<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
GENTNER COMMUNICATIONS CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
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[ ] 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.
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<PAGE> 2
GENTNER COMMUNICATIONS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
October 14, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Gentner Communications Corporation (the "Company"), a Utah Corporation, will be
held on November 18, at 3:00 P.M., local time, at the corporate offices located
at 1825 Research Way, Salt Lake City, Utah 84119 for the following purposes:
1. To elect six members of the Company's Board of Directors;
2. To ratify the appointment of the Company's independent auditors;
3. To approve the Company's 1998 Stock Option Plan; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Board of Directors recommends that an
affirmative vote be cast in favor of all nominees and for each of the proposals
listed in the proxy card.
Only the shareholders of record at the close of business on September
30, 1998 are entitled to notice of and to vote at the meeting and any
adjournment thereof.
All shareholders are cordially invited to attend the meeting in
person. However, to ensure your representation at the meeting, you are urged to
mark, sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder has previously returned
a proxy.
FOR THE BOARD OF DIRECTORS
/s/ Frances M. Flood
---------------------------------
Frances M. Flood, President and
Chief Executive Officer
<PAGE> 3
GENTNER COMMUNICATIONS CORPORATION
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors
of Gentner Communications Corporation (the "Company") for use at the Company's
Annual Meeting of Shareholders ("Annual Meeting") to be held November 18, 1998
at 3:00 P.M. local time, or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. The Annual Meeting will be held at the above date and time at the
Company's offices located at 1825 Research Way, Salt Lake City, Utah 84119. The
telephone number at that address is (801) 975-7200.
These proxy solicitation materials were first mailed on or about
October 14, 1998 to all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
RECORD DATE AND SHARES OUTSTANDING
Shareholders of record at the close of business on September 30, 1998
(the "Record Date") are entitled to notice of, and to vote at, the Annual
Meeting. On the Record Date, 7,750,095 shares of Common Stock were issued and
outstanding. Each shareholder will be entitled to one vote for each share of
Common Stock held on the record date.
VOTING OF PROXIES
By completing and returning the accompanying proxy, the shareholder
authorizes Frances M. Flood and Susie S. Strohm, as designated on the face of
the proxy, to vote all shares for the shareholder. All proxies that are properly
signed and dated will be voted as the shareholder directs. If no direction is
given, executed proxies will be voted FOR each of the nominees and listed
proposals.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to Susie S. Strohm,
Secretary of the Company, a written notice of revocation, a duly executed proxy
bearing a later date or by attending the Annual Meeting and voting in person.
SOLICITATION
The cost of this solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers, and regular employees, without
additional compensation, personally or by telephone, facsimile, or telegram.
<PAGE> 4
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
The Company currently anticipates the Annual Meeting of Shareholders
in 1999 will be held on or about November 19, 1999. Any shareholder desiring to
submit a proposal for inclusion in the Company's proxy statement and form of
proxy for the Company's 1999 Annual Meeting of Shareholders should transmit such
proposal to the Secretary of the Company on or before July 22, 1999. For any
other proposal that a shareholder wishes to have considered at the Company's
1999 Annual Meeting, the shareholder must notify the Company of the proposal on
or before August 31, 1999. Proposals for which the Company receives notice
after that time will be considered untimely, and the persons serving as proxies
will have discretionary authority to vote on such matter at the meeting.
VOTE REQUIRED FOR APPROVAL
A quorum of the shares of the Company must be present at the Annual
Meeting of the Shareholders in order for the shareholders to take official
action. Under Utah law and the Articles of Incorporation and Bylaws of the
Company, a quorum will exist if a majority of the shares issued by the Company
and entitled to vote on a matter at the Annual Meeting are present, in person or
by proxy. Abstentions and broker non-votes will be considered present at the
Annual Meeting and will be counted for purposes of determining whether a quorum
exists, but abstentions and broker non-votes will not be counted for purposes of
determining the vote on any matter currently proposed for action at the Annual
Meeting. The election of directors will be determined by plurality vote.
Approval of the 1998 Stock Option Plan and ratification of appointment of
independent auditors each require that the votes cast at the Annual Meeting
favoring such proposal exceed the votes cast at the Annual Meeting opposing such
proposal. The Board of Directors recommends that an affirmative vote be cast in
favor of all nominees and for each of the proposals listed in the proxy card.
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
ownership of the Common Stock of the Company as of September 1, 1998, by (i)
each person known to the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock of the Company, (ii) each director of the Company,
(iii) the Chief Executive Officer and each other executive officer of the
Company whose salary and bonus for the year ended June 30, 1998 exceeded
$100,000, and (iv) all executive officers and directors of the Company as a
group. Each person has sole investment and voting power with respect to the
shares indicated, subject to community property laws where applicable, except as
otherwise indicated below. Unless indicated otherwise, the address for each
officer, director and 5% shareholder is c/o the Company, 1825 Research Way, Salt
Lake City, Utah 84119.
2
<PAGE> 5
<TABLE>
<CAPTION>
Amount of Percentage
Names of Beneficial Owners Beneficial Ownership(1) of Class(2)
------------------------- -------------------- -----------
<S> <C> <C>
Edward Dallin Bagley 1,394,335 (3) 17.2%
Watson Investment Group 389,000 (4) 5.0%
Edward N. Bagley 312,333 (5) 4.0%
Brad R. Baldwin 130,166 (6) 1.7%
Frances M. Flood 78,477 (7) 1.0%
Dwight H. Egan 55,000 (8) 0.7%
K. Bradford Romney, Jr. 55,000 (8) 0.7%
Directors and Executive Officers
as a Group (7 people) 2,059,282 (3,5,6,7,8,9) 24.6%
</TABLE>
(1) For each shareholder, the calculation of percentage of beneficial ownership
is based on 7,750,095 shares of Common Stock outstanding as of September 1, 1998
and shares of Common Stock subject to options held by the shareholder that are
currently exercisable or exercisable within 60 days of September 1, 1998.
(2) The percentage ownership for any person is calculated assuming that all the
stock that could be acquired by that person within 60 days by option exercise or
otherwise, is in fact outstanding and that no other stockholder has exercised a
similar right to acquire additional shares.
(3) Director. Includes: 922,285 shares owned directly; 100,000 shares owned by a
corporation controlled by Mr. Bagley; 50 shares owned by Mr. Bagley's wife as
custodian for one of Mr. Bagley's daughters; and options to purchase 372,000
shares that are exercisable within 60 days. On September 8th, 1998, Mr. Bagley
exercised the options referred to in this footnote. Excludes: 50 shares owned by
another of Mr. Bagley's daughters; and shares owned by the Bagley Family
Revocable Trust, all of which Mr. Bagley disclaims beneficial ownership.
(4) Beneficial owner. Includes: shares held by an investment partnership, a
non-US investment company, and several managed accounts, as to all of which Mr.
Watson has sole investment authority. Mr. Watson's address is 237 Park Avenue,
Suite 801, New York, NY 10017.
(5) Director. Includes: 257,333 shares owned by the Bagley Family Revocable
Trust, of which Mr. Bagley is a co-trustee with his wife; and options to
purchase 55,000 shares that are exercisable within 60 days. Excludes: shares
held or controlled by Mr. Bagley's son (Edward Dallin Bagley) and granddaughters
as described in footnote 3 above, all of which Mr. Edward N. Bagley disclaims
beneficial ownership.
(6) Director. Includes: 65,166 shares owned directly; options to purchase 60,000
shares that are exercisable within 60 days; and 5,000 shares owned by Mr.
Baldwin's wife.
3
<PAGE> 6
(7) President, CEO and Director. Includes: 49,229 shares owned directly; options
to purchase 29,248 shares that are exercisable within 60 days.
(8) Includes: options to acquire 55,000 shares that are exercisable within 60
days.
(9) Includes: an additional 27,251 shares owned directly by one additional
officer; and options to purchase 6,720 shares that are exercisable within 60
days by that officer.
4
<PAGE> 7
PROPOSAL ONE -- ELECTION OF DIRECTORS
All of the Company's current six directors are nominated for
re-election at the Annual Meeting to serve until the next Annual Meeting of
Shareholders or until their respective successors are duly elected and
qualified. Unless otherwise instructed, the proxies will be voted for the
election of the six nominees named below. In the event any nominee is unable to
serve, the proxies will be voted for a substitute nominee, if any, to be
designated by the Board of Directors. The Board of Directors has no reason to
believe any nominee will be unavailable.
NOMINEES
The following individuals are currently directors of the Company:
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
- --- --- -------------------- --------
<S> <C> <C> <C>
Frances M. Flood 42 Chief Executive Officer and President 1998
Edward Dallin Bagley* 60 Attorney 1994
Brad R. Baldwin 43 President and Chief Executive Officer
of Bank One, Utah 1988
Edward N. Bagley* 86 Vice President of Smith Barney and
Chairman of the Board of Mining
Services International 1993
Dwight H. Egan 45 President and Chief Executive Officer
of Broadcast International, Inc. 1994
K. Bradford Romney, Jr. 42 Assistant Business Unit Manager,
Small Business Networking Operation,
Intel Corporation 1994
</TABLE>
* Edward N. Bagley and Edward Dallin Bagley are father and son,
respectively.
Frances M. Flood has been a Director of the Company since June of
1998. Ms. Flood joined the Company in October 1996 as Vice-President of Sales
and Marketing. She was named President in December 1997 and Chief Executive
Officer in June 1998. Prior to joining the Company, Ms. Flood was Area Director
of Sales and Marketing for Ernst & Young, LLP, an international accounting and
consulting firm. Ms. Flood has nearly twenty-five years experience in sales,
marketing, change management, international business and finance.
5
<PAGE> 8
Edward Dallin Bagley has been a Director of the Company since April
1994. Previously, Mr. Bagley served as a Director of the Company from April 1987
to July 1991. Mr. Bagley began practicing law in 1965. During the past six
years, Mr. Bagley has served as Vice President of National Financial, a computer
back-up accounting firm for health clubs. Mr. Bagley is also currently a
director of Tunex International, a chain of automotive engine performance and
service centers. Mr. Bagley received a Juris Doctorate in 1965 from the
University of Utah College of Law.
Brad R. Baldwin has been a Director of the Company since September 1988.
Since October 1, 1994, Mr. Baldwin has served as President and Chief Executive
Officer of Bank One, Utah, a commercial bank headquartered in Salt Lake City,
Utah. Mr. Baldwin served as Senior Vice President and General Counsel of Bank
One from 1988 until his appointment as President and CEO. From 1981 to 1988, Mr.
Baldwin was engaged in the general practice of law at the firm of Biele, Haslam
& Hatch in Salt Lake City, Utah. Mr. Baldwin received a Juris Doctorate in 1980
from the University of Washington.
Edward N. Bagley has been a Director of the Company since January 1993.
Mr. Bagley is currently Vice President of Smith Barney, with whom he has been
associated since 1971. Mr. Bagley has worked in the investment industry since
1934. Mr. Bagley is also Chairman of the Board of Directors of Mining Services
International, a publicly held developer of explosives technology and supplier
of chemicals to the mining industry located in Salt Lake City, Utah. He received
a bachelors degree from Utah State University in 1933.
Dwight H. Egan has been a Director of the Company since November 1994.
Mr. Egan is currently the President and Chief Executive Officer of Broadcast
International, Inc., a satellite communications and business information company
located in Midvale, Utah. He is also currently a director of Data Broadcasting
Corp., the parent of Broadcast International, Inc. Mr. Egan has served as an
officer of Broadcast International since November 1985.
K. Bradford Romney has been a Director of the Company since November
1994. He currently serves as Assistant Business Unit Manager of the Small
Business Networking Operation for Intel Corporation. From 1991 until its sale to
Intel Corporation in October 1997, Mr. Romney served as President and Chief
Executive Officer of Dayna Communications, Inc., a small business computer
networking company based in Salt Lake City, Utah. Prior to that, he served as
Executive Vice President of Dayna, beginning in 1986. From 1982 to 1986, Mr.
Romney was Executive Vice-President of Keith Romney Associates. The former
chairman of the Utah Information Technologies Association, Mr. Romney received a
Juris Doctorate and a Masters of Business Administration degree from Brigham
Young University in 1982.
6
<PAGE> 9
DIRECTOR COMPENSATION
All directors serve until their successors are elected and have
qualified. Each non-employee board member received options to purchase 25,000
shares of Company Common Stock as compensation for services rendered through
June 30, 1998. Employee directors who are also employees of the Company receive
no additional compensation for serving on the Board of Directors. Each
non-employee board member will receive $650 per month for their services
provided as a director in fiscal 1999.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has three committees, the Executive, Audit, and
Compensation Committees. The Executive Committee is composed of Ms. Frances M.
Flood, Mr. Brad R. Baldwin, and Mr. Dwight H. Egan. The Audit Committee is
currently composed of Mr. Brad R. Baldwin, Mr. Edward Dallin Bagley, and Mr. K.
Bradford Romney. The Compensation Committee is currently composed of Mr. Brad R.
Baldwin, Mr. Edward N. Bagley, Mr. Edward Dallin Bagley, Mr. K. Bradford Romney
and Mr. Dwight H. Egan. The Executive Committee exercises all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Company except those which by statute, Articles of Incorporation
or By-laws are reserved to the Board of Directors. The Audit Committee is
authorized to review proposals of the Company's auditors regarding annual
audits, recommend the engagement or discharge of the Company's auditors, review
recommendations of such auditors concerning accounting principles and the
adequacy of internal controls and accounting procedures and practices, to review
the scope of the annual audit, to approve or disapprove each professional
service or type of service other than standard auditing services to be provided
by the auditors, and to review and discuss the audited financial statements with
the auditors. The Compensation Committee makes recommendations to the Board of
Directors regarding remuneration of the executive officers and directors of the
Company and administers the 1990 Stock Option Plan and 1998 Stock Option Plan
for directors, officers, and key employees.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held eight meetings during the last fiscal year.
The Executive Committee held no formal meetings during the last fiscal year. The
Audit Committee held no formal meetings during the last fiscal year. The
Compensation Committee held two meetings during the last fiscal year.
EXECUTIVE OFFICERS
Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed. The executive officers of the
Company are as follows:
7
<PAGE> 10
<TABLE>
<CAPTION>
Name Age Position
----- --- ---------
<S> <C> <C>
Frances M. Flood 42 President and Chief Executive Officer
Susie S. Strohm 38 Vice President of Finance, Secretary/Treasurer
</TABLE>
For the biography of Ms. Flood, see "Nominees".
Susie S. Strohm became Vice President of Finance in 1997. In
1996, Ms. Strohm joined the Company as its Controller. She is responsible for
all the Company's accounting, financial and tax planning, financial and
management reporting, and Securities and Exchange Commission filings. Prior to
joining the Company, Ms. Strohm was the Controller for Newspaper Agency
Corporation in Salt Lake City. She graduated from the University of Utah with a
Bachelor of Science degree in Accounting, and received her Masters of Business
Administration degree from Westminster College.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the compensation of the Chief
Executive Officer of the Company and the other most highly compensated executive
officers of the Company for each of the Company's last three fiscal years whose
total salary and bonus for the year ended June 30, 1998 exceeded $100,000, for
services rendered in all capacities to the Company during such fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------------- ------------------------------
Awards Payouts
------------------- --------
Securities
Other Restric- Under- All
Annual ted lying Other
Compen- Stock Options LTIP Compen-
Name and Position Year Salary Bonus sation Awards /SARS Payouts sation (1)
- ----------------- ---- ------ ----- ------ ------ ----- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frances M. Flood Fiscal
CEO & President (2) 97-98 $117,310 $16,649 None None None None None
Fiscal
96-97 $70,657 $8,903 None None None None None
Russell D. Gentner Fiscal
Former Chairman, 97-98 $122,950 $18,711 $96,403 (3) None None None None
CEO, & President
Fiscal
96-97 $162,240 $11,760 None None None None None
Fiscal
95-96 $156,756 None None None None None $890
</TABLE>
(1) This amount reflects the Company's contributions to the deferred
compensation (401(k)) plan.
(2) Ms. Flood did not join the Company until Fiscal 96-97.
(3) This includes a severance package.
STOCK OPTIONS/SARS
The following table sets forth the stock option and SAR grants to
the named executive officers in the last fiscal year:
9
<PAGE> 12
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL YEAR ENDED JUNE 30, 1998
(INDIVIDUAL GRANTS)
Number of Percent of
Securities Total Options
Underlying /SARs Granted Exercise
Options/SARs to Employees or Base Expiration
Name and Position Granted (#) in Fiscal Year Price ($/Sh) Date
- ----------------- ----------- -------------- ------------ ----
<S> <C> <C> <C> <C>
Frances M. Flood
CEO & President 181,000 14% $0.75 to $2.66 6/30/2004
Russell D. Gentner
Former Chairman,
CEO & President 87,000 7% $0.75 6/30/2004
</TABLE>
AGGREGATED STOCK OPTION/SAR EXERCISES
The following table sets forth the aggregated stock options and
SARs exercised by the named executive officers in the last fiscal year and the
year-end value of unexercised options and SARs:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED JUNE 30, 1998
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares
Acquired Value Exercisable/ Exercisable/
Name and Position on Exercise (#) Realized ($) Unexercisable Unexercisable
- ----------------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Frances M. Flood
CEO & President 0 $0 39,000/301,000 $30,000/$128,250
Russell D. Gentner
Former Chairman,
CEO, & President 0 $0 0 $0
</TABLE>
10
<PAGE> 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Gentner Research Ltd. ("GRL"), is a related limited partnership,
formed in August 1985, in which the Company is the general partner and Russell
D. Gentner, Edward Dallin Bagley and, among other unrelated parties, certain
members of their families, are the limited partners. In 1987 and 1988, GRL sold
to the Company proprietary interests in the VRC-1000 (now VRC-2000), VRC-1000
Modem (now VRC-2000), and Digital Hybrid in exchange for royalty payments.
Royalty expense recognized by the Company for the years ending June 30, 1998 and
1997 was $43,500 and $45,100 respectively. The following directors and/or
executive officers and members of their immediate families have purchased the
following interests in GRL:
<TABLE>
<S> <C>
Russell D. Gentner (Former Pres/CEO/Director)................. 5.21%
Edward D. Bagley (Director)................................... 10.42%
Edward N. Bagley (Director)................................... 5.21%
Hyrum S. Gentner (father of Russell Gentner).................. 5.21%
Robert O. Baldwin (father of Brad Baldwin).................... 10.42%
</TABLE>
The Company has also formed a second related limited partnership,
Gentner Research II, Ltd. ("GR2L"), also in which it acts as general partner. In
fiscal year 1997, GR2L sold proprietary interest in the GSC3000 to the Company
in exchange for royalty payments. Royalty expense recognized by the Company for
the years ending June 30, 1998 and 1997 was $54,810 and $36,588 respectively.
The following directors and/or executive officers and members of their immediate
families have purchased the following interests in GR2L:
<TABLE>
<S> <C>
Brad R. Baldwin (Director).................................. 3.19%
Robert O. Baldwin (father of Brad Baldwin).................. 9.58%
Hyrum S. Gentner (father of Russell Gentner)................ 3.19%
Edward D. Bagley (Director)................................. 6.39%
Edward N. Bagley (Director, father of Edward D. Bagley)..... 6.39%
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
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 a registered class of the Company's equity securities to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes of ownership of equity securities of the Company. Officers,
directors and greater than 10% shareholders are required to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, persons defined above have complied
with all applicable Section 16(a) requirements during the preceding fiscal year.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
NOMINEES NAMED ABOVE TO THE BOARD OF DIRECTORS.
11
<PAGE> 14
PROPOSAL TWO -- RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young, LLP, as
independent auditors for the Company for the current fiscal year, and recommends
that the shareholders vote for ratification of such appointment. Ernst & Young,
LLP, have served as the Company's independent auditors since 1990.
Neither Ernst & Young nor any of its members have ever had any
direct or indirect financial interest in the Company or been connected with the
Company as promoter, underwriter, voting trustee, director, officer, or
employee. It is anticipated that a representative of Ernst and Young will attend
the Annual Meeting and will be available to respond to questions. It is not
anticipated that the representative will make any statement or presentation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT AUDITORS.
PROPOSAL THREE -- APPROVAL OF 1998 STOCK OPTION PLAN
Effective June 10, 1998, the Board of Directors approved the 1998
Stock Option Plan (the "Plan") for the Company. The purpose of the Plan is to
provide stock option incentives to directors, officers, other employees,
consultants and advisors of the Company (or any future subsidiary or parent
company of the Company). The Company is seeking shareholder approval of the Plan
because such approval is required under Internal Revenue Service regulations in
order to allow the Company to award incentive stock options ("ISOs") under the
Plan, and under applicable requirements of The NASDAQ Stock Market, Inc.
Described below are the material features of the Plan.
GENERAL
The Plan provides for the grant of ISOs qualified under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") and
non-qualified stock options ("NSOs"). The Plan can be administered either by the
Board of Directors or one or more committees of the Board of Directors (the
"Administrator"). Option grants are made at the discretion of the Administrator
and may be made to Company officers, directors, employees, and other persons as
determined by the Administrator. Presently, there are two (2) executive
officers, five (5) non-employee directors, and 136 other employees of the
Company employed by the Company, all of whom (as well as all future employees)
are eligible to participate in the Plan. The Plan will terminate upon the
earlier of June 10, 2008, or the date on which all shares available under the
Plan have been issued.
The Plan provides that a maximum of 1,700,000 shares of Common
Stock may be issued under the Plan (subject to adjustment in the event of stock
splits or other changes in the Common Stock as provided in the Plan). To the
extent that options granted under the Plan (i) expire or terminate for any
reason prior to exercise, or (ii) are cancelled and replaced by the
Administrator, the shares of Common Stock underlying such options will again be
available for award under the Plan.
12
<PAGE> 15
Shares issued under the Plan will be "restricted" as defined
under Securities and Exchange Commission ("SEC") Rule 144, until such time as
the Company determines in its discretion, if at all, to register such shares
under the Securities Act of 1933. It is the Company's present intention to file
a registration statement on Form S-8 to allow the public sale of the shares
issued pursuant to the Plan. Cash proceeds from the exercise of option grants
will be used for general corporate purposes.
The Company's Board of Directors has determined that the Plan
will replace the Company's 1990 Stock Option Plan (the "1990 Plan") and no
additional option grants will be made under the 1990 Plan. All options issued
under the 1990 Plan will remain outstanding subject to the terms and conditions
of the 1990 Plan.
THE ADMINISTRATOR
As mentioned above, the Administrator of the Plan can be the
Board of Directors or one or more committees of the Board of Directors. Such
committee, if it grants options to officers and directors of the Company, must
be made up of two or more "non-employee directors" (as defined under SEC Rule
16(b)(3)). Currently, the Board of Directors has delegated authority to
administer the Plan to the Company's Compensation Committee. The Administrator
has full authority and discretion in the administration of the Plan, including
adopting rules for administration of the Plan and determining the designation of
those persons receiving option grants, the type of option granted, the number of
shares to be covered by options, the exercise price, and other options terms.
The Administrator's decisions in the administration of the Plan are final and
binding on all persons for all purposes.
OPTION TERMS
The Company may grant ISOs under the Plan only to employees of
the Company. Such grants must be at an exercise price per share not less than
100% of the fair market value of the Common Stock at the date of the grant (110%
for optionees holding 10% or more of the Company's Common Stock). The Plan
limits grants of ISOs that may be exercised for the first time by the holder
during any calendar year to $100,000 in market value. For optionees holding more
than 10% of the Company's Common Stock, ISOs must expire within five years from
the date of grant. ISOs are exercisable during a recipient's lifetime only by
such recipient and are transferable only upon death by will or the laws of
descent and distribution.
The Company may grant NSOs under the Plan to directors,
employees, consultants and advisors. Such NSOs are not subject to the
requirements of the Code and, therefore, may not contain the same restrictions
as ISOs issued under the Plan. NSOs must, however, have an exercise price not
lower than the fair market value of the Common Stock on the date of grant.
Additionally, no option, either ISO or NSO, may have a term of more than 10
years from the date of grant.
The exercise price for options may be paid to the Company in
cash, or at the discretion of the Administrator, in shares of Common Stock,
payments over time, or through a sale and remittance procedure implemented by
the Company with a brokerage firm. Generally, an option right may be exercised
only by the holder within three months after his or her termination of
employment (twelve months if termination is due to disability). An option
generally may be exercised no later than twelve months following an active
employee's death. Also, an option usually is terminated immediately upon
termination of an employee for material misconduct.
13
<PAGE> 16
These general rules regarding exercise following termination may be varied by
the Administrator, but in no event may an option be exercised later than the
date of expiration of the option.
NSOs are transferable, in whole or in part, only (i) during the
recipient's lifetime if a transfer is made in connection with the recipient's
estate plan to one or more members of the recipient's immediate family (spouse
and children) or to a trust established exclusively for the benefit of one or
more such immediate family members, or (ii) by will or the laws of descent and
distribution following the recipient's death.
Options may or may not be subject to a vesting schedule, whereby
the options become exercisable by the recipient in portions. Such vesting may be
based on the passing of time, performance goals, or some other criteria
determined by the Administrator. Generally, such vesting may be accelerated by
the Administrator in its discretion in the event of a major corporation
transaction (such as a merger or sale of all assets) or certain changes in
control of the Company.
AMENDMENTS
The Board of Directors can increase the number of shares that may
be awarded under the Plan, subject in certain instances to approval by the
shareholders. The Administrator may otherwise amend the Plan at any time and in
any manner, subject to the rights of the holders of outstanding options as
specified in their option agreements.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1998 STOCK OPTION PLAN
The following describes the general federal income tax
consequences of the option grants for grant recipients and the Company. A
recipient will not realize any income at the time an ISO is granted nor upon
exercise of an ISO. However, the difference between the option exercise price
and the Common Stock's fair market value at the time of exercise will be taken
into account for purposes of the recipient's alternative minimum income tax, if
any.
Upon the subsequent disposition of shares of Common Stock
acquired by the exercise of an ISO more than (i) two years after the ISO is
granted and (ii) one year after the transfer of shares of Common Stock upon the
exercise of such option, the recipient will realize capital gain or loss upon
such disposition. The option exercise price will be the recipient's basis for
determining the gain or loss. If the subsequent disposition of stock occurs
before the special holding requirements described above are met, the recipient
generally will recognize ordinary income upon such disposition equal to the
excess of the fair market value of the shares at the time the option was
exercised over the exercise price.
A recipient will not realize any income at the time an NSO is
granted. Upon the recipient's exercise of an NSO, the difference between the
fair market value of the Common Stock at the time of exercise and the option
price will be ordinary income to the employee.
At the time the recipient realizes ordinary income from the
exercise of an NSO, the Company will be entitled to a tax deduction in the same
amount as the ordinary income realized by the recipient. No such deduction or
other tax consequence is applicable to the Company upon grant or exercise of an
ISO.
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<PAGE> 17
The foregoing is only a summary of the effect of federal income
taxation upon a recipient with respect to the grant and exercise of options
under the Plan. This summary does not purport to be complete and does not
discuss the income tax laws of any state or foreign country in which an employee
may reside.
AWARDS UNDER THE STOCK OPTION PLAN
As of September 30, 1998, stock options for 815,000 shares of
Common Stock were outstanding under the Plan. The stock options outstanding
under the Plan are summarized below:
<TABLE>
<CAPTION>
OPTION HOLDER SHARES SUBJECT TO OPTIONS
------------- -------------------------
<S> <C>
Frances M. Flood
Director, President and CEO 100,000
Susie S. Strohm
Vice President, Finance 100,000
Current Executive Officers
As a Group 200,000
Current Directors Who
Are Not Executive Officers
As a Group 0
All Employees Who Are
Not Executive Officers 615,000
Total 815,000
</TABLE>
The options have a term of seven years and an exercise price of $2.66 per share.
Each option vests (becomes exercisable) annually with respect to a percentage of
one-fifth (1/5) of the total option shares upon the Company's achieving annual
increases in earnings per share ("EPS") in the five fiscal years 1999-2003, as
set forth on the schedule below. The annual increase in EPS and the number of
Options to become exercisable will be determined by the Administrator within
forty-five (45) days of the end of the fiscal year and shall be determined based
on the Company's audited financial statements for such fiscal year. For purposes
of determining EPS, the Administrator may, in its discretion, exclude or
otherwise adjust annual EPS due to the occurrence of an extraordinary event
during the fiscal year. Extraordinary events shall include the merger of the
Company, the Company's acquisition of all or substantially all assets or stock
of another company, the sale of all or substantially all assets or stock of the
Company to a third party, and other extraordinary transactions that are outside
the ordinary course of business.
15
<PAGE> 18
<TABLE>
<CAPTION>
Annual Earnings Per Share ($) Percentage of the one-fifth
Fiscal Year installment that vests
(June 30) ----------------------------
From To
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 0.0000 0.1699 0%
0.1700 0.1799 50%
0.1800 0.1899 60%
0.1900 0.1999 70%
0.2000 0.2099 80%
0.2100 0.2199 90%
>0.2199 100%
2000 0.0000 0.2799 0%
0.2800 0.2899 50%
0.2900 0.2999 60%
0.3000 0.3099 70%
0.3100 0.3199 80%
0.3200 0.3299 90%
>0.3299 100%
2001 0.0000 0.4199 0%
0.4200 0.4399 50%
0.4400 0.4599 60%
0.4600 0.4799 70%
0.4800 0.4999 80%
0.5000 0.5199 90%
>0.5199 100%
2002 0.0000 0.6399 0%
0.6400 0.6899 50%
0.6900 0.7399 60%
0.7400 0.7899 70%
0.7900 0.8399 80%
0.8400 0.8899 90%
>0.8899 100%
2003 0.0000 1.0499 0%
1.0500 1.1299 50%
1.1300 1.2099 60%
1.2100 1.2899 70%
1.2900 1.3699 80%
1.3700 1.4499 90%
>1.4499 100%
</TABLE>
16
<PAGE> 19
Based on the closing price of the Company's Common Stock on
Nasdaq as of September 1, 1998 ($1.88), the total market value of the 815,000
shares underlying outstanding grants under the Plan is $1,532,200.
A copy of the Plan is included in the exhibits to the Company's
1998 Form 10-KSB filed with the Securities and Exchange Commission ("SEC"). Such
report can be inspected and copies made at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
Commission's regional offices at Seven World Trade Center, Suite 1300, New York,
NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661. Copies of the Form 10-KSB can also be obtained by searching the "EDGAR
Archives" for the Company's name on the SEC's web page at http://www.sec.gov.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE 1998 STOCK OPTION PLAN
OTHER MATTERS
The Board of Directors knows of no other matter to be presented
for action at the Annual Meeting. If any other matters properly come before the
meeting, it is the intention of the persons named in the enclosed proxy to vote
the shares they represent as the Board of Directors may recommend.
It is important that your stock be represented at the meeting,
regardless of the number of shares which you hold. You are, therefore, urged to
execute and return the accompanying proxy in the postage-prepaid envelope
enclosed for that purpose at your earliest convenience.
FOR THE BOARD OF DIRECTORS
/s/ Frances M. Flood
----------------------------
Frances M. Flood, President
and Chief Executive Officer
Salt Lake City, Utah
October 14, 1998
17
<PAGE> 20
[Front side of proxy card]
GENTNER COMMUNICATIONS CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 18, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Gentner Communications Corporation, a
Utah corporation (the "Company"), hereby acknowledges receipt of the Notice of
Annual Meeting of Shareholders and Proxy Statement, each dated October 14, 1998,
and hereby appoints Frances M. Flood and Susie S. Strohm, proxies and
attorneys-in-fact, with full power to each of substitution in behalf of and in
the name of the undersigned, to represent the undersigned at the Annual Meeting
of Shareholders to be held on November 18, 1998, at 3:00 P.M. local time, at the
offices of the Company located at 1825 Research Way, Salt Lake City, Utah 84119,
and at any adjournment thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote, if then and there personally present, on
the matters set forth below.
A majority of such attorneys or substitutes as shall be present and
shall act at said meeting or any adjournment thereof (or, if only one shall be
present and act, then that one) shall have and may exercise all the powers of
said attorneys-in-fact hereunder. In addition to the following proposals, the
proxies are authorized to vote upon such other matters as may properly come
before the meeting or any adjournment thereof.
<TABLE>
<CAPTION>
WITHHOLD
I. ELECTION OF DIRECTORS FOR VOTE
--- -------
<S> <C> <C>
Frances M. Flood ____ ____
Edward Dallin Bagley ____ ____
Brad R. Baldwin ____ ____
Edward N. Bagley ____ ____
Dwight H. Egan ____ ____
K. Bradford Romney ____ ____
Mark here to vote for the ____ ____
entire slate of nominees
listed above
</TABLE>
<TABLE>
<CAPTION>
II. APPOINTMENT OF ERNST &
YOUNG, LLP AS AUDITORS FOR AGAINST ABSTAIN
---- ------- -------
<S> <C> <C> <C>
____ ______ _______
III. APPROVAL OF 1998
STOCK OPTION PLAN FOR AGAINST ABSTAIN
---- ------- -------
____ ______ _______
</TABLE>
(Continued and signed on reverse side)
18
<PAGE> 21
[Reverse side of proxy card]
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR ALL DIRECTORS SET FORTH HEREIN, FOR THE APPOINTMENT OF ERNST &
YOUNG AS INDEPENDENT PUBLIC ACCOUNTANTS, FOR THE APPROVAL OF THE 1998 STOCK
OPTION PLAN, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING.
- --------------------------------- ---------------------------------------
Date Signature
- --------------------------------- ---------------------------------------
Signature (if held jointly) Name of Shareholder (please print)
---------------------------------------
Title (if any)
(This proxy should be marked, dated, signed by each shareholder exactly as such
shareholder's name appears hereon and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If shares
are held by joint tenants or as community property, both should sign.)
19
