000 shares of Common Stock at $1.30
per share, expiring October 16, 1999.
IV. EXECUTIVE COMPENSATION
The following table sets forth both the compensation paid or accrued by
the Company for services rendered by executive officers of the Company for the
fiscal years ended December 31, 1994, 1995 and 1996. No executive officer's
total compensation exceeded $100,000 based on salary and bonus during any of the
three years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------------------------ Compensation
Name and Principal Position Year Salary ($) Bonus ($) Other ($) Options (No.)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Calvin E. Blanchard 1996 $60,000 $5,000 -0- 32,836(3)
Chief Operating Officer and 1995 $60,000 -0- -0-
General Manager 1994 $60,000 -0- -0-
Thomas J. de Petra(1) 1996 $55,000 -0- -0- 31,062(4)
Chief Executive Officer 1995 - - -
1994 - - -
Robert H. Gilbertson(2) 1996 $ -0- -0- 3,750(5)
Chief Executive Officer 1995 $55,000 -0- -0-
1994 $65,000 -0- -0-
</TABLE>
- -----------------------------------------
(1) Mr. de Petra was not employed by the Company during 1994 and 1995. From
February 1996 through June 1996, he was paid at the rate of $4,000 per
month; and from July 1996 through December 1996, he was paid $5,000 per
month.
(2) Mr. Gilbertson served as Chief Executive Officer through January 1996.
Effective April 1, 1995, Mr. Gilbertson voluntarily reduced his salary to
$55,000. Effective February 1, 1996, his annual salary was reduced to
$36,000. He retired in May 1996.
(3) Subsequent to December 31, 1996, Mr. Blanchard was granted options to
purchase 75,000 shares of Common Stock at $1.50 per share, expiring April
15, 2007.
(4) Subsequent to December 31, 1996, Mr. de Petra was granted options to
purchase 15,000 shares of Common Stock at $1.60 per share, expiring April
11, 2007.
(5) Represents Mr. Gilbertson's Non-Qualified Options granted as an outside
director, subsequent to his employment as an executive officer,
exercisable through October 14, 2006 at $4.00 per share. In addition,
Randy Hines, an outside director during 1996 and director nominee and
David Clinton, a former director, were each granted Non-Qualified Options
to purchase 3,750 shares of Common Stock at $4.00 per share, exercisable
through October 14, 2006.
Mr. Garst was hired as Chief Executive Officer during April 1997 under
the terms of an employment agreement. He is being paid an annual salary of
$65,000. Mr. Garst was also granted an option to purchase 75,000 shares of
Common
<PAGE>
Stock at $1.50 per share, through April 17, 2007. Mr. Garst's options are
exercisable in three 25,000-share blocks that vest on April 18, 1998, 1999 and
2000.
No stock options were exercised during 1996.
The following table sets forth information concerning all options
granted during 1996 to the executive officers named in the Summary Compensation
Table above.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number Percentage of
of Total Options Exercise
Options Granted to Price Expiration
Name Granted Executive Officers in 1996 ($/Share) Date
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Calvin E. Blanchard 32,836 48.5% $1.60 October 14, 2006
Thomas J. de Petra 31,062 45.9% $1.60 October 14, 2006
Robert H. Gilbertson 3,750 5.5% $4.00 October 14, 2006
------ ----
67,648 100%
====== ====
</TABLE>
- --------------------------------------
Employment Agreements
On April 17, 1997, the Company entered into a two-year Employment
Agreement with Samuel D. Garst to serve as Chief Executive Officer. The
Employment Agreement provides for a base annual salary of $65,000 plus a bonus
plan and employee benefits. The Employment Agreement contains an agreement not
to compete, as well as a covenant prohibiting disclosure of confidential or
proprietary information pertaining to the Company's business. In addition, Mr.
Garst serves on the Board of Directors.
V. PROPOSAL NUMBER ONE - ELECTION OF FIVE DIRECTORS
At the Annual Meeting, shareholders will be asked to consider and vote
on the election of Calvin E. Blanchard, Gary Borglund, Samuel D. Garst, Robert
H. Gilbertson, and Randy L. Hines to the Board of Directors. At each Annual
Meeting of Shareholders, directors will be elected to serve for a one-year term
terminating at the 1998 Annual Meeting of Shareholders, and until their
successors have been duly-elected and qualified.
Unless authority is withheld, the proxy solicited hereby will be voted
for the election of Messrs. Blanchard, Borglund, Garst, Gilbertson and Hines as
directors for a term of one year. Messrs. Blanchard, Borglund, Garst, Gilbertson
and Hines are members of the Company's current Board of Directors. If, prior to
the meeting, it should become known that Messrs. Borglund, Blanchard, Garst,
Gilbertson or Hines will be unwilling or unable to serve as directors after the
meeting by reason of death, incapacity, or other unexpected occurrence, the
proxies will be voted for such substitute nominee as is selected by the Board of
Directors, or alternatively, not voted for any nominee. The Board of Directors
has no reason to believe that any of the nominees will be unable to serve as
directors of the Company. The election of the aforementioned three nominees
require the affirmative vote of a majority of the shares present at the 1997
Annual Meeting, represented either in person or by proxy.
The following is certain biographical information about the five
nominees:
Calvin E. Blanchard has been the Company's Chief Operating Officer and
General Manager since April 1994 and was elected to the Company's Board of
Directors in January 1997. Prior to this, from 1988 to 1994, he served as a
Pesticide Registration Supervisor with the Minnesota Department of Agriculture.
From 1986 to 1988, he served as the manager of CENTROL with CENEX. Prior to
this, from 1977 through 1979, he was employed as a crop consultant with
Servi-Tech in Kansas. He graduated in 1977 from Iowa State with a double-major
in Plant Pathology and Pest Management. He received his M.S. in Entomology from
Texas A&M in 1981. He received an M.B.A. from Carlson School of Business,
University of Minnesota in 1986.
Gary Borglund, a Director since April 1997, is a Director of Red Oak
Management Company, Minneapolis, MN, which assists companies needing management
redirection and assistance with financing issues, and has been self-employed for
most of his business career. Mr. Borglund also serves as a Director for several
private companies, and formerly operated his own direct-mail business and
insurance business. He majored in Business at the University of Minnesota.
Samuel D. Garst was appointed President & CEO and elected as a Director
in April 1997. Prior to this, Mr. Garst was President of Clarinda Color of St.
Paul, Minnesota, a $2.5 million color separation division of a $13 million book
composition company. Previously, he was President and Managing Director of
Prepress Ltd. of London, England, a $2 million postscript/color prepress bureau
and National Sales Manager and Director of Garst Seed Company of Coon Rapids,
Iowa, a $90 million supplier of agricultural seed. Garst Seed Company has
approximately $90 million in annual sales. Mr. Garst holds a B.S. Degree in
Economics and a B.A. in History from the University of Pennsylvania.
<PAGE>
Randy L. Hines has been a director of the Company since June 1995. Mr.
Hines has a broad finance and investment background, with over 14 years
experience in private debt and equity placements, public offerings, valuations
and fairness opinions, and commercial banking. Prior to joining PRANA, he served
as Vice President of Corporate Finance for Principal Financial Securities
(formerly Craig-Hallum, Inc.) where he was involved in initial public offerings
for numerous emerging growth companies. Mr. Hines has also served as a Vice
President and Portfolio Manager for Washington Square Capital, Inc., a
securities analyst for John G. Kinnard & Company, and a commercial banker with
Norwest Corporation. He earned his Bachelor of Arts degree with a concentration
in Finance from the College of St. Thomas and an MBA in Finance from the
University of Minnesota. He is a Chartered Financial Analyst (CFA).
R. Robert ("Bob") Wyant has served as secretary of the Company since
February 1996, and has substantial experience in finance, accounting,
administration and operations. Mr. Wyant previously served as Chief Financial
Officer of Environet, Inc. from 1988 through 1992. From 1987 through 1988, Mr.
Wyant served as Chief Financial Officer for National Settlement Consultants, and
from 1983 to 1987, he was Vice President of Finance of Crow River Industries.
The following table sets forth certain information with respect to all
existing directors, nominees for directors and executive officers of the
Company.
<TABLE>
<CAPTION>
DIRECTOR POSITION AND
NAME AGE SINCE OFFICE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Calvin E. Blanchard 44 1997 Chief Operating Officer;
General Manager; Director
Gary Borglund 1997 Director
Samuel D. Garst 47 1997 Chief Executive Officer; Director
Robert H. Gilbertson 69 1993 Director, Chairman
Randy L. Hines 37 1995 Director
Ralph ("Bob") Wyant 60 1996 Corporate Secretary
</TABLE>
A director's regular term is for a period of one year and until the next
Annual Meeting of Shareholders and his or her successor is duly elected and
qualified. An officer's regular term is for a period of one year, expiring at
the next annual meeting of the Board of Directors or when his or her successor
is elected and qualified.
COMPENSATION OF OUTSIDE DIRECTORS
Independent or "outside" directors do not receive cash compensation for
attending meetings of the Board of Directors. All directors are reimbursed for
their reasonable out-of-pocket expenses incurred in connection with attendance
at Board meetings and on any business related to the Company. The Company grants
such directors options to purchase 3,750 shares of Common Stock for each year of
service to the Company
There are no family relationships among any of the Company's existing
directors. During 1996, the Board of Directors held seven meetings. Each
director nominee attended 75% or more of the total number of meetings held
during the period for which he has been a director or served on a committee or
committees of the Board and of committees of which he was a member.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company does not have any common or other shares registered under
Section 12(g) or Section 12(b) of the Securities Exchange Act of 1934, and thus,
is not subject to the requirements of Section 16(a) thereof.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PREDECESSOR OPERATION; ORGANIZATION; ACQUISITION OF NORTECH FOREST PRODUCTS,
INC.
At the Company's 1996 Annual Meeting of Stockholders held on April 30,
1996, the Company's stockholders approved, among other proposals, a proposal to
effect a one-for-four reverse stock split of the Company's issued and
outstanding Common Stock and an amendment to the Company's Certificate of
Incorporation to reduce the post-split authorized shares of Common Stock from
15,000,000 to 3,750,000 and the Preferred Stock from 2,000,000 shares to 500,000
shares. The effective date of the one-for-four reverse split of the Company's
Common Stock was May 24, 1996, and the unaudited financial statements enclosed
herewith reflect said adjustment for the number of shares of outstanding Common
Stock.
At the Company's 1995 Annual Meeting of Stockholders on June 21, 1995,
stockholders approved, among other items, a proposal to change the corporate
domicile of the Company from Colorado to Delaware. One result of this change in
corporate domicile was that the Company's capital structure changed from no par
value to $.01 par value per share on both common and preferred stock.
<PAGE>
TRANSACTIONS WITH MANAGEMENT, DIRECTORS, AND AFFILIATES
During October 1996, the Company completed an initial closing on its
pending private equity placement from an investor, receiving cash proceeds of
$340,000 in exchange for 284,615 shares of Common Stock. As a result of this
transaction, the investor became an affiliate of the Company. In addition, and,
in connection with this investment, the Company issued this investor a
three-year warrant to purchase 100,000 shares of Common Stock at $1.30 per
share.
Subsequent to December 31, 1996, the Company completed a second closing
on its pending private equity placement from a second investor, receiving cash
proceeds of $200,000 in exchange for 125,000 shares of Common Stock. As a result
of this transaction, this investor also became an affiliate of the Company. In
connection with this investment, the Company issued the investor a three-year
warrant to purchase 40,000 shares of Common Stock at $1.60 per share.
On February 2, 1996, a director loaned the Company $150,000 pursuant to
a 12% Promissory Note, with the principal due on September 30, 1996. Interest
accrued at a rate of 12% per annum and was payable monthly. In connection with
this loan, the Company issued the director five-year warrants to purchase 3,750
shares of Common Stock at an exercise price of $4.00 per share, and granted the
director a security interest in the Company's assets. Also, in connection
therewith, the Company's Chairman agreed to pledge his shares of the Company's
Common Stock as collateral in the event the Company failed to pay the director
on or before September 30, 1996. On September 16, 1996, the director resigned
his position on the Company's Board. Prior to September 30, 1996, the Company
had been in default on the $150,000 secured promissory note due to its failure
to pay interest payments when due. The Company further defaulted on its
obligation to repay the former director in full upon the September 30, 1996 due
date of the promissory note. During the fourth quarter of 1996, the Company
repaid in full its $150,000 obligation to the former director.
Effective March 10, 1995, the Company secured a $100,000 revolving line
of credit with Norwest Bank, Minnesota N.A. This line of credit was secured by
substantially all assets of the Company. The note was also personally guaranteed
by Robert H. Gilbertson, the Company's Chairman. This line of credit accrued
interest at 1.5% over the prime rate and interest was payable monthly. On June
28, 1996, this line of credit was renewed and the interest rate was raised to 5%
over the prime rate. The due date was extended from May 31, 1996 to August 31,
1996. Also, on March 10, 1995, the Company entered into an agreement with
Norwest Bank, Minnesota N.A. for a $9,700 equipment note. The note established
principal payments due in 35 monthly installments of $269 from April 1, 1995
through February 1, 1998. Interest was payable monthly under this obligation at
the prime rate, plus 1.5%. During the fourth quarter of 1996, the Company repaid
all amounts owed to Norwest on October 21, 1996, and Norwest released its
security interest in the Company's assets. Mr. Gilbertson received no
compensation or other consideration in connection with his personal guarantee of
obligations to the Norwest Bank.
On December 11, 1995, the Company closed on an unsecured debt financing
with six accredited investors, including three then-current directors of the
Company. The Company issued a total of $190,000 of twelve percent (12%)
unsecured convertible subordinated promissory notes. Directors or former
directors of the Company, including Robert H. Gilbertson, Ronald R. Runck and
David B. Clinton, purchased $110,000 of such notes. Interest on the unpaid
principal balance of the notes was 12% per annum until paid in full by the
Company, or otherwise converted by the holder. The notes were due in full, on
May 31, 1996. In addition, all investors were issued five-year warrants to
purchase, in the aggregate, 4,750 shares of Common Stock at a price of $4.00 per
share. Of such warrants, directors of the Company received warrants to purchase
a total of 2,750 shares of Common Stock as follows: Robert H. Gilbertson,
warrants to purchase 875 shares; Ronald R. Runck, warrants to purchase 875
shares; and David B. Clinton, warrants to purchase 1,000 shares. Mr. Clinton and
Mr. Runck are no longer directors of the Company. As of September 30, 1996, such
notes were in default under the terms of their May 31, 1996 maturity date, as
well as the fact that the Company has defaulted on interest payments. During the
fourth quarter of 1996 and the first quarter of 1997, holders of convertible
promissory notes converted $190,000 in principal from debt to Common Stock at
$1.30 per share.
The Company believes that the shares issued in the transactions
described above were sold at their then fair market value of the Company's
Common Stock. Furthermore, the Company's management believes that the terms of
these transactions were no less favorable to the Company than would have been
obtained by a non-affiliated third party.
All transactions with affiliates of the Company are approved by a
majority of disinterested directors of the Company, or a special committee of
the Board of Directors consisting only of disinterested directors, and shall be
on terms and conditions no less favorable to the Company than such directors, or
committee, believe would be available from unrelated third parties, or is
otherwise determined by such directors, or special committee, to be in the best
interest of the Company and its shareholders.
PROPOSAL NUMBER ONE CALLS FOR THE ELECTION OF MR. BLANCHARD, MR.
BORGLUND, MR. GARST, MR. GILBERTSON AND MR. HINES TO THE COMPANY'S 1997 BOARD OF
DIRECTORS. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
PROPOSAL NUMBER ONE.
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VI. PROPOSAL NUMBER TWO - TO APPROVE THE ADDITION OF AN AGGREGATE OF 100,000
SHARES OF COMMON STOCK TO BE RESERVED FOR ISSUANCE UNDER THE COMPANY'S
1995-1996 INCENTIVE STOCK OPTION PLAN AND 1995-1996 NON-QUALIFIED
STOCK OPTION PLAN
On June 21, 1995, shareholders approved and ratified the adoption of an
Incentive Stock Option Plan and a Non-Qualified Stock Option Plan (collectively
the "The 1995-1996 Stock Option Plan" or the "Plan" with the final details of
said Plan approved by shareholders at the 1996 Annual Meeting of Shareholders.
On May 4, 1995, the Board of Directors authorized and reserved for issuance up
to 50,000 shares of the Company's Common Stock for issuance pursuant to each of
such proposed components of the Plan (i.e. 50,000 shares each as Incentive Stock
Options, and 50,000 shares as Non-Qualified Stock Options). Therefore, the
aggregate number of shares of Common Stock as to which options may be granted
under the Plan is 100,000 shares after taking into account the effect of the
Company's one-for-four reverse stock split on May 24, 1996. The Plan, which is
governed by a Committee of the Board of Directors, is available for review by
any shareholders, upon request of the Chief Executive Officer of the Company.
In requesting approval of the addition of an aggregate of 100,000 shares
of Common Stock to be reserved under the Company's 1995-1996 Incentive Stock
Option Plan and 1995-1996 Non-Qualified Stock Option Plan, the Company believes
said addition of shares for future issuance to employees, officers, directors,
consultants and other advisors to the Company will optimize individual
performance and, in doing so, may benefit the Company. If this proposal is
approved, the Company intends to reserve and designate 50,000 shares of Common
Stock for future issuance under the Company's 1995-1996 Incentive Stock Option
Plan and 50,000 shares under the Company's 1995-1996 Non-Qualified Stock Option
Plan.
PROPOSAL NUMBER TWO CALLS FOR SHAREHOLDERS TO APPROVE THE ADDITION OF
AN AGGREGATE OF 100,000 SHARES OF COMMON STOCK TO BE RESERVED FOR ISSUANCE UNDER
THE COMPANY'S 1995-1996 INCENTIVE STOCK OPTION PLAN AND 1995-1996 NON-QUALIFIED
STOCK OPTION PLAN. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" PROPOSAL NUMBER TWO.
VIII. PROPOSAL NUMBER THREE - RATIFICATION OF INDEPENDENT AUDITORS
The Company has appointed Stirtz, Bernards, Boyden, Surdel & Larter,
certified public accountants, as its independent auditors to make an audit of
the accounts of the Company for the year ending December 31, 1997 and to perform
other appropriate and specified accounting services. Stirtz, Bernards, Boyden,
Surdel & Larter were the independent auditors for the Company for the years
ended December 31, 1993, 1994, 1995 and 1996.
A representative from Stirtz, Bernards, Boyden, Surdel & Larter will be
present at the 1997 Annual Meeting and will be available to answer any
appropriate questions.
PROPOSAL NUMBER THREE CALLS FOR THE RATIFICATION OF THE APPOINTMENT OF
STIRTZ, BERNARDS, BOYDEN, SURDEL & LARTER AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE YEAR ENDING DECEMBER 31, 1997. THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" PROPOSAL NUMBER FOUR.
IX. OTHER BUSINESS
No business, other than as set forth herein, is expected to come before
the 1997 Annual Meeting. Should any other matter requiring a vote of the
shareholders arise, including any question related to any adjournment of the
meeting, the persons named in the enclosed Proxy will vote thereon according to
their best judgment and in the best interests of the Company and its
shareholders.
X. SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1998 Annual Meeting of Shareholders must be
received by the Company by March 17, 1998, to be includable in the Company's
Proxy Statement, and related proxy solicitation materials, for the Company's
1998 Annual Meeting of Shareholders for the year ended December 31, 1997.
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XI. ANNUAL REPORT TO SHAREHOLDERS: FORM 10-KSB
A copy of the Company's Annual Report for the year ended December 31,
1996 on Form 10-KSB, accompany this Notice of Meeting and Proxy Statement.
The Company will furnish, without charge, to each person whose proxy is
being solicited, and to any shareholder of the Company, upon written request of
any such person, a copy of the Company's Annual Report of Form 10-KSB for the
year ended December 31, 1996, as filed with the Securities and Exchange
Commission, including all financial statements and financial statement schedules
thereto. The Company will also furnish to any such person any exhibit included
in the list accompanying the Form 10-KSB, upon the payment, in advance, of
reasonable fees related to the Company's furnishing such exhibits. Requests for
copies of such report, and/or exhibits, should be directed to Mr. Samuel D.
Garst, Chief Executive Officer, at the Company's principal executive offices.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Samuel D. Garst
Samuel D. Garst
Chief Executive Officer
Minneapolis, Minnesota, July 11, 1997
