<PAGE>
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 Section 240.14a-11(c) or Section
240.14a-12
Hector Communications
- --------------------------------------------------------------------------------
(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>
HECTOR COMMUNICATIONS CORPORATION
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1997
------------------------
Notice is hereby given that the Annual Meeting of Shareholders of Hector
Communications Corporation will be held at The Marquette Hotel, 50th Floor IDS
Center, 7th and Marquette, Minneapolis, Minnesota 55402, on Thursday, May 22,
1997 at 2:00 p.m., Central Daylight Time, for the following purposes:
1. To elect three (3) directors to hold office until the 2000 Annual
Meeting of Shareholders or until their successors are elected.
2. To consider and act on a proposal to amend the Company's 1990 Stock Plan
to increase the total number of shares authorized to be issued under such
plan by 250,000 shares to a total of 500,000 shares.
3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 31, 1997 as
the record date for the determination of shareholders entitled to notice of and
to vote at the meeting.
By Order of the Board of Directors
Richard A. Primuth,
SECRETARY
Hector, Minnesota
April 15, 1997
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND IN
PERSON. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN
PERSON IF THEY SO DESIRE.
<PAGE>
HECTOR COMMUNICATIONS CORPORATION
211 SOUTH MAIN STREET
HECTOR, MINNESOTA 55342
(612) 848-6611
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished to the shareholders of Hector
Communications Corporation ("HCC" or the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company to be voted at
the Annual Meeting of Shareholders to be held at The Marquette Hotel, 50th Floor
IDS Center, 7th and Marquette, Minneapolis, Minnesota 55402 on Thursday, May 22,
1997, beginning at 2:00 p.m. or at any adjournment or adjournments thereof. The
cost of this solicitation will be paid by the Company. In addition to
solicitation by mail, officers, directors and employees of the Company may
solicit proxies by telephone, telegraph or in person. The Company may also
request banks and brokers to solicit their customers who have a beneficial
interest in the Company's Common Stock registered in the names of nominees and
will reimburse such banks and brokers for their reasonable out-of-pocket
expenses.
Any proxy may be revoked at any time before it is voted by receipt of a
proxy properly signed and dated subsequent to an earlier proxy, or by revocation
of a written proxy by request in person at the Annual Meeting. If not so
revoked, the shares represented by such proxy will be voted by the persons
designated as proxies in favor of the matters indicated. In the event any other
matters properly come before the meeting calling for a vote of shareholders, the
persons named as proxies will vote in accordance with their judgment on such
matters. The Company's corporate offices are located at 211 South Main Street,
Hector, Minnesota 55342, and its telephone number is (612) 848-6611. The mailing
of this Proxy Statement to shareholders of the Company commenced on or about
April 15, 1997.
The total number of shares outstanding and entitled to vote at the meeting
as of March 31, 1997 consisted of 1,883,857 shares of $.01 par value Common
Stock. Each share of Common Stock is entitled to one vote. Cumulative voting in
the election of directors is not permitted. Only shareholders of record at the
close of business on March 31, 1997 will be entitled to vote at the meeting. The
presence in person or by proxy of the holders of a majority of the shares
entitled to vote at the Annual Meeting of Shareholders constitutes a quorum for
the transaction of business. In addition to its outstanding Common Stock, the
Company had outstanding on the record date 389,487 shares of non-voting
convertible preferred stock. See "Security Ownership of Certain Beneficial
Owners and Management" herein.
Under Minnesota law, each item of business properly presented at a meeting
of shareholders generally must be approved by the affirmative vote of the
holders of a majority of the voting power of the shares present, in person or by
proxy, and entitled to vote on that item of business. However, if the shares
present and entitled to vote on any particular item of business would not
constitute a quorum for the transaction of business at the meeting, then that
item must be approved by holders of a majority of the minimum number of shares
that would constitute such a quorum. Votes cast by proxy or in person at the
Annual Meeting of Shareholders will be tabulated at the meeting to determine
whether or not a quorum is present. Abstentions on a particular item of business
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but as unvoted for purposes of determining
the approval of the matter. If a broker indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present and entitled to vote with
respect to that matter.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's common
stock by each person known by the Company to own of record or beneficially five
percent (5%) or more of the Company's common stock, and all officers and
directors of the Company as a group based upon information available as of March
15, 1997.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS*
- -------------------------------------- -------------------- ------------
<S> <C> <C>
Curtis A. Sampson 553,783(1) 29.4%
211 South Main Street
Hector, MN 55342
Mario J. Gabelli 414,174(2) 18.4%
One Corporate Center
Rye, New York 10580
Perkins Capital Management Inc. 464,306(3) 19.8%
730 E Lake Street
Wayzata, MN 55391
Paul N. Hanson 155,603(4) 8.3%
211 South Main Street
Hector, MN 55342
John C. Ortman 132,337 7.0%
1506 17th Street
Lawrenceville, IL 62439
Steve Sjogren 104,274(5) 5.5%
211 South Main Street
Hector, MN 55342
All directors and officers as a group 749,194(6) 39.8%
(9 persons)
</TABLE>
- ------------------------
* There are currently outstanding 389,487 shares of the Company's Series A
convertible preferred stock. The holders of preferred stock have no voting
rights, except in limited circumstances, but each share of preferred stock
is convertible at any time at the option of the holder into one share of
common stock. The percent calculations do not give effect to the conversion
of any shares of preferred stock, all of which are issued to persons and
entities directly or indirectly controlled by or affiliated with Mr. Mario
J. Gabelli, except for the percentage calculation applicable to Mr. Gabelli.
See footnote 2. Each such percentage calculation would decline approximately
17% if such conversion were assumed.
(1) The shares listed above include 377,572 shares owned by Mr. Sampson
directly, 49,000 shares which may be purchased within 60 days pursuant to
outstanding stock options, 7,062 shares owned by Mr. Sampson's wife, 64,051
shares owned by the Communications Systems, Inc. Employee Stock Ownership
Plan ("CSI ESOP") of which Mr. Sampson is a trustee and 56,098 shares owned
by the Hector Communications Corporation Employee Stock Ownership Plan
("Hector ESOP") of which Mr. Sampson is a trustee. See "Certain
Transactions" below. Mr. Sampson disclaims any beneficial ownership of the
shares owned by his wife and disclaims any beneficial ownership of the
shares owned by the CSI ESOP and the Hector ESOP in excess of the shares
allocated to his account, which totalled 8,264 shares at December 31, 1996.
(2) The aggregate number of shares listed above includes shares respectively
held by various persons or entities which are deemed to be controlled,
direct or indirectly, by or affiliated with Mr. Gabelli. The aggregate
number of shares listed above include 372,387 shares of the Company's
non-voting convertible preferred stock (convertible on a one for one basis
at any time into the Company's
2
<PAGE>
common stock) which are held by the following persons in the amounts
respectively indicated: Gabelli Performance Partnership, 247,200 shares and
Lynch Corporation, 125,187 shares. In addition, the following persons hold
shares of the Company's common stock in the amounts respectively indicated:
Gabelli Performance Partnership, 30,000 shares and Gabelli and Company,
Inc., 1,150 shares.
(3) The shares indicated include 456,306 shares deemed to be owned by Perkins
Capital Management, Inc. as the beneficial holder of $4,052,000 Hector
Communications Corporation 8.5% Convertible Subordinated Debentures due
2002.
(4) The shares listed above include 13,254 shares owned by Mr. Hanson directly,
22,200 shares which may be purchased within 60 days pursuant to outstanding
stock options, 64,051 shares owned by the CSI ESOP of which Mr. Hanson is a
trustee and 56,098 shares owned by the Hector ESOP of which Mr. Hanson is a
trustee. Mr. Hanson disclaims any beneficial ownership of the shares owned
by the CSI and Hector ESOP's in excess of the shares allocated to his
account, which totalled 3,161 shares at December 31, 1996.
(5) The shares listed above include 9,076 shares owned by Mr. Sjogren directly,
39,100 shares deemed outstanding pursuant to options exercisable within 60
days and 56,098 shares owned by the Hector ESOP of which Mr. Sjogren is a
trustee. Mr. Sjogren disclaims any beneficial ownership of the shares owned
by the Hector ESOP in excess of the shares allocated to his account, which
totalled 4,536 shares at March 1, 1997.
(6) Includes 120,149 shares owned collectively by the CSI ESOP and the Hector
ESOP of which Messrs. C. A. Sampson, Sjogren and Hanson are trustees, and
133,400 shares deemed outstanding pursuant to options exercisable within 60
days. Mr. Sampson, Sjogren and Mr. Hanson disclaim any beneficial ownership
of the shares owned by the CSI ESOP and the Hector ESOP in excess of shares
allocated to their respective accounts as described under footnotes 1, 4 and
5 above.
ELECTION OF DIRECTORS
The Board of Directors has nominated and recommends for election as
directors of the Company the three persons named below. Messrs. Charles R.
Dickman and Edward E. Strickland have served as directors since 1990. Messr.
Paul A. Hoff has served as director since 1993. It is intended that proxies will
be voted for such nominees. The Board of Directors believes that each nominee
named below will be able to serve, but should a nominee be unable to serve as a
director, the persons named in the proxies have advised that they will vote for
the election of such substitute nominee as the Board of Directors may propose.
Information regarding the nominees and other directors filling unexpired
terms, including information regarding their principal occupations currently and
for the preceding five years, is set forth below and on the following page.
Ownership of Common Stock of the Company is given as of March 15, 1997. To the
best of the Company's knowledge, unless otherwise indicated below, the persons
indicated possess sole voting and investment power with respect to their stock
ownership.
<TABLE>
<CAPTION>
YEAR
CURRENT AMOUNT OF PERCENT OF
PRINCIPAL OCCUPATION DIRECTOR TERM STOCK OUTSTANDING
NAME AND AGE AND OTHER DIRECTORSHIPS SINCE EXPIRES OWNERSHIP STOCK
- -------------------------- ---------------------------------------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
NOMINEES PROPOSED FOR ELECTION FOR TERM EXPIRING IN 2000
Charles R. Dickman Retired Pharmacist, Hector, Minnesota. 1990 1997 53,161(1) 2.8%
(76)
Paul A. Hoff Chief Executive Officer, Park Regional 1993 1997 2,000(2) *
(49) Mutual Telephone Company, Underwood,
Minnesota.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR
CURRENT AMOUNT OF PERCENT OF
PRINCIPAL OCCUPATION DIRECTOR TERM STOCK OUTSTANDING
NAME AND AGE AND OTHER DIRECTORSHIPS SINCE EXPIRES OWNERSHIP STOCK
- -------------------------- ---------------------------------------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Edward E. Strickland Business and management consultant; 1990 1997 13,750(3) *
(70) Director of: Green Isle Environmental
Services, Inc. (manufacturing);
Bio-Vascular, Inc. (medical devices);
Intercim, Inc. (factory management
software); Communications Systems, Inc.;
and Avecor Cardiovascular, Inc. (medical
devices).
DIRECTORS SERVING UNEXPIRED TERMS
James O. Ericson Business consultant and private investor 1995 1998 24,810(4) 1.3%
(61)
Paul N. Hanson Vice President and Treasurer of the 1990 1998 155,603(5) 8.3%
(50) Company; Chief Financial Officer, Vice
President of Finance and Treasurer of
Communications Systems, Inc.
(manufacturer of telephone connecting
and wiring devices) since 1982.
Wayne E. Sampson Management consultant; director of 1990 1998 71,051(6) 3.8%
(67)+ Communications Systems, Inc.
Curtis A. Sampson Chairman and Chief Executive Officer of 1990 1999 553,783(7) 29.4%
(63)+ the Company; Chairman of the Board,
President and Chief Executive Officer of
Communications Systems, Inc.
Steven H. Sjogren President and Chief Operating Officer of 1990 1999 104,274(8) 5.5%
(54)+ the Company.
</TABLE>
- ------------------------
+ Wayne E. Sampson and Curtis A. Sampson are brothers and each is a first
cousin to Mr. Sjogren.
* Indicates ownership of less than one percent.
(1) Includes 14,334 shares owned by Mr. Dickman's wife, as to which beneficial
ownership is disclaimed, and 3,500 shares deemed outstanding pursuant to
options exercisable within 60 days.
(2) Represents shares deemed outstanding pursuant to options exercisable within
60 days.
(3) Includes 3,500 shares deemed outstanding pursuant to options exercisable
within 60 days and 2,250 shares upon conversion of convertible dentures.
(4) Includes 3,310 shares owned by Mr. Ericson's spouse, as to which beneficial
ownership is disclaimed and 1,000 shares deemed outstanding pursuant to
options exercisable within sixty days.
(5) See footnote 4 to "Security Ownership of Certain Beneficial Owners and
Management" above.
4
<PAGE>
(6) Includes 3,500 shares owned by Mr. W. E. Sampson directly, 3,500 shares
which may be purchased within 60 days pursuant to outstanding stock options,
and 64,051 shares owned by the CSI ESOP, of which Mr. Sampson is a trustee.
Mr. Sampson disclaims any beneficial ownership of the shares owned by the
CSI ESOP.
(7) See footnote 1 to "Security Ownership of Certain Beneficial Owners and
Management" above.
(8) See footnote 5 to "Security Ownership of Certain Beneficial Owners and
Management" above.
INFORMATION REGARDING BOARD AND BOARD COMMITTEES
The Board of Directors of the Company met three times during 1996. Each
director nominee and continuing director attended at least 75% of the meetings
of the Board and each committee on which such director served.
Each non-employee members of the Board is paid an annual fee of $3,600, plus
$300 for each meeting attended. Messrs. Curtis A. Sampson, Sjogren and Hanson,
who are otherwise employed by the Company, receive no additional compensation
for service on the Board.
Each non-employee member of the Board of Directors receives at the time of
each annual meeting of the shareholders an option to purchase 500 shares of the
Company's Common Stock on the date of such election or re-election. Each
director's option is to purchase 500 shares of Common Stock at a price equal to
the fair market value of the Company's Common Stock on the date of grant
exercisable over a ten-year period beginning six months after the date the
option is granted.
The Company has an Audit Committee consisting of Messrs. Wayne E. Sampson
and Strickland. The Audit Committee recommends to the full Board of Directors
the selection of independent accountants and reviews the activities and reports
of the independent accountants, as well as the internal accounting controls of
the Company. The Audit Committee met once in 1996.
The Company has a Compensation Committee consisting of Messrs. Dickman,
Wayne E. Sampson and Sjogren. The Compensation Committee met twice during 1996.
The Compensation Committee recommends to the Board of Directors compensation for
executive officers and key personnel and reviews the Company's compensation
policies and practices. Mr. Sjogren does not participate in the consideration by
the committee of his own compensation.
PROPOSAL TO AMEND THE 1990 STOCK PLAN
GENERAL INFORMATION
The Company's 1990 Stock Plan (the "1990 Plan") has been in effect since the
Company became a separate public company in August 1990. The purpose of the 1990
Plan is to enable the Company and its subsidiaries to retain and attract key
employees and non-employee directors who contribute to the Company's success by
their ability, ingenuity and industry and to enable such key employees and non-
employee directors to participate in the long-term success and growth of the
Company by giving them a proprietary interest in the Company. The 1990 Plan
authorizes the granting of stock options, the issuance of restricted stock and
the grant of stock appreciation rights. At the Company's 1997 Annual
Shareholders Meeting, shareholders will ask to approve amendments to the 1990
Plan which will (i) increase the total number of shares which may be acquired
pursuant to options granted under the 1990 Plan from 250,000 to 500,000 shares
and (ii) increase the number of stock options which are automatically awarded to
continuing non-employee directors of the Company.
PROPOSED PLAN AMENDMENTS
The 1990 Plan originally authorized the issuance of 250,000 shares of Common
Stock pursuant to options and restricted stock grants. The Board of Directors
has amended the 1990 Plan, subject to ratification and approval by the
shareholders, to increase the total number of shares available by 250,000 shares
to a total of 500,000 shares. As of the date of this Proxy Statement 2,800
shares of the Company's common stock have been acquired pursuant to options
granted under the 1990 Plan and
5
<PAGE>
options to purchase an additional 205,675 shares have been granted. The Board of
Directors has deemed it prudent to increase the shares available for a grant
under the 1990 Plan by 250,000 shares to enable the Company to continue to make
option grants during the next several years.
As discussed below in greater detail, the 1990 Plan currently provides for
the annual, automatic grant of an option to acquire 500 shares of common stock
to each non-employee director as of the date of the Company's annual
shareholders meeting if the non-employee director is reelected at the annual
meeting or is serving an unexpired term which continues past the annual meeting.
Shareholders will be asked at the 1997 Annual Shareholders Meeting to increase
the number of shares covered by the option automatically granted to each
continuing non-employee director from 500 to 1,000 shares. The proposed increase
in shares covered by the annual automatic stock option grant is intended to more
fairly compensate the non-employee directors for the time commitment and
valuable service they render particularly in consideration of the substantial
increase in the scope of their responsibilities related to the Company's
acquisition of Ollig Utilities Company during 1996. Even with the proposed
increase in the automatic stock grant, it is believed that the compensation of
non-employee directors, viewed as a whole, is no greater than what is typically
paid to directors of comparably sized companies.
SUMMARY OF THE 1990 PLAN
SHARES AVAILABLE UNDER 1990 PLAN. The maximum number of shares of common
stock presently reserved and available for awards under the 1990 Plan is 250,000
(subject to possible adjustment in the event of stock splits or other similar
changes in the common stock). Shares of common stock covered by expired or
terminated stock options and forfeited shares of restricted stock or deferred
stock may be used for subsequent awards under the 1990 Plan.
ELIGIBILITY AND ADMINISTRATION. Officers and other key employees of the
Company and its subsidiaries who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company and its
subsidiaries are eligible to be granted awards under the 1990 Plan. The 1990
Plan is administered by the Board or, in its discretion, by a committee of not
less than three "disinterested persons," as defined in the 1990 Plan (the
"Committee"), who are appointed by the Board of Directors. The term "Board" as
used in this section refers to the Board or, if the Board has delegated its
authority, the Committee. The Board has the power to make awards, determine the
number of shares covered by each award and other terms and conditions of such
awards, interpret the 1990 Plan, and adopt rules, regulations and procedures
with respect to the administration of the 1990 Plan. The Board may delegate its
authority to officers of the Company for the purpose of selecting key employees
who are not officers of the Company to be participants in the 1990 Plan.
STOCK OPTIONS. The Board may grant stock options that either qualify as
"incentive stock options" under the Internal Revenue Code or are "non-qualified
stock options" in such form and upon such terms as the Board may approve from
time to time. Stock options granted under the 1990 Plan may be exercised during
their respective terms as determined by the Board. The purchase price may be
paid by tendering cash or, in the Board's discretion, by tendering promissory
notes or common stock. The Committee may, in its sole discretion, permit
optionees to pay the option exercise price by having the Company withhold upon
exercise of the option a number of shares with a fair market value equal to the
aggregate option exercise price. No stock option shall be transferable by the
optionee or exercised by anyone else during the optionee's lifetime.
Stock options may be exercised during varying periods of time after a
participant's termination of employment, depending upon the reason for the
termination. Following a participant's death, the participant's stock options
may be exercised by the legal representative of the estate or the optionee's
legatee for a period of three years or until the expiration of the stated term
of the option, whichever is less. The same time periods apply if the participant
is terminated by reason of disability or retirement. If the participant is
terminated without cause, the option may be exercised for the lesser of three
months or the balance of the option's term. If the participant's employment is
terminated for any other reason, the participant's stock options immediately
terminate. These exercise periods may be reduced by the Board for particular
options.
6
<PAGE>
No incentive stock options shall be granted under the 1990 Plan after August
1, 2000. The term of an incentive stock option may not exceed 10 years (or 5
years if issued to a participant who owns or is deemed to own more than 10% of
the combined voting power of all classes of voting stock of the Company, any
subsidiary or affiliate). The aggregate fair market value of the common stock
with respect to which an incentive stock option is exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000. The
exercise price under an incentive stock option may not be less than the fair
market value of the common stock on the date the option is granted (or, in the
event the participant owns more than 10% of the combined voting power of all
classes of stock of the Company, the option price shall be not less than 110% of
the fair market value of the stock on the date the option is granted). The
exercise price for non-qualified options granted under the 1990 Plan may be less
than 100% of the fair market value of the common stock on the date of grant.
The 1990 Plan also provides for automatic grants of non-qualified stock
options to non-employee directors of the Company. Non-employee directors who are
serving unexpired terms or reelected at an annual shareholders meeting and who
have served on the Board for at least six months of the preceding twelve month
period presently are granted a ten-year non-qualified stock option to purchase
500 shares of common stock. The non-qualified stock options granted to
non-employee directors vest six months from the date granted and the purchase
price of the shares of common stock subject to such options is the fair market
value of the common stock on the date the non-qualified stock option is granted.
RESTRICTED STOCK. The Board may grant restricted stock awards that result
in shares of common stock being issued to a participant subject to restrictions
against disposition during a restricted period established by the Board. The
Board may condition the grant of restricted stock upon the attainment of
specified performance goals or service requirements. The provisions of
restricted stock awards need not be the same with respect to each recipient. The
restricted stock will be held in custody by the Company until the restrictions
thereon have lapsed. During the period of the restrictions, a participant has
the right to vote the shares of restricted stock and to receive dividends and
distributions unless the Board requires such dividends and distributions to be
held by the Company subject to the same restrictions as the restricted stock.
Notwithstanding the foregoing, all restrictions with respect to restricted stock
lapse 60 days (or less as determined by the Board) prior to the occurrence of a
merger or other significant corporate change, as provided in the 1990 Plan.
If a participant terminates employment during the period of the
restrictions, all shares still subject to restrictions will be forfeited and
returned to the Company, subject to the right of the Board to waive such
restrictions in the event of a participant's death, total disability, retirement
or under special circumstances approved by the Board.
GENERAL PROVISIONS. The Board may, at the time of any grant under the 1990
Plan, provide that the shares received under the 1990 Plan shall be subject to
repurchase by the Company in the event of termination of employment of the
participant. The repurchase price will be the fair market value of the stock or,
in the case of a termination for cause (as defined in the 1990 Plan), the amount
of consideration paid for the stock. The Board may also, at the time of grant,
provide the Company with similar repurchase rights, upon terms and conditions
specified by the Board, with respect to any participant who, at any time within
two years after termination of employment with the Company, directly or
indirectly competes with, or is employed by a competitor of, the Company.
FEDERAL INCOME TAX CONSEQUENCES
STOCK OPTIONS. An optionee will not realize taxable compensation income
upon the grant of an incentive stock option. In addition, an optionee generally
will not realize taxable compensation income upon the exercise of an incentive
stock option if he or she exercises it as an Employee or within three months
after termination of employment (or within one year after termination if the
termination results from a permanent and total disability). The amount by which
the fair market value of the shares purchased exceeds the aggregate option price
at the time of exercise shall be treated as alternative minimum taxable income
for purposes of the alterative minimum tax. If stock acquired
7
<PAGE>
pursuant to an incentive stock option is not disposed of prior to the date two
years from the option grant date or prior to one year from the option exercise
date, any gain or loss realized upon the sale of such shares will be
characterized as capital gain or loss. If the applicable holding periods are not
satisfied, then any gain realized in connection with the disposition of such
stock will generally be taxable as compensation income in the year in which the
disposition occurred, to the extent of the difference between the fair market
value of such stock on the date of exercise and the option exercise price. The
Company is entitled to a tax deduction to the extent, and at the time, that the
participant realized compensation income. The balance of any gain will be
characterized as a capital gain. Under current law, net long-term capital gains
are taxed at a maximum federal tax rate of 28%, while other income may be taxed
at a higher federal rate.
An optionee will not realize taxable compensation income upon the grant of a
non-qualified stock option. When an optionee exercises a non-qualified stock
option, he or she will realize taxable compensation income at that time equal to
the difference between the aggregate option price and the fair market value of
the stock on the date of exercise.
Upon the exercise of a non-qualified stock option, the 1990 Plan requires
the optionee to pay to the Company any amount necessary to satisfy applicable
federal, state or local withholding tax requirements. Under the 1990 Plan, the
Board may grant options that permit the optionee to elect to satisfy withholding
tax requirements associated with the exercise of an option by authorizing the
Company to retain from the number of shares that would otherwise be deliverable
to the optionee that number of shares having an aggregate fair market value
equal to the tax required to be withheld. The Company would pay the tax
liability from its own funds.
RESTRICTED STOCK. The grant of restricted stock should not result in
immediate income for the participant or in a deduction for the Company for
federal income tax purposes, assuming the shares are nontransferable and subject
to restrictions which would result in a "substantial risk of forfeiture" as
intended by the Company. If the shares are transferable or there are no such
restrictions, the participant would recognize compensation income upon receipt
of the award. Otherwise, a participant will generally realize taxable
compensation income when any such restrictions lapse. The amount of such income
will be the value of the common stock on that date less any amount paid for the
shares. Dividends paid on the common stock and received by the participant
during the restricted period would also be taxable compensation income to the
participant. In any event, the Company will be entitled to a tax deduction to
the extent, and at the time, that the participant realizes compensation income.
A participant may elect, under Section 83(b) of the Code, to be taxed on the
value of the stock at the time of award. If this election is made, the fair
market value of the stock at the time of the election is taxable to the
participant as compensation income, and the Company is entitled to a
corresponding deduction. Dividends on the stock are then taxable to the
participant and are no longer deductible by the Company.
Participants may be required to pay in cash to the Company any taxes
required to be withheld at the date restrictions lapse with respect to
restricted stock. The participant may elect to satisfy withholding, in whole or
in part, by having the Company withhold shares of common stock having an
aggregate fair market value equal to the amount required to be withheld. The
Company would pay the tax liability from its own funds.
REGISTRATION WITH SEC
Upon approval of the amendments to the 1990 Plan by the shareholders, the
Company intends to file a registration statement covering the offering of the
additional 250,000 shares of Common Stock under the 1990 Plan with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
VOTE REQUIRED
Shareholder approval of the amendments to the 1990 Plan requires the
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the meeting and entitled to vote.
8
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENTS TO
THE 1990 PLAN TO INCREASE THE SHARES AUTHORIZED FOR ISSUANCE THEREUNDER TO
500,000 SHARES AND TO INCREASE THE SHARES COVERED BY THE AUTOMATIC STOCK OPTION
GRANT TO CONTINUING NON-EMPLOYEE DIRECTORS TO 1,000 SHARES PER YEAR.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following tables show, for the fiscal years ending December 31, 1996,
1995 and 1994, the cash and other compensation paid to or accrued by the Company
for the Company's chief executive officer and chief operating officer in all
capacities served, as well as information relating to option grants, option
exercises and fiscal year end option values applicable to such persons.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
--------------------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (NUMBER OF SHARES) COMPENSATION(2)
- ------------------------------- --------- ----------- --------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
Curtis A. Sampson, 1996 $ 113,654 $ 15,000 10,000 $ 7,618
Chief Executive Officer (1) 1995 $ 110,854 $ 25,000 10,000 $ 7,970
1994 $ 97,596 -0- 10,000 $ 6,111
Steven H. Sjogren, 1996 $ 89,385 $ 9,000 8,100 $ 6,501
Chief Operating Officer 1995 $ 84,642 $ 7,500 8,000 $ 6,726
1994 $ 78,894 $ 5,000 8,000 $ 6,359
</TABLE>
- ------------------------
Note: Certain columns have not been included in this table because the
information called for therein is not applicable to the Company or the
individual named above for the periods indicated.
(1) Mr. Sampson devotes approximately 40% of his working time to the Company.
The balance of his working time Mr. Sampson serves as Chairman and
Executive Officer of Communications Systems, Inc., for which he is
separately compensated. See "Certain Transactions."
(2) All other compensation for Messrs. Sampson and Sjogren consisted of
Company contributions to the Company's 401(k) Plan and Employee Stock
Ownership Plan.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ---------------------------------------------------------------------------------------- VALUE AT ASSUMED
% OF ANNUAL RATES OF
TOTAL OPTIONS MARKET STOCK PRICE
GRANTED TO EXERCISE PRICE ON APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE PER DATE OF EXPIRATION OPTION TERM
NAME GRANTED FISCAL YEAR SHARE GRANT DATE 5% 10%
- ---------------------- --------- --------------- ----------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Curtis A. Sampson 10,000 21.6% $ 7.15 $ 6.50 3/11/01 $ 11,458 $ 33,183
Steven H. Sjogren 8,100 17.5% 6.50 6.50 3/21/01 14,546 32,143
</TABLE>
9
<PAGE>
OPTION EXERCISES IN 1996
There were no option exercises by the named executives in 1996.
1996 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
NUMBER OF UNEXERCISED FY-END (BASED ON 12/31/96
OPTIONS AT 12/31/96 PRICE OF $ /SH)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Curtis A. Sampson 39,000 10,000 $ 1,333 --
Steven H. Sjogren 31,033 8,067 10,025 --
</TABLE>
EMPLOYMENT CONTRACTS
The Company entered into an employment agreement effective August 1, 1990
with Mr. Steven H. Sjogren, the Company's President, which has a term of 10
years. Current compensation under the contract is $91,000 per annum which is
subject to increase pursuant to annual salary reviews. In addition to other
customary terms and conditions, the employment agreement requires that any early
termination of the agreement by the Company be "for cause."
CERTAIN TRANSACTIONS
TRANSACTIONS AND SHARED MANAGEMENT WITH COMMUNICATIONS SYSTEMS, INC.
The Company receives certain staff services and systems, such as payroll and
pension plan administration, from Communications Systems, Inc. pursuant to an
agreement entered into in August 1990 with the costs and expenses of such
services paid by the Company. CSI has continued to make available to the Company
certain centralized staff services and systems, such as payroll and pension plan
administration, with the related costs and expenses being paid by the Company.
In 1996 and 1995 the Company paid CSI, respectively, $258,000 and $279,000 for
such services, amounts which management believes is less than what the Company
would pay if it was required to pay for such services from another vendor.
Three of the Company's executive officers, Curtis A. Sampson, Paul N. Hanson
and Charles A. Braun, each devote approximately 40% of their working time to the
Company. Messrs. Sampson, Hanson and Braun devote the remainder of their working
time to CSI, of which Mr. Sampson serves as Chairman and Chief Executive
Officer. Mr. Hanson serves as Chief Financial Officer, Vice President of Finance
and Treasurer, and Mr. Braun serves as Controller. These officers are separately
compensated for their services to CSI.
REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION
The Company's officers, directors and beneficial holders of 10% or more of
the Company's securities are required to file reports of their beneficial
ownership with the Securities and Exchange Commission on SEC Forms 3, 4 and 5.
According to the Company's records, during the period from January 1, 1996 to
December 31, 1996, officers, directors and ten percent beneficial holders of the
Company filed all reports with the Securities and Exchange Commission required
under Section 16(a) to report their beneficial ownership.
THE COMPANY'S AUDITORS
Olsen Thielen & Co., Ltd. have been the auditors for the Company since 1969
and have been selected by the Board of Directors, upon recommendation of the
Audit Committee, to serve as such for the current fiscal year. A representative
of Olsen Thielen & Co., Ltd. is expected to be present at the Annual Meeting of
Shareholders and will have an opportunity to make a statement and will be
available to respond to appropriate questions.
10
<PAGE>
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
The proxy rules of the Securities and Exchange Commission permit
shareholders of the Company, after timely notice to the Company, to present
proposals for shareholder action in the Company's proxy statement where such
proposals are consistent with applicable law, pertain to matters appropriate for
shareholder action and are not properly omitted by Company action in accordance
with the Commission's proxy rules. The next annual meeting of the shareholders
of Hector Communications Corporation is expected to be held on or about May 15,
1998 and proxy materials in connection with that meeting are expected to be
mailed on or about March 31, 1998. Shareholder proposals prepared in accordance
with the Commission's proxy rules must be received at the Company's corporate
office, 211 South Main Street, Hector, Minnesota 55342, Attention: President, by
November 30, 1997, in order to be considered for inclusion in the Board of
Directors' Proxy Statement and proxy card for the 1998 Annual Meeting of
Shareholders. Any such proposals must be in writing and signed by the
shareholder.
The Bylaws of the Company establish an advance notice procedure with regard
to (i) certain business to be brought before an annual meeting of shareholders
of the Company and (ii) the nomination by shareholders of candidates for
election as directors.
PROPERLY BROUGHT BUSINESS. The Bylaws provide that at the annual meeting
only such business may be conducted as is of a nature that is appropriate for
consideration at an annual meeting and has been either specified in the notice
of the meeting, otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or otherwise properly brought before the
meeting by a shareholder who has given timely written notice to the Secretary of
the Company of such shareholder's intention to bring such business before the
meeting. To be timely, the notice must be given by such shareholder to the
Secretary of the Company not less than 45 days nor more than 75 days prior to a
meeting date corresponding to the previous year's annual meeting. Notice
relating to the conduct of such business at an annual meeting must contain
certain information as described in Section 2.9 of the Company's Bylaws, which
are available for inspection by shareholders at the Company's principal
executive offices pursuant to Section 302A.461, subd. 4 of the Minnesota
Statutes. Nothing in the Bylaws precludes discussion by any shareholder of any
business properly brought before the annual meeting in accordance with the
Company's Bylaws.
SHAREHOLDER NOMINATIONS. The Bylaws provide that a notice of proposed
shareholder nominations for the election of directors must be timely given in
writing to the Secretary of the Company prior to the meeting at which directors
are to be elected. To be timely, the notice must be given by such shareholder to
the Secretary of the Company not less than 45 days nor more than 75 days prior
to a meeting date corresponding to the previous year's annual meeting. The
notice to the Company from a shareholder who intends to nominate a person at the
meeting for election as a director must contain certain information as described
in Section 3.7 of the Company's Bylaws, which are available for inspection by
shareholders as described above. If the presiding officer of a meeting of
shareholders determines that a person was not nominated in accordance with the
foregoing procedure, such person will not be eligible for election as a
director.
OTHER MATTERS
Management knows of no other matters that will be presented at the meeting.
If any other matters arise at the meeting, it is intended that the shares
represented by the proxies in the accompanying form will be voted in accordance
with the judgment of the persons named in the proxy.
11
<PAGE>
The Company is transmitting with this Proxy Statement its Annual Report for
the year ended December 31, 1996. SHAREHOLDERS MAY RECEIVE, WITHOUT CHARGE, A
COPY OF THE COMPANY'S 1996 FORM 1O-K REPORT AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION BY WRITING TO ASSISTANT SECRETARY, HECTOR COMMUNICATIONS
CORPORATION, 211 SOUTH MAIN STREET, HECTOR, MINNESOTA 55342.
By Order of the Board of Directors,
Richard A. Primuth,
SECRETARY
12
<PAGE>
HECTOR COMMUNICATIONS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 22, 1997
The undersigned hereby appoints Curtis A. Sampson and Steven H. Sjogren or
any of them, as proxies, with full power of substitution to vote all the shares
of common stock which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Shareholders of Hector Communications
Corporation, to be held Thursday, May 22, 1997, at 2:00 p.m. Central Daylight
Time at The Marquette Hotel, 50th Floor IDS Center, 7th and Marquette,
Minneapolis, Minnesota 55402, or at any adjournments thereof, upon any and all
matters which may properly be brought before the meeting or adjournment thereof,
hereby revoking all former proxies.
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS. / / WITH AUTHORITY / / WITHOUT AUTHORITY
to vote for all nominees listed below to vote for nominees listed below
(EXCEPT AS INDICATED TO THE CONTRARY)
for a three year term ending at the
2000 Annual Meeting of Shareholders
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
Charles R. Dickman Paul A. Hoff Edward E. Strickland
_____________________________________________________________________________
<TABLE>
<S> <C>
2. Proposal to ratify and approve amendments to the 1990 Stock Plan to
increase to 500,000 shares the total number of shares authorized for
issuance thereunder and to increase to 1,000 shares per year the shares
covered by the stock option automatically granted annually to continuing
non-employee directors.
/ / FOR / / AGAINST / /
ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
</TABLE>
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF
DIRECTORS NAMED AND THE PROPOSAL SUMMARIZED ON THE REVERSE SIDE OF THIS CARD
UNLESS OTHERWISE SPECIFIED.
PLEASE DATE AND SIGN exactly as your name(s) appears below indicating, where
proper, official position or representative capacity in which you are signing.
When signing as executor, administrator, trustee or guardian, give full title as
such; when shares have been issued in names of two or more persons, all should
sign.
Dated _______________________, 1997
___________________________________
Signature
___________________________________
Signature if held jointly
