<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Reuter Manufacturing, 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)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
REUTER MANUFACTURING, INC.
410 ELEVENTH AVENUE SOUTH
HOPKINS, MINNESOTA 55343
March 10, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
of Reuter Manufacturing, Inc. The meeting will be held on Monday, April 20, 1998
at 2:00 p.m. local time at The Hopkins Center For The Arts, 1111 Main Street,
Hopkins, Minnesota 55343. We suggest that you carefully read the enclosed Notice
of Annual Meeting and Proxy Statement.
We hope you will be able to attend the Annual Meeting. However, whether or
not you plan to attend, we urge you to complete, sign, date and return the
enclosed proxy card in the enclosed envelope in order to make certain that your
shares will be represented at the Annual Meeting.
Very truly yours,
[SIG]
JAMES W. TAYLOR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
REUTER MANUFACTURING, INC.
410 ELEVENTH AVENUE SOUTH
HOPKINS, MINNESOTA 55343
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 20, 1998
------------------------
TO THE SHAREHOLDERS OF
REUTER MANUFACTURING, INC.:
The Annual Meeting of Shareholders of Reuter Manufacturing, Inc. will be
held on Monday, April 20, 1998, at 2:00 p.m. local time at The Hopkins Center
For The Arts, 1111 Main Street, Hopkins, Minnesota 55343, for the following
purposes:
1. To elect two directors to serve three-year terms, or until their
successors are elected and qualified.
2. To consider and act upon a proposal to amend the Company's 1991 Stock
Option Plan to increase the number of shares available for issuance
thereunder from 500,000 to 700,000.
3. To consider and act upon a proposal to ratify the appointment of Coopers
& Lybrand L.L.P. as independent auditors for the Company for the fiscal
year ending December 31, 1998.
4. To transact such other business as may be properly brought before the
Annual Meeting or any adjournments thereof.
Only shareholders of record as shown on the books of the Company at the
close of business on March 2, 1998 will be entitled to vote at the Annual
Meeting or any adjournments thereof.
By Order of the Board of Directors
[SIG]
WILLIAM H. JOHNSON
SECRETARY
March 10, 1998
<PAGE>
REUTER MANUFACTURING, INC.
410 ELEVENTH AVENUE SOUTH
HOPKINS, MINNESOTA 55343
(612) 935-6921
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
APRIL 20, 1998
------------------------
INTRODUCTION
The 1998 Annual Meeting of Shareholders of Reuter Manufacturing, Inc. (the
"Company") will be held on Monday, April 20, 1998, at 2:00 p.m. local time at
The Hopkins Center For The Arts, 1111 Main Street, Hopkins, Minnesota 55343, or
at any adjournments thereof (the "Annual Meeting"), for the purposes set forth
in the Notice of Meeting.
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost of
soliciting proxies, including the preparation, assembly and mailing of proxies
and soliciting material, as well as the cost of forwarding such material to the
beneficial owners of Common Stock, will be borne by the Company. Directors,
officers and employees of the Company may, without compensation other than their
regular compensation, solicit proxies by telephone, telegraph or personal
conversation. The Company may reimburse brokerage firms and others for expenses
in forwarding proxy material to the beneficial owners of Common Stock. This
Proxy Statement, the Proxy and the Notice of Meeting are being mailed to
shareholders beginning on or about March 10, 1998.
Any shareholder giving a proxy may revoke it at any time prior to its use at
the Annual Meeting either by: (i) giving notice of such revocation to the
Secretary of the Company prior to the Annual Meeting, or by appearing at the
Annual Meeting and giving written notice of revocation to the Secretary of the
Company prior to use of the proxy; (ii) filing a duly executed proxy bearing a
later date with the Secretary of the Company; or (iii) appearing at the Annual
Meeting and voting in person. Proxies will be voted as specified by
shareholders. Signed proxies on which no specification is made will be voted in
favor of the nominees for director listed in this Proxy Statement and for the
proposals in the Notice of Annual Meeting.
VOTING OF SHARES
Only holders of Common Stock of record at the close of business on March 2,
1998 will be entitled to vote at the Annual Meeting. On March 2, 1998, the
Company had 4,863,496 outstanding shares of Common Stock, each such share
entitling the holder thereof to one vote on each matter to be voted on at the
Annual Meeting. Holders of shares of Common Stock are not entitled to cumulative
voting rights. The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock (2,431,749
shares) is required for a quorum for the transaction of business.
In general, shares of Common Stock represented by a properly signed and
returned Proxy Card will be counted as shares present and entitled to vote at
the Annual Meeting for purposes of determining a quorum, without regard to
whether the card reflects abstentions (or is left blank) or reflects a broker
non-vote on a matter (i.e., a card returned by a broker on behalf of its
beneficial owner customer that is not voted on a particular matter because
voting instructions have not been received and the broker has no discretionary
authority to vote). Shares represented by a Proxy Card including any broker
non-votes on a matter will be treated as shares not entitled to vote on that
matter, and thus will not be counted in determining whether that matter has been
approved. Shares represented by a Proxy Card voted as abstaining on any of the
other proposals will be treated as shares present and entitled to vote that were
not cast in favor of a particular matter and thus will be counted as votes
against that matter.
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
NOMINATION
The Company's Restated Articles of Incorporation provide that the Board of
Directors shall consist of not less than three nor more than 15 members, as
determined from time to time by the Board, divided into three classes of as
nearly equal number as possible. The term of each class is three years and the
term of one class expires each year in rotation. The Board of Directors has
determined that there will be five directors of the Company for the ensuing
year. The Board has nominated each of Mr. James W. Taylor and Ms. M. Karen
Gilles to serve as a director of the Company for a term of three years, expiring
at the 2001 Annual Meeting of Shareholders, or until his or her successor is
elected and qualified. Mr. Taylor is currently a member of the Board of
Directors and Ms. Gilles is being nominated for initial election to the Board.
Ms. Caroline Avey and Mr. Gary Laidig are current directors of the Company whose
terms expire at the Annual Meeting and will not be standing for reelection. The
Company would like to express its thanks to Mr. Laidig and Ms. Avey for their
service to the Company.
Proxies can only be voted for the number of persons named as nominees in
this Proxy Statement. The election of a nominee requires the affirmative vote of
a majority of the shares of Common Stock voting in person or by proxy for
directors at the Annual Meeting. The Board recommends a vote FOR the election of
the nominees listed below. In the absence of other instructions, the proxies
will be voted for the nominees listed below. If, prior to the Annual Meeting,
the Board should learn that a director will be unable to serve by reason of
death, incapacity or other unexpected occurrence, the proxies that would have
been voted for such nominee will be voted for a substitute nominee as selected
by the Board of Directors. Alternatively, the proxies may, at the Board's
discretion, be voted for such fewer number of nominees as results from such
death, incapacity or other unexpected occurrence. The Board has no reason to
believe that the nominees will be unable to serve.
INFORMATION ABOUT NOMINEES AND OTHER DIRECTORS
The following table sets forth certain information, as of February 2, 1998,
which has been furnished to the Company by each director and each person who has
been nominated by the Board for election as a director.
<TABLE>
<CAPTION>
NAME OF NOMINEE PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
- ----------------------------------- ------------------------------------------------------- --- ---------------
<S> <C> <C> <C>
NOMINEES FOR THREE YEAR TERMS EXPIRING IN 2001:
James W. Taylor**.................. President, Chief Executive Officer and Chief Financial 79 1989
Officer of the Company, President of Taylor
Consultants, Inc. (management and financial
consulting)
Ms. M. Karen Gilles................ President and Chief Executive Officer of Bio-Vascular, 54 --
Inc.
DIRECTOR NOT STANDING FOR ELECTION THIS YEAR WHOSE TERM EXPIRES IN 2000:
Robert W. Heller*.................. Chief Executive Officer of MiTech, Inc. 52 1997
DIRECTORS NOT STANDING FOR ELECTION THIS YEAR WHOSE TERMS EXPIRE IN 1999:
Edward E. Strickland*.............. Chairman of the Board of Directors of the Company 71 1989
Kenneth E. Daugherty**............. President and Chief Executive Officer of The KEDS, Inc. 59 1990
</TABLE>
- ------------------------
* Members of Audit Committee
** Members of Compensation and Benefits Committee
2
<PAGE>
OTHER INFORMATION ABOUT NOMINEES AND OTHER DIRECTORS
Except for the information regarding Ms. Gilles, there has been no change in
principal occupations or employment during the past five years for the nominees
or other directors. There are no family relationships between or among the
nominees of the Company.
Mr. Taylor was elected Chief Executive Officer and President of the Company
in November 1992 and Chief Financial Officer in March 1994. He has also been the
President of Taylor Consultants, Inc., a management and financial consulting
firm, for more than five years. Mr. Taylor is also a director of Compositech
Ltd. and QC Solutions, Inc.
Ms. Gilles has served as President and Chief Executive Officer of
Bio-Vascular, Inc. ("Bio-Vascular"), a medical products company, since July
1997, as a Director of Bio-Vascular since August 1997 and as Secretary of
Bio-Vascular since 1991. Prior to July 1997, Ms. Gilles held the positions of
Chief Financial Officer of Bio-Vascular from December 1990 and Vice President of
Finance from April 1989. From 1985 to April 1989, Ms. Gilles served as
Controller for VEE Corporation, a production company, and Colin Companies, a
related concession company. From 1983 to 1985, Ms. Gilles was an accountant with
McGladrey & Pullen, an accounting firm.
Mr. Heller has been a director of the Company since February 1997. He has
been the Chief Executive Officer of MiTech, Inc., a start-up company involved in
the environmental clean up business since September 1996. Mr. Heller held
various management positions with Advance Circuits, Inc. ("ACI"), a manufacturer
of circuit boards from 1977 to September 1996. He became Chief Executive Officer
of ACI in 1991, and was Chairman of the Board in 1994 and 1995.
Mr. Strickland served on the Executive Committee of the Board of Directors,
which performed the duties of Chief Executive Officer, from October 1, 1990
until January 28, 1991. He has been Chairman of the Board of Directors since
that time, and a director of the Company since 1989. He has been an independent
financial consultant for more than eight years. Mr. Strickland also serves as a
director of AVECOR Cardiovascular Inc., Bio-Vascular, Inc., Communication
Systems Inc., Hector Communications Corp., Quantech, Ltd. and Vital Images, Inc.
Dr. Daugherty served as a Professor at the University of North Texas for
over fifteen years until his retirement from that position in 1995. He has been
a director of the Company since 1990. Currently, Dr. Daugherty is the President
and Chief Executive Officer of The KEDS, Inc., a consulting firm. Dr. Daugherty
also serves as a director of TRAC Laboratories, Inc., The KEDS, Inc. and Pyro
Industries, Inc.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
Standing committees of the Board of Directors include the Audit Committee,
the Compensation and Benefits Committee and the Nominating Committee.
The Audit Committee provides assistance to the Board in satisfying its
fiduciary responsibilities relating to the accounting, auditing, operating and
reporting practices of the Company. The Audit Committee reviews the annual
financial statements of the Company, the selection and work of the Company's
independent accountants and the adequacy of internal controls for compliance
with corporate policies and directives. The current members of the Audit
Committee are Messrs. Strickland, Laidig and Heller. The Audit Committee met two
times in 1997. Following the Annual Meeting, the Board plans to appoint Dr.
Daugherty to the Audit Committee to serve with Messrs. Strickland and Heller.
The Compensation and Benefits Committee reviews general programs of
compensation and benefits for all employees of the Company, reviews salary
levels, bonuses and other forms of compensation paid to the Company's officers,
and makes recommendations to the Board concerning such compensation, including
stock option grants under the Company's stock option plans. The current members
of the
3
<PAGE>
Compensation and Benefits Committee are Ms. Avey, Dr. Daugherty and Mr. Taylor.
The Compensation and Benefits Committee met one time in 1997. Following the
Annual Meeting, the Board plans to appoint Ms. Gilles to the Compensation and
Benefits Committee to serve with Messrs. Daugherty and Taylor.
The Nominating Committee identifies, evaluates and nominates persons for
election to the Board and makes recommendations to the Board with respect to
such persons. The Nominating Committee will consider nominees recommended by
shareholders if submitted in writing to the Secretary of the Company at the
Company's principal office address specified at the beginning of the first page
of this Proxy Statement. All directors who are not employees of the Company are
members of the Nominating Committee. The Nominating Committee did not meet as a
committee in 1997.
The Company's Board of Directors met four times during 1997, and took action
pursuant to unanimous written consent resolutions two times during 1997. All of
the Directors attended 75% or more of the meetings with the Board of Directors
and all committees on which they served during 1997.
DIRECTOR COMPENSATION
Directors of the Company received no cash compensation for their services as
members of the Board of Directors from August 1995 through March 1996.
Commencing in April of 1996, all directors of the Company, except for Messrs.
Taylor and Strickland, received compensation for their services as directors at
the rate of $400 per month, as well as a meeting fee of $500 for each Board and
Committee meeting attended. Directors are not compensated for telephonic
meetings.
In November 1992, the Company entered into a consulting agreement with
Taylor Consultants, whereby Taylor Consultants agreed to provide the services of
James W. Taylor to act as President and Chief Executive Officer of the Company.
Taylor Consultants is currently paid $13,000 per month under the consulting
agreement. In addition, James W. Taylor was granted an option to purchase 25,000
shares of Common Stock pursuant to the consulting agreement. Taylor Consultants
is an independent contractor, and neither it nor Mr. Taylor is an employee of
the Company. The consulting agreement lasts indefinitely, but may be terminated
by either party upon 30 days' written notice. During 1997, Taylor Consultants
received $164,500 for services under this agreement. See "Executive Compensation
and Other Benefits-- Summary of Cash and Certain Other Compensation--Summary
Compensation Table" and "Certain Transactions."
In December 1990, the Company entered into a consulting agreement with
Edward E. Strickland, whereby Mr. Strickland agreed to provide his services to
the Company as its Chairman of the Board of Directors. The consulting agreement
was temporarily suspended in August 1995 and reinstated in March 1996. Mr.
Strickland is currently paid $2,000 per month under the consulting agreement and
received $28,000 for his services during 1997. See "Executive Compensation and
Other Benefits-- Summary of Cash and Certain Other Compensation--Summary
Compensation Table" and "Certain Transactions."
In January 1996, the Company and Sanwa Business Credit Corporation ("Sanwa")
entered into a series of agreements (the "Restructuring Agreements"), pursuant
to which Sanwa agreed to restructure the Company's obligation to guarantee
repayment of a loan from Sanwa to EPR, Inc., an inactive wholly-owned subsidiary
of the Company. In connection with the Restructuring Agreements, the Company and
Sanwa entered into separate Standstill Agreements (the "Standstill Agreements")
with each of James W. Taylor, the Chief Executive Officer and a Director of the
Company, and Edward E. Strickland, the Chairman of the Board of Directors of the
Company, under which Mr. Taylor and Mr. Strickland agreed not to, directly or
indirectly, acquire or dispose of any stock of the Company, or exercise any
option or other right to acquire any capital stock or options of the Company. In
connection with the Standstill Agreements, the Company agreed to pay these
individuals compensation, under a predetermined formula, based on the increase
in the market value of shares of Common Stock of the Company that they hold and
were unable to trade due to the Standstill Agreements (the "Compensation
Arrangements"). During 1997,
4
<PAGE>
the Company retired or satisfied all of the Company's obligations to Sanwa, the
Standstill Agreements were terminated and the Company satisfied its obligations
under the Compensation Arrangements by (a) paying Mr. Taylor $50,189 in cash and
issuing him 17,896 shares of the Company's common stock, having a fair market
value of $60,399 on the date of issuance, and (b) paying to Mr. Strickland
$52,290 in cash and issuing him 19,136 shares of the Company's common stock,
having a fair market value of $64,583 on the date of issuance.
Prior to April 1995, the Company maintained the 1991 Non-Employee Director
Stock Option Plan, pursuant to which members of the Board of Directors who were
not employees of the Company or its subsidiaries, received periodic grants of
non-qualified stock options. In March 1996, the Board of Directors, upon
recommendation of the Compensation and Benefits Committee, amended stock options
which had been granted under the 1991 Non-Employee Directors Stock Option Plan
held by Ms. Avey, Dr. Daugherty and Mr. Laidig to reduce the exercise price per
share under such options from a range of $4.25-$5.13 to $.42, the fair market
value of the Company's stock on the date the options were repriced ("Repricing
Agreement"). Pursuant to the Repricing Agreement, the number of outstanding
options to such directors which were within the price range of $4.25 - $5.13 was
reduced by 50%.
On May 20, 1997, the Board of Directors approved a new director stock option
plan to grant nonstatutory stock options to non-employee directors of the
Company. Under the plan, a maximum of 125,000 shares of the Company's common
stock is available for grant to new and current non-employee directors of the
Company. The plan provides that new non-employee directors of the Company be
granted 10,000 shares that vest equally over three years, upon initial election
as a director. Current non-employee directors are automatically granted options
for 2,000 shares on June 30 of each year and vest over a one-year period. All
options are granted at prices equal to or exceeding the fair market value of the
Company's common stock on the date of grant. The options generally expire ten
years from the date of grant.
EXECUTIVE COMPENSATION AND OTHER BENEFITS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides summary information concerning cash and
non-cash compensation paid or accrued by the Company to or on behalf of the
Company's Chief Executive Officer and each of the executive officers of the
Company whose cash and non-cash salary and bonus exceeded $100,000 in 1997 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------
SECURITIES
NAME AND ---------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(1) OPTIONS(#) COMPENSATION($)(2)
- ----------------------------------------------- --------- ----------- --------------- ------------------
<S> <C> <C> <C> <C>
James W. Taylor................................ 1997 164,500 6,000 110,588
CHIEF EXECUTIVE OFFICER 1996 161,000 0 0
1995 121,000 0 0
Edward E. Strickland........................... 1997 28,000 4,000 116,873
CHAIRMAN OF THE BOARD 1996 19,000 0 0
1995 12,000 0 0
</TABLE>
- ------------------------
(1) Mr. Taylor's annual salary for 1995, 1996 and 1997 represents consulting
fees paid to Taylor Consultants for Mr. Taylor's services rendered as
President and Chief Executive Officer of the Company. A portion of Mr.
Taylor's salary paid in 1996 represents deferred salary from 1995. A portion
of Mr. Taylor's salary paid in 1997 represents prepaid salary for 1998. Mr.
Strickland's
5
<PAGE>
Consulting Agreement had been temporarily suspended in August 1995, and was
reinstated in March 1996. Mr. Strickland's salary for fiscal year 1996
represents payments made to him from mid-March 1996 through December 1996.
(2) Other compensation paid in 1997 consists of $50,189 paid to Mr. Taylor and
17,896 shares of Common Stock having a fair market value of $60,399 on the
date issued to Mr. Taylor and $52,290 paid to Mr. Strickland and 19,136
shares of Common Stock having a fair market value of $64,583 on the date
issued to Mr. Strickland, in each case pursuant to the Compensation
Arrangements entered into with Messrs. Taylor and Strickland in connection
with the Standstill Agreements. The fair market value of the Common Stock is
based on the March 31, 1997 average of $3.375 between the bid and asked
prices of the Company's Common Stock in the local over-the-counter market.
See "Election of Directors--Director Compensation" and "Certain
Transactions."
OPTION GRANTS AND EXERCISES
The following tables summarize option grants and exercises during the year
ended December 31, 1997 to or by the Named Executive Officers and the potential
realizable value of the options held by such persons at December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF OPTIONS GRANTED EXERCISE OR
SECURITIES UNDERLYING TO EMPLOYEES BASE EXPIRATION
NAME OPTIONS GRANTED(#) IN FISCAL YEAR PRICE($/SH) DATE
- --------------------------------- ---------------------- ---------------------- --------------- -----------
<S> <C> <C> <C> <C>
James W. Taylor.................. 4,000(1) 3.5% $ 4.4375 05/20/07
2,000(2) 1.8% $ 4.8750 06/30/07
Edward E. Strickland............. 2,000(1) 1.8% $ 4.4375 05/20/07
2,000(2) 1.8% $ 4.8750 06/30/07
</TABLE>
- ------------------------
(1) The options listed were granted under the 1991 Stock Option Plan (the "1991
Option Plan"). These options were granted on May 20, 1997, became
exercisable in full on November 20, 1997 and remain exercisable under the
1991 Option Plan so long as the executive remains in the employ of or
continues to provide service to the Company or one of its subsidiaries. See
"Proposal to Amend the 1991 Stock Option Plan--Summary of the 1991 Option
Plan."
(2) The options listed were granted under the 1997 Non-Employee Director Stock
Option Plan (the "1997 Option Plan"). These options were granted on June 30,
1997, become exercisable in full on June 30, 1998 and remain exercisable
under the 1997 Option Plan so long as the optionee continues to provide
service to the Company or one of its subsidiaries. To the extent not already
exercisable, options under the 1997 Option Plan become immediately
exercisable in full upon certain changes in control of the Company and
remain exercisable for the remainder of their term. See "Executive
Compensation and Other Benefits--Change in Control Arrangements."
6
<PAGE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(2)
ACQUIRED ON VALUE -------------------------------- ----------------------------------
EXERCISE(#) REALIZED($) EXERCISABLE NON-EXERCISABLE EXERCISABLE NON-EXERCISABLE
----------- ------------- ------------- ----------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
James W. Taylor................... 28,000 56,876(3) 115,000 2,000 173,349 0
Edward E. Strickland.............. -- -- 40,000 2,000 11,500 0
</TABLE>
- ------------------------
(1) The exercise price may be paid in cash or, in the Compensation and Benefits
Committee's discretion, in shares of the Company's Common Stock valued at
fair market value on the date of exercise or pursuant to a cashless exercise
procedure under which the executive provides irrevocable instructions to a
brokerage firm to sell the purchased shares and to remit to the Company, out
of the sale proceeds, an amount equal to the exercise price plus all
applicable withholding taxes. The Compensation and Benefits Committee also
has the discretion to grant a supplemental cash bonus to an optionee in
connection with the grant or exercise of an option or both the grant and an
exercise of an option.
(2) The fair market value of the Common Stock on December 31, 1997, $2.4688, was
calculated as the average of the bid and asked prices of the Company's
Common Stock in the local over-the-counter market. The exercise prices of
outstanding options held by Named Executive Officers range from $0.50 to
$4.8750. Of Mr. Taylor's 117,000 outstanding options, 101,000 options were
in-the-money and 16,000 options were out-of-the-money. Of Mr. Strickland's
42,000 outstanding options, 8,000 options were in-the-money and 34,000
options were out-of-the-money.
(3) Based on difference between (a) the December 16, 1997 (the date of exercise)
average of $2.5313 between the bid and asked prices of the Company's Common
Stock in the local over-the-counter market and (b) the $0.50 exercise price
of the options.
CHANGE IN CONTROL ARRANGEMENTS
Under the Company's 1997 Non-Employee Director Stock Option Plan (the "1997
Option Plan"), upon the occurrence of a "change in control" all outstanding
options granted under the 1997 Option Plan will become and remain exercisable in
full during their remaining terms regardless of whether the plan participants
thereafter remain employees of the Company or a subsidiary. Under the 1997
Option Plan, a "change in control" has occurred in the event of (a) the sale,
lease exchange or other transfer of all or substantially all of the assets of
the Company (in one transaction or in a series of related transactions) to a
corporation that is not controlled by the Company; (b) the approval by the
shareholders of the Company of any plan or proposal for the liquidation or
dissolution of the Company; (c) any person who becomes, after the effective date
of the Plan, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 50% or more of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors; or (d) individuals who constitute the Board on the
effective date of the Plan cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
effective date of the Plan whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors comprising the Board on the effective date of the Plan (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (d), considered as though such person were
a member of the Board on the effective date of the Plan.
7
<PAGE>
PROPOSAL TO AMEND THE 1991 STOCK OPTION PLAN
(PROPOSAL NO. 2)
INTRODUCTION
Effective December 16, 1991, the Board Directors of the Company adopted the
1991 Stock Option Plan (the "1991 Option Plan"), which was approved by the
Company's shareholders on June 23, 1992. On August 25, 1995, the shareholders
approved an amendment to the 1991 Option Plan increasing the number of shares of
Common Stock subject to the Plan from 200,000 to 500,000. On January 12, 1998
the Board of Directors amended the 1991 Option Plan, subject to shareholder
approval, to increase the number of shares of Common Stock subject to the plan
from 500,000 to 700,000. At the Annual Meeting, the Company's shareholders are
being asked to approve this amendment.
The increase in the number of shares reserved for issuance under the 1991
Option Plan is necessary to permit the Company to continue operation of the 1991
Option Plan for the benefit of new participants as well as to allow additional
awards to current participants. As of February 2, 1998, the Company had issued
options to purchase an aggregate of 412,500 shares of Common Stock under the
1991 Option Plan. If this amendment is approved, 287,500 shares will be
available for future grants. The Company anticipates that it will issue
additional options in the future.
SUMMARY OF THE 1991 OPTION PLAN
A general description of the basic features of the 1991 Option Plan is
outlined below. This summary is qualified in its entirety by the terms of the
1991 Option Plan, a copy of which may be obtained from William Johnson, the
Secretary of the Company.
GENERAL. The 1991 Option Plan provides for the granting to employees of the
Company or any subsidiary of the Company options to purchase shares of Common
Stock that qualify as incentive stock options ("Incentive Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"), and
the granting to employees, nonemployee directors, consultants and independent
contractors of the Company, or any subsidiary of the Company, options to
purchase shares of Common Stock that do not qualify as such incentive stock
options ("Non-Qualified Options") (Incentive Options and Non-Qualified Options
are sometimes collectively referred to as "Options"). The purpose of the 1991
Option Plan is to advance the interests of the Company and its shareholders by
enabling the Company and its subsidiaries to attract and retain persons of
ability to perform services for the Company and its subsidiaries by providing an
incentive to such persons through equity participation in the Company and by
rewarding such persons who contribute to the achievement by the Company of its
long-term economic objectives.
As of February 2, 1998, there were approximately 143 persons who may be
deemed eligible to receive Options under the 1991 Option Plan. On February 2,
1998, the average of the closing bid and asked prices of the Company's Common
Stock in the local over-the-counter market was $2.4375 per share.
ADMINISTRATION. The 1991 Option Plan is administered by the Board of
Directors. The 1991 Option Plan vests broad powers in the Board to administer
and interpret the 1991 Option Plan, including the authority to select optionees
to be granted Options, to determine the terms of the Options (including the
number of shares to be covered by each Option, the Option exercise price, the
duration of each Option, the manner in which each Option will become exercisable
and the restrictions and other conditions on the exercisability of each Option),
and to prescribe other provisions of the Options as the Board may deem necessary
or desirable as consistent with the terms of the 1991 Option Plan. The Board may
amend or modify the terms of any outstanding Option in any manner (with the
consent of the affected optionee) as long as the amended or modified terms are
permitted by the 1991 Option Plan as then in effect. With the consent of the
affected optionee, the Board may, among other things, modify the exercise price,
number of shares or other terms and conditions of an Option, extend the term of
an Option, accelerate the
8
<PAGE>
exercisability or vesting or otherwise terminate any restrictions relating to an
Option, accept the surrender of any outstanding Option or authorize the grant of
new Options in substitution for surrendered Options.
OPTION GRANT. Incentive Options must be granted with an exercise price
equal to at least the fair market value of the Common Stock on the date the
Options are granted, except that Incentive Options granted to persons owning
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any subsidiary may not be granted at less than 110%
of the fair market value of the Common Stock on the date of grant. For purposes
of the 1991 Option Plan, "fair market value" is the average of the closing bid
and asked prices of the Common Stock on the date of grant. Non-Qualified Options
may be granted at a price determined by the Board, except that such price shall
not be less than 50% of the fair market value of one share of Common Stock on
the date of grant. Under the 1991 Option Plan, the Board has the discretion to
grant a cash bonus to an optionee in connection with the grant, vesting or
exercise of an Option.
Incentive Options will have a maximum term fixed by the Board, not to exceed
10 years from the date of grant or, in the case of an optionee who owns,
directly or indirectly, more than 10% of the total combined voting power of all
classes of stock of the Company or any subsidiary, five years from the date of
grant. The aggregate fair market value (determined as of the time the Option is
granted) of shares of Common Stock with respect to which Incentive Options
become exercisable for the first time by an optionee under the 1991 Option Plan
(or any other incentive stock options held by the optionee) during any calendar
year may not exceed $100,000. Non-Qualified Options have a maximum term fixed by
the Board. Options granted under the 1991 Option Plan become exercisable at such
times and in such installments (which may be cumulative) as are determined by
the Board at the time the Option is granted (although Options may not be
exercised prior to six months from the date of grant).
No right or interest in any Option may be assigned or transferred by an
optionee, either voluntarily or involuntarily, except by will or the laws of
descent and distribution, or subjected to any lien or otherwise encumbered,
directly or indirectly. During the lifetime of an optionee, an Option may be
exercised only by the optionee.
MANNER OF EXERCISE AND PURCHASE. Options may be exercised by delivery of
written notice of exercise to the Company, along with payment in full of the
total Option exercise price for the shares to be purchased. This payment must be
made in cash, except that the Board, in its sole discretion, may allow payment
to be made (in whole or in part) by delivery of a "broker exercise notice"
(pursuant to which the broker or dealer is instructed to sell enough shares of
Common Stock or to loan the optionee enough money to pay the exercise price and
to remit such sums to the Company) or promissory note or by transfer of shares
of Common Stock (either previously owned by the optionee or to be acquired upon
Option exercise), valued at fair market value.
TERMINATION OF OPTIONS. Upon the termination of an optionee's employment or
other service with the Company and all subsidiaries because of the optionee's
death, disability or retirement, all outstanding Options held by the optionee
will become immediately exercisable in full and will for 30 days remain
exercisable to the extent exercisable on the date of termination (but in no
event after the expiration date of the Option). Upon the termination of an
optionee's employment or service for any other reason, all rights of the
optionee under the 1991 Option Plan (including the right to exercise outstanding
Options) will immediately terminate without notice of any kind.
However, the Board may, in its sole discretion (which may be exercised
before or following termination), cause Options then held by a terminated
optionee to become exercisable and remain exercisable following termination (up
to the original expiration date of the Options), as determined by the Board.
PLAN AMENDMENT AND TERMINATION. Under the terms of the 1991 Option Plan,
the Board may amend the plan in any respect that the Board deems to be in the
best interests of the Company without shareholder approval, unless shareholder
approval is then required pursuant to Rule 16b-3 under the
9
<PAGE>
Securities Exchange Act of 1934, Section 422 of the Code or the applicable rules
of any securities exchange or the NASD. The 1991 Option Plan will terminate on
December 15, 2001, unless sooner terminated by action of the Board of Directors.
No Options may be granted after termination of the 1991 Option Plan, although
Options outstanding at the time of termination will continue to be exercisable
in accordance with their terms.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on
current statutes, regulations and interpretations. There are, however, pending
legislative proposals which would affect the taxation of capital gains. The
description does not include state or local income tax consequences. In
addition, the description is not intended to address specific tax consequences
applicable to an individual optionee who receives an Option.
INCENTIVE OPTIONS. There will not be any federal income tax consequences to
either the optionee or the Company as a result of the grant or the exercise of
an Incentive Option under the 1991 Option Plan, except that (a) an amount equal
to the excess of the fair market value of the shares acquired upon exercise of
the Incentive Option, determined on the date of exercise, over the amount paid
for the shares by the optionee will be includable in the optionee alternative
minimum taxable income for purposes of the alternative minimum tax, and (b) the
optionee may be subject to an additional excise tax if any amounts are treated
as excess parachute payments (see explanation below). Special rules will apply
if previously acquired shares of Common Stock are permitted to be tendered in
payment of an Option exercise price.
If the optionee disposes of the shares acquired upon exercise of an
Incentive Option, the federal income tax consequences will depend upon how long
the optionee has held the shares. If the optionee does not dispose of the shares
within two years after the Incentive Option was granted, nor within one year
after the optionee exercised the Incentive Option and the shares were
transferred to the optionee, then the optionee will recognize a capital gain or
loss. The amount of the capital gain or loss will be equal to the difference
between (a) the amount the optionee realized on disposition of the shares and
(b) the Option price at which the optionee acquired the shares. Whether the gain
(or loss) constitutes long or short term capital gain (or loss) will depend upon
the length of time the optionee held the stock prior to its disposition.
Participants should consult their tax advisors to determine whether any specific
gain (or loss) constitutes long or short term capital gain (or loss). The
Company is not entitled to any compensation expense deduction under these
circumstances.
If the optionee does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the optionee will be required
to report as ordinary compensation income, in the year the optionee disposes of
the shares, the amount by which the lesser of (a) the fair market value of the
shares at the time of exercise of the Incentive Option, or (b) the amount
realized on the disposition of the shares exceeds the Option price for the
shares. The Company will be entitled to a compensation expense deduction in an
amount equal to the ordinary income includable in the taxable income of the
optionee. This compensation income may be subject to withholding and
employment-related taxes, and the Company may be required to withhold in order
to receive a deduction. The remainder of the gain recognized on the disposition,
if any, or any loss recognized on the disposition, will be treated as long-term
or short-term capital gain or loss, depending on the holding period.
NON-QUALIFIED OPTIONS. Generally, neither the optionee nor the Company
incurs any federal income tax consequences as a result of the grant of a
Non-Qualified Option. Upon exercise of a Non-Qualified Option, an optionee will
recognize ordinary compensation income, subject to withholding and
employment-related taxes, in an amount equal to the difference between (a) the
fair market value of the shares purchased, determined on date of exercise, and
(b) the consideration paid for the shares. The optionee may be subject to an
additional excise tax if any amounts are treated as excess parachute payments
(see
10
<PAGE>
explanation below). Special rules will apply if previously acquired shares of
Common Stock are permitted to be tendered in payment of an Option exercise
price.
At the time of a subsequent sale or disposition of any shares of Common
Stock obtained upon exercise of a Non-Qualified Option any gain or loss will be
a capital gain or loss. Whether the gain (or loss) constitutes long or short
term capital gain (or loss) will depend upon the length of time the optionee
held the stock prior to its disposition. Participants should consult their tax
advisors to determine whether any specific gain (or loss) constitutes long or
short term capital gain (or loss).
In general, the Company will be entitled to a compensation expense deduction
in connection with the exercise of a Non-Qualified Option for any amounts
includable in the taxable income of the optionee as ordinary compensation
income, provided the Company complies with any applicable withholding
requirements. The Company will be entitled to the deduction in the Company's tax
year in which the optionee is taxed.
EXCISE TAX ON PARACHUTE PAYMENTS. The Code also imposes a nondeductible 20%
excise tax on the recipient of "excess parachute payments," as defined in the
Code and denies tax deductibility to the Company of excess parachute payments.
Generally, parachute payments are payments in the nature of compensation to
employees of a company who are officers, shareholders or highly compensated,
which payments are contingent upon a change in ownership or effective control of
the company, or in the ownership of a substantial portion of the assets of the
company. For example, acceleration of the exercisability of Options upon a
change in control of the Company may constitute parachute payments and, in
certain cases, "excess parachute payments."
SECTION 162(m). Under Section 162(m) of the Code, the deductibility of
certain compensation paid to the chief executive officer and each of the four
other most highly compensated executives of publicly held companies is limited
to $1,000,000. Compensation for this purpose generally includes any items of
compensation expense described above in connection with Options under the 1991
Option Plan. However, certain types of compensation are excepted from this
limit, including compensation that qualifies as "performance-based
compensation." Under Section 162(m), any compensation expense resulting from the
exercise of Options under the 1991 Option Plan with exercise prices equal to (or
greater than) the fair market value of the Common Stock on the date of grant
should qualify as "performance-based compensation" excepted from the limit of
Section 162(m). However, compensation expense in connection with any other
Options under the 1991 Option Plan would be subject to this limit.
OPTIONS GRANTED UNDER THE 1991 OPTION PLAN
The table below summarizes outstanding Options under the 1991 Stock Option
Plan as of the date of this Proxy Statement. The Options granted in fiscal 1997
to the Named Executive Officers are also disclosed in the Summary of
Compensation Table and the Option Grants in Last Fiscal Year Table, as required
by the rules of the Securities and Exchange Commission.
11
<PAGE>
NEW PLAN BENEFITS
1991 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS
- ------------------------------------------------------------------------------------ ------------------
<S> <C>
James W. Taylor .................................................................... 117,000
CHIEF EXECUTIVE OFFICER
Edward E. Strickland ............................................................... 42,000
CHAIRMAN OF THE BOARD
Executive Group..................................................................... 246,250
Non-Executive Director Group........................................................ 53,000
Non-Executive Employee Group........................................................ 123,250
-------
Total............................................................................. 422,500
-------
-------
</TABLE>
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors recommends a vote FOR approval of the proposed
amendment to the 1991 Option Plan. The affirmative vote of a majority of shares
of the Common Stock of the Company voting in person or by proxy on the proposed
amendment to the 1991 Option Plan at the Annual Meeting is necessary for
approval of the amendment. Unless a contrary choice is specified, proxies
solicited by the Board of Directors will be voted FOR approval of the proposed
amendment to the 1991 Option Plan.
12
<PAGE>
PRINCIPAL SHAREHOLDERS AND BENEFICIAL
OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of February 2, 1998 by (a) each
shareholder who is known by the Company to own beneficially more than 5% of the
outstanding Common Stock, (b) each director and nominee, (c) each Named
Executive Officer and (d) all executive officers and directors of the Company as
a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)(2)
---------------------------
PERCENT OF
NAME AMOUNT CLASS
- ----------------------------------------------------------------- --------------- ----------
<S> <C> <C>
Perkins Capital Management, Inc.................................. 975,650(3) 20.1%
730 East Lake Street
Wayzata, MN 55391-1769
Edward E. Strickland............................................. 318,386(4) 6.5%
520 Warbass Way
Friday Harbor, WA 98250
Smith Barney, Inc................................................ 298,250(5) 6.1%
388 Greenwich Street
New York, NY 10013
James W. Taylor.................................................. 259,496(6) 5.2%
719 Lenape Trail
Westfield, NJ 07090
Kenneth E. Daugherty............................................. 312,100(7) 6.4%
1913 East Hunskor Road
Oak Harbor, WA 98277
Robert W. Heller................................................. 40,000 *
10992 Mount Curve Road
Eden Prairie, MN 55347
Gary W. Laidig................................................... 14,000(8) *
Room 155--State Office Building
St. Paul, MN 55155
Caroline C. Avey................................................. 19,000(9) *
16341 Wild Plum Circle
Morrison, CO 80465
M. Karen Gilles.................................................. 3,500(10) *
2575 University Avenue
St. Paul, MN 55114
All directors and executive officers
as a group (10 persons)........................................ 1,020,232(11) 20.0%
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares.
(1) As of February 2, 1998, unless otherwise noted. Unless otherwise noted, all
of the shares shown are held by individuals or entities possessing sole
voting and investment power with respect to such shares.
(2) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated
as outstanding only when determining the amount and percent owned by such
person or group.
13
<PAGE>
(3) According to a Schedule 13G, dated February 11, 1998, as filed with the
Securities and Exchange Commission. Perkins Capital Management, Inc. has
sole voting power of 292,500 of such shares, and sole disposition power of
all of such shares.
(4) Includes 40,000 shares that Mr. Strickland has the right to acquire within
60 days upon the exercise of options.
(5) According to a Schedule 13G, dated February 6, 1998, as filed with the
Securities and Exchange Commission by a group consisting of Smith Barney,
Inc. ("Smith Barney"), Travelers Group, Inc. ("Travelers") and Salomon Smith
Barney Holdings, Inc. ("SSB"). The Schedule 13G indicates that Travelers,
the sole shareholder of SSB, and SSB, the sole shareholder of Smith Barney,
disclaim beneficial ownership of these shares. Smith Barney shares voting
and dispositive power with respect to all such shares.
(6) Includes 115,000 shares that Mr. Taylor has the right to acquire within 60
days upon the exercise of options.
(7) Includes 13,000 shares that Dr. Daugherty has the right to acquire within 60
days upon the exercise of options. With respect to 175,000 shares of Common
Stock, Dr. Daugherty shares voting and investment power with his wife.
(8) Includes 13,000 shares that Mr. Laidig has the right to acquire within 60
days upon the exercise of options.
(9) Includes 9,000 shares that Ms. Avey has the right to acquire within 60 days
upon the exercise of options.
(10) Includes 2,500 shares held in an IRA for Ms. Gilles and managed by Perkins
Capital Management.
(11) Includes an aggregate of 225,000 shares that executive officers and
directors have the right to acquire within 60 days upon the exercise of
options.
14
<PAGE>
CERTAIN TRANSACTIONS
During 1997, the Company satisfied its obligations under the Compensation
Arrangements with Messrs. Taylor and Strickland by paying Mr. Taylor $50,189 in
cash and issuing him 17,896 shares of the Company's common stock, having a fair
market value of $60,399 on the date of issuance and paying to Mr. Strickland
$52,290 in cash and issuing him 19,136 shares of the Company's common stock,
having a fair market value of $64,583 on the date of issuance. See "Election of
Directors--Director Compensation."
In November 1992, the Company entered into a consulting agreement with
Taylor Consultants, Inc., whereby Taylor Consultants agreed to provide the
services of James W. Taylor to act as President and Chief Executive Officer of
the Company. Taylor Consultants is currently paid $13,000 per month under the
consulting agreement. In addition, James W. Taylor was granted an option to
purchase 25,000 shares of Common Stock pursuant to the Consulting Agreement.
Taylor Consultants is an independent contractor, and neither it nor Mr. Taylor
is an employee of the Company. The agreement has an indefinite term, but may be
terminated by either party upon 30 days' written notice. During 1997, Taylor
Consultants received $164,500 for services under this agreement. See "Executive
Compensation and Other Benefits--Summary of Cash and Certain Other
Compensation--Summary Compensation Table" and "Certain Transactions."
In December 1990, the Company entered into a consulting agreement with
Edward E. Strickland, whereby Mr. Strickland agreed to provide his services to
the Company as its Chairman of the Board of Directors. The agreement was
temporarily suspended in August 1995 and reinstated in March 1996. Mr.
Strickland is currently paid $2,000 per month under the consulting agreement and
has received $28,000 for his services during 1997. See "Executive Compensation
and Other Benefits--Summary of Cash and Certain Other Compensation--Summary
Compensation Table" and "Certain Transactions."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Executive
officers, directors and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during the year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% shareholders were met.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
(PROPOSAL NO. 3)
The Board of Directors has appointed Coopers & Lybrand L.L.P. as independent
auditors to make an examination of the accounts of the Company for the fiscal
year ending December 31, 1998 and to perform other appropriate accounting and
audit services at the request of the Company. Although not required to do so,
the Board of Directors wishes to submit the selection of Coopers & Lybrand
L.L.P. to the shareholders for ratification. The Board of Directors recommends a
vote for ratification of Coopers & Lybrand L.L.P. as independent auditors for
the fiscal year ending December 31, 1998. Unless a contrary choice is specified,
a proxy solicited by the Board of Directors will be voted FOR the selection of
Coopers & Lybrand L.L.P. If the selection of Coopers & Lybrand L.L.P. is not
ratified, the Board of Directors will reconsider its selection. The Company has
requested and expects a representative of Coopers & Lybrand L.L.P. to be present
at the Annual Meeting to make a statement if he or she so desires and to respond
to appropriate questions.
15
<PAGE>
PROPOSALS FOR THE NEXT ANNUAL MEETING
Shareholder proposals intended to be presented in the proxy materials
relating to the next annual meeting of shareholders must be received by the
Company at its principal executive offices on or before November 11, 1998.
OTHER BUSINESS
The Company knows of no business which will be presented for consideration
at the Annual Meeting other than that described in this Proxy Statement. As to
other business, if any, that may properly come before the Annual Meeting, it is
intended that proxies solicited by the Board will be voted in accordance with
the judgment of the person or persons voting the proxies.
ANNUAL REPORT ON FORM 10-KSB
THE COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON
FORM 10-KSB (EXCLUSIVE OF EXHIBITS) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
TO EACH PERSON WHO IS A SHAREHOLDER OF THE COMPANY AS OF MARCH 2, 1998, UPON
RECEIPT FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH ANNUAL REPORT. SUCH
REQUEST SHOULD BE SENT TO REUTER MANUFACTURING, INC., 410 11TH AVENUE SOUTH,
HOPKINS, MINNESOTA 55343, ATTENTION: SECRETARY.
BY ORDER OF THE BOARD OF DIRECTORS
[SIG]
WILLIAM H. JOHNSON
SECRETARY
Minneapolis, Minnesota
March 10, 1998
16
<PAGE>
REUTER MANUFACTURING, INC.
410 ELEVENTH AVENUE SOUTH
HOPKINS, MINNESOTA 55343
----------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 20, 1998
----------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints JAMES W. TAYLOR and WILLIAM H. JOHNSON, and
each of them, as Proxies, each with power of substitution, and hereby authorizes
each of them to represent and to vote, as designated on the reverse side of this
proxy card, all the shares of Common Stock of Reuter Manufacturing, Inc. held of
record by the undersigned on March 2, 1998, at the Annual Meeting of
Shareholders to be held on Monday, April 20, 1998 at 2:00 p.m. local time at The
Hopkins Center For The Arts, 1111 Main Street, Hopkins, Minnesota 55343, or any
adjournment thereof.
(PLEASE SIGN ON REVERSE SIDE)
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
REUTER MANUFACTURING, INC.
APRIL 20, 1998
*PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED*
PLEASE MARK YOUR
A /X/ VOTES AS IN THIS
EXAMPLE.
FOR AGAINST
all nominees all nominees
listed at right listed at right
1. To elect two directors to serve
three-year terms, or until their / / / /
successors are elected and qualified.
NOMINEES: M. Karen Gilles
James W. Taylor
INSTRUCTIONS: TO WITHHOLD VOTE FROM ANY NOMINEE LISTED AT RIGHT, STRIKE LINE
THROUGH THAT NOMINEE'S NAME.
FOR AGAINST ABSTAIN
2. To consider and act upon a proposal / / / / / /
to amend the Company's 1991 Stock
Option Plan to increase the number
of shares available for issuance
thereunder from 500,000 to 700,000.
3. To consider and act upon a proposal / / / / / /
to ratify the appointment of
Coopers & Lybrand L.L.P. as
independent auditors for the Company
for the fiscal year ending
December 31, 1998.
4. To transact such other business as may be properly brought before the
Annual Meeting or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3 ABOVE.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1, PROPOSAL 2, AND FOR PROPOSAL 3
ABOVE.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE___________________________ DATE__________, 1998
SIGNATURE___________________________ DATE__________, 1998
SIGNATURE IF HELD JOINTLY
NOTE: Please sign exactly as name appears above. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in
partnership name by authorized person.
<PAGE>
APPENDIX A
1991 STOCK OPTION PLAN
(Item 10, Instruction 3)
(This was not sent to Shareholders)
<PAGE>
REUTER MANUFACTURING, INC.
1991 STOCK OPTION PLAN
(as amended as of August 25, 1995)
ARTICLE 1. ESTABLISHMENT AND PURPOSE.
1.1 ESTABLISHMENT. Reuter Manufacturing, Inc. (the "Company") hereby
establishes a plan providing for the grant of stock options to certain
employees and other individuals who provide services to the Company and its
subsidiaries. This plan shall be known as the Reuter 1991 Stock Option Plan
(the "Plan").
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Company and its shareholders by enabling the Company and its subsidiaries
to attract and retain persons of ability as employees or non-employees who
provide services to the Company, by providing an incentive to such persons
through equity participation in the Company and by rewarding such persons who
contribute to the achievement by the Company of its long-term economic
objectives.
ARTICLE 2. DEFINITIONS.
The following terms shall have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "CODE" means the Internal Revenue Code of 1986, as amended.
2.3 "COMMITTEE" means the persons administering the Plan, as provided
in Article 3 of the Plan.
2.4 "COMMON STOCK" means the common stock of the Company, par value
$.01 per share, or the number and kind of shares of stock or other securities
into which such Common Stock may be changed in accordance with Section 4.3 of
the Plan.
2.5 "DISABILITY" means, as to an Optionee, the disability of the
Optionee as defined in the long-term disability plan of the Company or a
Subsidiary then covering the Optionee or, if no such plan exists, the
permanent and total disability of the Optionee within the meaning of Section
22(e)(3) of the Code.
2.6 "ELIGIBLE RECIPIENT" means all employees (including, without
limitation, officers and directors who are also employees) and nonemployee
directors, consultants and independent contractors of the Company or any
Subsidiary.
2.7 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
2.8 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date:
(a) if the Common Stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the NASDAQ
National Market System, the mean between the reported high and low sale
prices of the Common Stock on such exchange or by the NASDAQ National
Market System as of such date (or, if no shares were traded on such day,
as of the next preceding day on which there was such a trade); or
(b) if the Common Stock is not so listed or admitted to unlisted
trading privileges or reported on the NASDAQ National Market System, and
bid and asked prices therefor in the over-the-counter market are
reported by the NASDAQ System or the National Quotation Bureau, Inc. (or
any comparable reporting service), the mean of the closing bid and asked
prices as of such date, as so reported by the NASDAQ System, or, if not
so reported thereon, as reported by the National Quotation Bureau, Inc.
(or such comparable reporting service); or
(c) if the Common Stock is not so listed or admitted to unlisted
trading privileges, or reported on the NASDAQ National Market System,
and such bid and asked prices are not so reported, such price as the
Committee determines in good faith in the exercise of its reasonable
discretion.
2.9 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Optionee pursuant to Article 6 of the Plan that qualifies as an
"incentive stock option" within the meaning of Section 422 of the Code.
2.10 "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock
granted to an Optionee pursuant to Article 6 of the Plan that does not
qualify as an Incentive Stock Option.
2.11 "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.12 "OPTIONEE" means an Eligible Recipient who has been granted one or
more currently outstanding Options under the Plan.
2.13 "PERSON" means any individual, corporation, partnership, group,
association or other "person" (as such term is used in Section 14(d) of the
Exchange Act), other than the Company, a wholly owned subsidiary of the
Company or any employee benefit plan sponsored by the Company or a wholly
owned subsidiary of the Company.
2.14 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Optionee and shares of Common
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Stock that are to be acquired by the Optionee pursuant to the exercise of an
Option.
2.15 "RETIREMENT" means the normal and approved early retirement of an
Optionee pursuant to and in accordance with the regular retirement/pension
plan or practice of the Company or Subsidiary then covering the Optionee.
2.16 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.17 "SUBSIDIARY" means any subsidiary corporation of the Company within
the meaning of Section 424(f) of the Code.
2.18 "TAX DATE" means the date any withholding tax obligation arises
under the Code for an Optionee with respect to an Option.
ARTICLE 3. PLAN ADMINISTRATION.
3.1 THE COMMITTEE. The Plan shall be administered by the Board, all of
whom shall be "disinterested persons" within the meaning of Rule 16b-3 under
the Exchange Act, or by a committee consisting solely of not fewer than two
members of the Board who are such "disinterested persons." Members of such a
committee, if established, shall be appointed from time to time by the Board,
shall serve at the pleasure of the Board and may resign at any time upon
written notice to the Board. A majority of the members of such a committee
shall constitute a quorum, and the act of a majority of a quorum shall
constitute the act of such a committee. Action of such a committee may be
taken without a meeting if unanimous written consent is given. A member of
such a committee may attend meetings in person or by means of telephone or
other electronic communication whereby all committee members and attendants
can simultaneously hear each other. Such a committee shall keep minutes of
its meetings or actions by written consent and shall provide copies thereof
to the Board to be kept with the corporate records of the Company. As used
in this Plan, the term "Committee" will refer to the Board or to such a
committee, if established.
3.2 AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the Plan,
the Committee shall have the authority to determine the following: (i)
the Eligible Recipients who shall be selected as Optionees, (ii) the
terms of the Options granted to Eligible Recipients (including the
number of shares of Common Stock to be subject to each Option, the
Option exercise price, the duration of each Option, the manner in which
each Option will become exercisable and the restrictions and other
conditions on the exercisability of each Option), (iii) the time or
times when Options will be granted, and (iv) such other provisions of
the Options as the Committee may deem
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necessary or desirable and is consistent with the terms of the Plan.
The Committee shall determine the form or forms of the agreements with
Optionees which shall evidence the particular terms, conditions, rights
and duties of the Company and the Optionees with respect to Options
granted pursuant to the Plan, which agreements shall be consistent with
the provisions of the Plan.
(b) With the consent of the Optionee affected thereby, the
Committee may amend or modify the terms of any outstanding Option in any
manner, provided that the amended or modified terms are permitted by the
Plan as then in effect. Without limiting the generality of the
foregoing sentence, the Committee may, with the consent of the Optionee
affected thereby, modify the exercise price, number of shares or other
terms and conditions of an Option, extend the term of an Option,
accelerate, modify or terminate the exercisability or vesting or
otherwise terminate any restrictions relating to an Option, accept the
surrender of any outstanding Option or, to the extent not previously
exercised or vested, authorize the grant of new Options in substitution
for surrendered Options.
(c) The Committee shall have the authority, subject to the
provisions of the Plan, to establish, adopt and revise such rules and
regulations relating to the Plan as it may deem necessary or advisable
for the administration of the Plan. The Committee's decisions and
determinations under the Plan need not be uniform and may be made
selectively among Optionees whether or not such Optionees are similarly
situated. Each determination, interpretation or other action made or
taken by the Committee pursuant to the provisions of the Plan shall be
conclusive and binding for all purposes and on all persons, including,
without limitation, the Company and its Subsidiaries, the shareholders
of the Company, the Committee and each of its members, the directors,
officers and employees of the Company and its Subsidiaries, and the
Optionees and their respective successors in interest. No member of the
Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under the Plan.
ARTICLE 4. STOCK SUBJECT TO THE PLAN.
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
below, the maximum number of shares of Common Stock that shall be authorized
and reserved for issuance under the Plan shall be 500,000 shares of Common
Stock. The maximum number of shares authorized may be increased from time to
time by approval of the Board and, if required pursuant to Rule 16b-3 under
the Exchange Act, Section 422 of the Code, or the applicable rules of any
securities exchange or the NASDAQ National Market System, the shareholders of
the Company.
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4.2 SHARES AVAILABLE FOR USE. Shares of Common Stock that may be
issued upon exercise of Options shall be applied to reduce the maximum number
of shares of Common Stock remaining available for use under the Plan. Any
shares of Common Stock that are subject to an Option (or any portion thereof)
that lapses, expires or for any reason is terminated unexercised shall
automatically again become available for use under the Plan.
4.3 ADJUSTMENTS TO SHARES. In the event of (a) any reorganization,
merger, consolidation, recapitalization, liquidation, reclassification, stock
dividend, stock split, combination of shares or divestiture (including a
spin-off) or any other change in the corporate structure or shares of the
Company or any other corporation whose performance is relevant to the grant
or vesting of an Option, (b) any purchase, acquisition, sale or disposition
of a significant amount of assets or a significant business, any
extraordinary dividend or any other similar transaction or, (c) any
substitution by the Company of Options for, or assumption by the Company of,
Options of any other corporation, the Committee (or, if the Company is not
the surviving corporation in any such transaction, the board of directors of
the surviving corporation) shall make appropriate adjustment (which
determination shall be conclusive) as to the number and kind of securities
subject to and reserved under the Plan and, in order to prevent dilution or
enlargement of the rights of Optionees, the number, kind and exercise price
of securities subject to outstanding Options. No adjustment shall be made in
connection with the issuance by the Company of any warrants, rights or
options to acquire additional shares of Common Stock or of securities
convertible into Common Stock. Without limiting the generality of the
foregoing, in the event that any of such transactions are effected in such a
way that holders of Common Stock shall be entitled to receive stock,
securities or assets, including cash, with respect to or in exchange for such
Common Stock, all Optionees holding outstanding Options shall upon the
exercise of such Options receive, in lieu of any shares of Common Stock they
may be entitled to receive, such stock, securities or assets, including cash,
as would have been issued to such Optionees if their Options had been
exercised and such Optionees had received Common Stock prior to such
transaction.
ARTICLE 5. PARTICIPATION.
Optionees shall be those Eligible Recipients who, in the judgment of the
Committee, have performed, are performing, or during the term of an Option
will perform, services in the management, operation and development of the
Company or any Subsidiary, and significantly contributed, are significantly
contributing or are expected to significantly contribute to the achievement
of long-term corporate economic objectives. Eligible Recipients may be
granted from time to time one or more Options, as may be determined by the
Committee in its sole discretion. The number, type, terms and conditions of
Options granted to various Eligible Recipients need not be uniform,
consistent or in
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accordance with any plan, regardless of whether such Eligible Recipients are
similarly situated. Upon determination by the Committee that an Option is to
be granted to an Eligible Recipients, written notice shall be given such
person, specifying the terms, conditions, rights and duties related thereto.
Each Eligible Recipient to whom an Option is to be granted shall, if
requested by the Committee, enter into an agreement with the Company, in such
form as the Committee shall determine and which is consistent with the
provisions of the Plan, specifying such terms, conditions, rights and duties.
Options shall be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date shall be the date of the related
agreement with the Optionee.
ARTICLE 6. TERMS OF OPTIONS.
6.1 GRANT. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options shall be subject to such terms and
conditions, consistent with the other provisions of the Plan, as shall be
determined by the Committee in its sole discretion. The Committee may
designate whether an Option is to be considered an Incentive Stock Option or
a Non-Statutory Stock Option; provided, however, that an Incentive Stock
Option shall be granted only to an Eligible Recipient who is an employee of
the Company or a Subsidiary. The terms of the agreement relating to a
Non-Statutory Stock Option shall expressly provide that such Option shall not
be treated as an Incentive Stock Option.
6.2 EXERCISE. An Option shall become exercisable at such times and in
such installments (which may be cumulative) as shall be determined by the
Committee in its sole discretion at the time the Option is granted; provided,
however, that no Options shall be exercisable prior to six months from its
date of grant. Upon the completion of its exercise period, an Option, to the
extent not then exercised, shall expire.
6.3 EXERCISE PRICE.
(a) INCENTIVE STOCK OPTIONS. The per share price to be paid by
the Optionee at the time an Incentive Stock Option is exercised shall be
determined by the Committee, in its discretion, at the date of its
grant; provided, however, that such price shall not be less than (i)
100% of the Fair Market Value of one share of Common Stock on the date
the Option is granted, or (ii) 110% of the Fair Market Value of one
share of Common Stock on the date the Option is granted if, at that time
the Option is granted, the Optionee owns, directly or indirectly (as
determined pursuant to Section 424(d) of the Code), more than 10% of the
total combined voting power of all classes of stock of the Company or
any subsidiary or parent corporation of the Company (within the meaning
of Sections 424(f) and 424(e), respectively, of the Code).
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(b) NON-STATUTORY STOCK OPTIONS. The per share price to be paid
by the Optionee at the time a Non-Statutory Stock Option is exercised
shall be determined by the Committee in its sole discretion at the time
the Option is granted; provided, however, that such price shall not be
less than 50% of the Fair Market Value of one share of Common Stock on
the date the Option is granted.
6.4 DURATION.
(a) INCENTIVE STOCK OPTIONS. The period during which an Incentive
Stock Option may be exercised shall be fixed by the Committee in its
sole discretion at the time such Option is granted; provided, however,
that in no event shall such period exceed 10 years from its date of
grant or, in the case of an Optionee who owns, directly or indirectly
(as determined pursuant to Section 424(d) of the Code), more than 10% of
the total combined voting power of all classes of stock of the Company
or any subsidiary or parent corporation of the Company (within the
meaning of Sections 424(f) and 424(e), respectively, of the Code), five
years from its date of grant.
(b) NON-STATUTORY STOCK OPTIONS. The period during which a
Non-Statutory Stock Option may be exercised shall be fixed by the
Committee in its sole discretion at its date of grant.
(c) EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
Notwithstanding this Section 6.4, except as provided in Article 8 of the
Plan, all Options granted to an Optionee shall terminate and may no
longer be exercised if the Optionee's employment or other service with
the Company and all Subsidiaries ceases.
6.5 MANNER OF EXERCISE. An Option may be exercised by an Optionee in
whole or in part from time to time, subject to the conditions contained
herein and in the agreement evidencing such Option, by delivery, in person or
through certified or registered mail, of written notice of exercise to the
Company at its principal executive office in Hopkins, Minnesota (Attention:
Secretary), and by paying in full the total Option exercise price for the
shares of Common Stock purchased. Such notice shall be in a form
satisfactory to the Committee and shall specify the particular Option (or
portion thereof) that is being exercised and the number of shares with
respect to which the Option is being exercised. Subject to compliance with
Section 11.1 of the Plan, the exercise of the Option shall be deemed
effective upon receipt of such notice and payment complying with the terms of
the Plan and the agreement evidencing such Option. As soon as practicable
after the effective exercise of the Option, the Optionee shall be recorded on
the stock transfer books of the Company as the owner of the shares purchased,
and the Company shall deliver to the Optionee one or more duly issued stock
certificates evidencing such ownership. If an Optionee exercises any Option
with respect to some, but not all, of
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the shares of Common Stock subject to such Option, the right to exercise such
Option with respect to the remaining shares shall continue until it expires
or terminates in accordance with its terms. An Option shall only be
exercisable with respect to whole shares.
6.6 PAYMENT OF EXERCISE PRICE.
(a) The total purchase price of the shares to be purchased upon
exercise of an Option shall be paid entirely in cash (including check,
bank draft or money order); provided, however, that the Committee, in
its sole discretion, may allow such payments to be made, in whole or in
part, by delivery of a Broker Exercise Notice or a promissory note
(containing such terms and conditions as the Committee may in its
discretion determine), by transfer from the Optionee to the Company of
Previously Acquired Shares, or by a combination thereof. In determining
whether or upon what terms and conditions an Optionee will be permitted
to pay the purchase price of an Option in a form other than cash, the
Committee may consider all relevant facts and circumstances, including,
without limitation, the tax and securities law consequences to the
Optionee and the Company and the financial accounting consequences to
the Company. In the event the Optionee is permitted to pay the total
purchase price of an Option in whole or in part with Previously Acquired
Shares, the value of such shares shall be equal to their Fair Market
Value on the date of exercise of the Option.
(b) For purposes of this Section 6.6, a "Broker Exercise Notice"
shall mean a written notice from an Optionee to the Company at its
principal executive office in Hopkins, Minnesota (Attention: Secretary),
made on a form and in the manner as the Committee may from time to time
determine, pursuant to which the Optionee irrevocably elects to exercise
all or any portion of an Option and irrevocably directs the Company to
deliver the Optionee's stock certificates to be issued to such Optionee
upon such Option exercise directly to a broker or dealer. A Broker
Exercise Notice must be accompanied by or contain irrevocable
instructions to the broker or dealer (i) to promptly sell a sufficient
number of shares of such Common Stock or to loan the Optionee a
sufficient amount of money to pay the exercise price for the Options
and, if not otherwise satisfied by the Optionee, to fund any related
employment and withholding tax obligations due upon such exercise, and
(ii) to promptly remit such sums to the Company upon the broker's or
dealer's receipt of the stock certificates.
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6.7 RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Optionee shall have become the holder of record of such shares, and
no adjustments shall be made for dividends or other distributions or other
rights as to which there is a record date preceding the date the Optionee
becomes the holder of record of such shares, except as the Committee may
determine pursuant to Section 4.3 of the Plan.
6.8 DISPOSITION OF COMMON STOCK ACQUIRED PURSUANT TO THE EXERCISE OF
INCENTIVE STOCK OPTIONS. Prior to making a disposition (as defined in
Section 424(c) of the Code) of any shares of Common Stock acquired pursuant
to the exercise of an Incentive Stock Option granted under the Plan before
the expiration of two years after its date of grant or before the expiration
of one year after its date of exercise and the date on which such shares of
Common Stock were transferred to the Optionee pursuant to exercise of the
Option, the Optionee shall send written notice to the Company of the proposed
date of such disposition, the number of shares to be disposed of, the amount
of proceeds to be received from such disposition and any other information
relating to such disposition that the Company may reasonably request. The
right of an Optionee to make any such disposition shall be conditioned on the
receipt by the Company of all amounts necessary to satisfy any federal, state
or local withholding and employment-related tax requirements attributable to
such disposition. The Committee shall have the right, in its sole
discretion, to endorse the certificates representing such shares with a
legend restricting transfer and to cause a stop transfer order to be entered
with the Company's transfer agent until such time as the Company receives the
amounts necessary to satisfy such withholding and employment-related tax
requirements or until the later of the expiration of two years from its date
of grant or one year from its date of exercise and the date on which such
shares were transferred to the Optionee pursuant to the exercise of the
Option.
6.9 AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS.
To the extent that the aggregate Fair Market Value (determined as of the date
an Incentive Stock Option is granted) of the shares of Common Stock with
respect to which incentive stock options (within the meaning of Section 422
of the Code) are exercisable for the first time by an Optionee during any
calendar year (under the Plan and any other incentive stock option plans of
the Company or any subsidiary or any parent corporation of the Company
(within the meaning of Sections 424(f) and 424(e), respectively, of the
Code)) exceeds $100,000 (or such other amount as may be prescribed by the
Code from time to time), such excess Options shall be treated as
Non-Statutory Stock Options. The determination shall be made by taking
incentive stock options into account in the order in which they were granted.
If such excess only applies to a portion of an incentive stock option, the
Committee, in its discretion, shall designate which shares shall be treated
as shares to be acquired upon exercise of an incentive stock option.
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ARTICLE 7. CASH BONUSES.
In connection with any grant of Options or at any time thereafter, the
Committee may, in its sole discretion, grant a cash bonus to an Optionee in
connection with the grant or vesting or exercise of an Option. The
determination of whether to grant such a cash bonus, the nature and amount of
any such cash bonus and the terms and conditions of such cash bonus shall be
within the sole discretion of the Committee.
ARTICLE 8. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
8.1 TERMINATION OF EMPLOYMENT OR OTHER SERVICE DUE TO DEATH, DISABILITY
OR RETIREMENT. In the event an Optionee's employment or other service with
the Company and all Subsidiaries is terminated by reason of such Optionee's
death, Disability or Retirement, all outstanding Options then held by the
Optionee shall become immediately exercisable in full and remain exercisable
to the extent exercisable as of such termination for a period of thirty (30)
days after such termination (but in no event after the expiration date of any
such Option).
8.2 TERMINATION OF EMPLOYMENT OR OTHER SERVICE FOR REASONS OTHER THAN
DEATH, DISABILITY OR RETIREMENT. In the event an Optionee's employment or
other service is terminated with the Company and all Subsidiaries for any
reason other than death, Disability or Retirement, all rights of the Optionee
under the Plan shall immediately terminate without notice of any kind and no
options then held by the Optionee shall thereafter be exercisable.
8.3 MODIFICATION OF EFFECT OF TERMINATION. Notwithstanding the
provisions of this Article 8, upon an Optionee's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in
its sole discretion (which may be exercised before or following such
termination), cause Options, or any portions thereof, then held by such
Optionee to become exercisable and remain exercisable following such
termination in the manner determined by the Committee; provided, however,
that no Option shall be exercisable after the expiration date thereof and any
Incentive Stock Option that remains unexercised more than three months
following employment termination by reason of Retirement or more than one
year following employment termination by reason of Disability shall
thereafter be deemed to be a Non-Statutory Stock Option.
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8.4 DATE OF TERMINATION. Unless the Committee shall otherwise
determine in its sole discretion, an Optionee's employment or other service
shall, for purposes of the Plan, be deemed to have terminated on the date
such Optionee ceases to perform services for the Company and all
Subsidiaries, as determined in good faith by the Committee.
ARTICLE 9. RIGHT TO WITHHOLD; PAYMENT OF WITHHOLDING TAXES.
9.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Optionee (or from other amounts which may be due and
owing to the Optionee from the Company), or make other arrangements for the
collection of, all legally required amounts necessary to satisfy any and all
federal, state and local withholding and employment-related tax requirements
(i) attributable to the grant or exercise of an Option or to a disqualifying
disposition of stock received upon exercise of an Incentive Stock Option, or
(ii) otherwise incurred with respect to an Option, or (b) require the
Optionee promptly to remit the amount of such withholding to the Company
before taking any action with respect to an Option.
9.2 SPECIAL RULES.
(a) Without limiting the generality of Section 9.1 above, the
Committee may, in its sole discretion and subject to such rules as the
Committee may adopt, permit an Optionee to satisfy, in whole or in part,
any withholding or employment-related tax obligations described in
Section 9.1 above by electing to use Previously Acquired Shares or by
electing to have the Company accept a Broker Exercise Notice with
respect to that number of shares, in any such case, having a Fair Market
Value, on the Tax Date, equal to the amount necessary to satisfy the
withholding or employment-related taxes due, or by agreeing to deliver
to the Company a promissory note in payment for some or all of the
necessary amounts (containing such terms and conditions as the Committee
in its sole discretion may determine).
(b) An Optionee's election to use Previously Acquired Shares, a
Broker Exercise Notice or a promissory note must be made on or prior to
the Tax Date, is irrevocable and is subject to the consent or
disapproval of the Committee. If the Optionee is an officer, director
or beneficial owner of more than 10% of the outstanding Common Stock of
the Company and the Company has a class of equity securities registered
under Section 12 of the Exchange Act, an election to use Previously
Acquired Shares may not be made within six months of the date the Option
is granted (unless the death or Disability of the Optionee occurs prior
to the expiration of such six-month period), and (unless otherwise
permitted by the Committee in its sole discretion) must be made either
six months prior to the Tax Date or at any time prior to the Tax Date
between the third and twelfth business days following
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public release of any of the Company's quarterly or annual summary
earnings statements. When shares of Common stock are issued prior to the
Tax Date to an Optionee making an election to use Previously Acquired
Shares, the Optionee shall agree in writing to surrender that number of
shares on the Tax Date having an aggregate Fair Market Value equal to
the tax due.
ARTICLE 10. RIGHTS OF ELIGIBLE RECIPIENTS AND OPTIONEES; TRANSFERABILITY.
10.1 EMPLOYMENT OR SERVICE. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Optionee at any time, nor
confer upon any Eligible Recipient or Optionee any right to continue in the
employ or service of the Company or any Subsidiary.
10.2 RESTRICTIONS ON TRANSFER. Other than pursuant to a qualified
domestic relations order (as defined by the Code), no right or interest of
any Optionee in an Option prior to the exercise of such Options shall be
assignable or transferrable, or subjected to any lien, during the lifetime of
the Optionee, either voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise, including execution, levy, garnishment,
attachment, pledge, divorce or bankruptcy. An Optionee shall, however, be
entitled to designate a beneficiary to receive an Option upon such Optionee's
death. In the event of an Optionee's death, such Optionee's rights and
interest in Options shall be transferrable by testamentary will or the laws
of descent and distribution, and payment of any amounts due under the Plan
shall be made to, and exercise of any Options (to the extent permitted
pursuant to Article 8 of the Plan) may be made by, the Optionee's legal
representatives, heirs or legatees. If, in the opinion of the Committee, an
Optionee holding an Option is disabled from caring for his or her affairs
because of mental condition, physical condition or age, any payments due the
Optionee may be made to, and any rights of the Optionee under the Plan shall
be exercised by, such Optionee's guardian, conservator or other legal
personal representative upon furnishing the Committee with evidence
satisfactory to the Committee of such status.
10.3 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to amend, modify or rescind any previously approved compensation
plans or programs entered into by the Company. The Plan will be construed to
be in addition to any and all such other plans or programs. Neither the
adoption of the Plan nor the submission of the Plan to the shareholders of
the Company for approval will be construed as creating any limitations on the
power or authority of the Board to adopt such additional or other
compensation arrangements as the Board may deem necessary or desirable.
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ARTICLE 11. SECURITIES LAW RESTRICTIONS
11.1 SHARE ISSUANCES. Notwithstanding any other provision of the Plan
or any agreements entered into pursuant hereto, the Company shall not be
required to issue or deliver any certificate for shares of Common Stock under
this Plan, and an Option shall not be considered to be exercised
notwithstanding the tender by the Optionee of any consideration therefor,
unless and until each of the following conditions has been fulfilled:
(a) (i) There shall be in effect with respect to such shares a
registration statement under the Securities Act and any applicable state
securities laws if the Committee, in its sole discretion, shall have
determined to file, cause to become effective and maintain the
effectiveness of such registration statement; or (ii) if the Committee
has determined not to so register the shares of Common Stock to be
issued under the Plan, (A) exemptions from registration under the
Securities Act and applicable state securities laws shall be available
for such issuance (as determined by counsel to the Company) and (B)
there shall have been received from the Optionee (or, in the event of
death or disability, the Optionee's heir(s) or legal representative(s))
any representations or agreements requested by the Company in order to
permit such issuance to be made pursuant to such exemptions; and
(b) There shall have been obtained any other consent, approval or
permit from any state or federal governmental agency which the Committee
shall, in its sole discretion upon the advice of counsel, deem necessary
or advisable.
11.2 SHARE TRANSFERS. Shares of Common Stock issued pursuant to Options
granted under the Plan may not be sold, assigned, transferred, pledged,
encumbered or otherwise disposed of, whether voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise, except pursuant to
registration under the Securities Act and applicable state securities laws or
pursuant to exemptions from such registrations. The Company may condition
the sale, assignment, transfer, pledge, encumbrance or other disposition of
such shares not issued pursuant to an effective and current registration
statement under the Securities Act and all applicable state securities laws
on the receipt from the party to whom the shares of Common Stock are to be so
transferred of any representations or agreements requested by the Company in
order to permit such transfer to be made pursuant to exemptions from
registration under the Securities Act and applicable state securities laws.
11.3 LEGENDS.
(a) Unless a registration statement under the Securities Act is in
effect with respect to the issuance or Transfer of shares of Common
Stock under the Plan, each
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certificate representing any such shares shall be endorsed with a legend
in substantially the following form, unless counsel for the Company is
of the opinion as to any such certificate that such legend is
unnecessary:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
SUCH STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT AND SUCH STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
(b) The Committee, in its sole discretion, may endorse
certificates representing shares issued pursuant to the exercise of
Incentive Stock Options with a legend in substantially the following
form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF ON
OR BEFORE [THE LATER OF THE ONE-YEAR OR TWO-YEAR INCENTIVE STOCK
OPTION HOLDING PERIODS], WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMPANY.
ARTICLE 12. PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the
Board may deem advisable in order that Options under the Plan shall conform
to any change in applicable laws or regulations or in any other respect the
Board may deem to be in the best interests of the Company; provided, however,
that no such amendment shall be effective, without approval of the
shareholders of the Company, if shareholder approval of the amendment is then
required pursuant to Rule 16b-3 under the Exchange Act or any successor rule
or Section 422 of the Code or under the applicable rules or regulations of
any securities exchange or the NASDAQ National Market System. No
termination, suspension or amendment of the Plan shall alter or impair any
outstanding Option without the consent of the Optionee affected thereby;
provided, however, that this sentence shall not impair the right of the
Committee to take whatever action it deems appropriate under Section 4.3 of
the Plan.
ARTICLE 13. EFFECTIVE DATE OF THE PLAN
13.1 EFFECTIVE DATE. The Plan is effective as of September 23, 1991,
the date it was adopted by the Board.
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13.2 DURATION OF THE PLAN. The Plan shall terminate at midnight on
September 22, 2001, and may be terminated prior thereto by Board action, and
no Option shall be granted after such termination. Options outstanding upon
termination of the Plan may continue to be exercised in accordance with their
terms.
ARTICLE 14. MISCELLANEOUS
14.1 CONSTRUCTION AND HEADINGS. The use of the masculine gender shall
also include within its meaning the feminine, and the singular may include
the plural and the plural may include the singular, unless the context
clearly indicates to the contrary. The headings of the Articles, Sections and
subparts of the Plan are for convenience of reading only and are not meant to
be of substantive significance and shall not add or detract from the meaning
of such Article, Section or subpart.
14.2 PUBLIC POLICY. No person shall have any claim or right to receipt
of an Option if, in the opinion of counsel to the Company, such receipt
conflicts with law or is opposed to governmental or public policy.
14.3 GOVERNING LAW. The place of administration of the Plan shall be
conclusively deemed to be within the State of Minnesota, and the rights and
obligations of any and all persons having or claiming to have had an interest
under the Plan or under any agreements evidencing Options shall be governed
by and construed exclusively and solely in accordance with the laws of the
State of Minnesota without regard to the conflict of laws provisions of any
jurisdictions. All parties agree to submit to the jurisdiction of the state
and federal courts of Minnesota with respect to matters relating to the Plan
and agree not to raise or assert the defense that such forum is not
convenient for such party.
14.4 SUCCESSORS AND ASSIGNS. This Plan shall be binding upon and inure
to the benefit of the successors and permitted assigns of the Company,
including, without limitation, whether by way of merger, consolidation,
operation of law, assignment, purchase or other acquisition of substantially
all of the assets or business of the Company, and any and all such successors
and assigns shall absolutely and unconditionally assume all of the Company's
obligations under the Plan.
14.5 SURVIVAL OF PROVISIONS. The rights, remedies, agreements,
obligations and covenants contained in or made pursuant to the Plan, any
agreement evidencing an Option and any other notices or agreements in
connection therewith, including, without limitation, any notice of exercise
of an Option, shall survive the execution and delivery of such notices and
agreements and the delivery and receipt of shares of Common Stock and shall
remain in full force and effect.
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