SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6
(c)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11 (c) or Section 240.14a-12
VIDEOLABS, INC
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11 (c)(1)(ii), 14a-6(I)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11,-1 4) Proposed maximum aggregate
value of transaction:
1 Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] 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 of schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registrant Statement No:
3) Filing Party:
4) Date Filed:
<PAGE>
PRELIMINARY
VIDEOLABS, INC.
----------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1998
TO THE SHAREHOLDERS OF VIDEOLABS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of VideoLabs,
Inc., a Delaware corporation (the "Company"), will be held on Wednesday, May 20,
1998, at 3:00 p. m., local time, at The Metropolitan, 5418 Wayzata Boulevard,
Minneapolis, 55416 for the following purposes:
1. To elect four Directors to serve for the ensuing year and
until their successors are duly elected and qualified.
2. To authorize a 200,000 share increase in the number of shares
of Common Stock available for stock options under the Company
Employee Stock Option Plan.
3. To transact such other business as may properly come before
the meeting and any adjournment thereof.
The foregoing items of business are more fully described in the
Proxy Statement accompanying this Notice.
Only shareholders of record at the close of business on March 31, 1998,
are entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
All shareholders are cordially invited to attend the Annual Meeting
in person. Any shareholder attending the Annual Meeting may vote in person even
if such shareholder previously signed and returned a Proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jill R. Larson
Jill R. Larson
Secretary
Minneapolis, Minnesota
April __, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE>
PRELIMINARY
VIDEOLABS, INC.
--------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1998
The enclosed Proxy is solicited on behalf of the Board of Directors
of VideoLabs, Inc., a Delaware corporation (the "Company"), for use at the
Company's Annual Meeting of Shareholders ("Annual Meeting") to be held
Wednesday, May 20, 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
Metropolitan, 5418 Wayzata Boulevard, Minneapolis, 55416.
The Company's principal executive offices are located at 5960 Golden
Hills Drive, Minneapolis, Minnesota 55416. The telephone number at that address
is (612) 542-0061.
These Proxy solicitation materials and the Company's Annual Report to
Shareholders for its fiscal year ended December 31, 1997 were mailed on or about
April 15, 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 March 31, 1998,
are entitled to notice of, and to vote at, the Annual Meeting. At the record
date 3,285,143 shares of the Company's Common Stock were issued, outstanding and
entitled to vote at the Annual Meeting.
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 the Secretary of
the Company a written notice of revocation or a duly executed Proxy bearing a
later date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
The enclosed Proxy is solicited on behalf of the Board of Directors
of the Company.
Every shareholder voting for the election of Directors shall be
entitled to one vote for each share of Common Stock standing in such
shareholder's name on the books of the Company for each Director separately on a
non-cumulative basis. On all other matters each share is entitled to one vote on
each proposal or item that comes before the Annual Meeting.
Proxy statements delivered to brokers who are prohibited from
exercising discretionary authority over beneficial owners who have not provided
voting instructions (commonly referred to as "broker non-votes") will not be
included in these vote totals. The Company will include abstentions and broker
non-votes as present or represented for purposes of establishing a quorum for
transaction of business, but will exclude abstentions and broker non-votes from
the calculation of shares entitled to vote with respect to any proposal for
which authorization to vote was withheld.
The cost of this solicitation will be borne by the Company. 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 compensation, personally or
by telephone or telegram.
<PAGE>
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be
presented by such shareholders at the Company's 1999 Annual Meeting must be
received by the Secretary of the Company no later than ___________, 1998, in
order to be included in the Proxy soliciting material relating to that Annual
Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 1, 1998, certain
information concerning those persons known by the Company to be the beneficial
owners of more than five percent (5%) of the outstanding shares of Common Stock
of the Company; the number of shares of Common Stock owned by all directors of
the Company, individually; and all Directors and all executive officers of the
Company as a group.
SHARES BENEFICIALLY OWNED(1)
NAME NUMBER PERCENT(2)
Ward C. Johnson 477,091(3) 12.3%
4507 Moorland Avenue
Edina, Minnesota 55424-1158
Richard Craven 645,948(4) 16.7%
5200 Willson Road Suite 200
Edina, Minnesota 55424-1343
John A. Collins 65,455(5) 1.7%
5555 West 78th Street
Bloomington, Minnesota 55435
James W. Hansen 329,976(6) 8.5%
26 Hwy 96E
Dellwood, MN 55110
Perkins Capital Management, Inc. 198,250(8) 5.1%
730 East Lake Street
Wayzata, Minnesota 55391
Jill R. Larson 96,500(7) 2.5%
14228 Shore Lane
Prior Lake, Minnesota 55372
All Directors and officers as a group (5 persons) 1,614,970 41.7%
(1) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by persons indicated based upon
there being 3,215,283 Common Shares outstanding.
(2) Includes shares of Common Stock issuable upon the exercise of warrants
or options. (See below for an analysis of officer's and director's
warrants and options.)
(3) Includes warrants owned by Mr. Johnson to purchase 121,091 shares of
the Company's Common Stock.
(4) Includes warrants owned by Mr. Craven to purchase 173,955 shares of the
Company's Common Stock and non-qualified options to purchase 20,000
shares of the Company's Common Stock.
(5) Includes non-qualified options to purchase 20,000 shares of the
Company's Common Stock.
(6) Includes employee stock options to purchase 80,000 shares of the
Company's Common Stock and non-qualified stock options to purchase
150,000 shares of the Company's Common Stock.
(7) Includes employee stock options to purchase 95,000 shares of the
Company's Common Stock.
(8) Includes sole voting power over 71,500 shares of the Company's Common
Stock and sole dispositive power over 198,250 shares of the Company's
Common Stock.
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
The Company's Board of Directors currently has four (4) members.
Four directors are to be elected at the Annual Meeting. Unless otherwise
instructed, the Proxy Holders will vote the Proxies received by them for the
four nominees named below. In the event that any nominee is unable or declines
to serve as a Director at the time of the Annual Meeting, the Proxies shall be
voted for any nominee who shall be designated by the current Board of Directors
to fill the vacancy. In the event that additional persons are nominated for
election as Directors, the Proxy holders intend to vote all Proxies received by
them in such a manner as will ensure the election of the nominees listed below.
The term of office of each person elected as a Director will continue until the
next Annual Meeting of the Shareholders and until his successor has been duly
elected and qualified. It is not expected that any nominee will be unable or
will decline to serve as a Director.
The following named persons have been nominated for election to the
Company's Board of Directors:
Name of Nominee Age Positions Held With The Company
Ward C. Johnson 56 Director of the Company.
Richard F. Craven 54 Director of the Company.
John A. Collins 57 Director of the Company.
James W. Hansen 43 President, Treasurer and CEO
Chairman of the Board
The Board of Directors recommends a vote FOR each nominee.
Ward C. Johnson had been President, Treasurer, Director of the Company
since its inception. He retired as President and Treasurer as of November 1,
1996. He holds a bachelor of science degree in chemical engineering from the
University of Minnesota. Currently he is the President of Video Research, Inc.,
a manufacturer of specialty video cameras for leisure markets. From 1990 through
1992, he was president of Image-In, Inc., a distributor which developed image
processing software. Mr. Johnson left Image-In, Inc. in February 1992. Image-In,
Inc. filed for bankruptcy in April 1993. From 1980 through 1990, Mr. Johnson was
President of Moniterm Corporation, a manufacturer of high resolution monitors
and control boards.
Richard F. Craven has been a Director of the Company since 1992. He
holds a bachelor of science degree in business from the University of Minnesota.
Mr. Craven has been in the real estate and insurance business since 1965,
managing, owning and developing several business ventures. Mr. Craven is also a
Director of RSI, Inc. See "Certain Transactions".
John A. Collins has been a Director of the Company since 1992. He holds
a bachelors degree in liberal arts from Regis College in Denver Colorado. From
1962 to 1981 Mr. Collins held various sales and sales management positions. In
1983, Mr. Collins founded Amcom Software, Inc. and is its President and Chief
Executive Officer.
James W. Hansen has been President, CEO , Treasurer of the Company
since November 1996 and Chairman of the Board of Directors since May 29, 1997.
Mr. Hansen holds bachelor degrees in Physiology and Physics Education from the
University of Minnesota and an MBA in Finance from the University of St. Thomas.
From 1979 - 1983 Mr. Hansen was a teacher and management consultant. From 1983 -
1986 he was a Vice President of the Apache Corporation, a NYSE traded oil and
gas exploration company. From 1986 - 1992 he was a Senior Vice President and
General Manager of the pension division of Washington Square Capital, a
Reliastar Company, a NYSE traded financial services company. Since 1992 Mr.
Hansen has served as an investor, Director, President or Vice President of
several private companies in medical services and technology. He serves as a
Director of Medtox Scientific (AMEX) and UBIQ, Inc. and has taught in the MBA
program at the University of St. Thomas since 1984.
<PAGE>
OTHER OFFICERS AND SIGNIFICANT EMPLOYEES
Jill R. Larson, age 31, has been Secretary of the Company since
February 1994, and has been the Business Manager of the Company since its
inception in July 1992 and was promoted to Vice President of Administration in
November 1996. Ms. Larson holds an associate of applied science degree in
business from Northland Community College. From 1988 through 1992 she was
Business Manager for Foundation Publishing which developed a desktop publishing
application and distributed other Macintosh software applications.
There is no family relationship between any directors or officers of
the Company.
BOARD MEETINGS AND COMMITTEES
James W. Hansen serves as Chairman of the Board of Directors of the
Company. The Board of Directors held a total of seven (7) meetings during the
fiscal year ended December 31, 1997. No Director attended fewer than
seventy-five (75%) percent of all such meetings of the Board of Directors and of
the committees, if any, upon which such Director served.
The Audit Committee consists of Messrs. Collins and Craven. The
principal functions of the Audit Committee are to recommend engagement of the
Company's independent public accountants, to consult with the such accountants
concerning the scope of the audit, to review with them the results of their
examination, to review and approve any major accounting policy changes affecting
the Company and to review the Company's financial control procedures and
personnel. The Audit Committee held two (2) meetings during fiscal year 1997.
The Compensation Committee currently consists of Messrs. Collins and
Craven. The Compensation Committee held two (2) meetings during fiscal year
1997. The function of the Compensation Committee is to make salary, bonus and
compensation recommendations to the Board of Directors of the Company. The Board
of Directors of the Company has developed a compensation philosophy for all
employees. It is the Company's policy to have most employees serve as employees
at will with no employment contracts and to set base salaries at the midpoint of
a range determined by independent surveys for that position if the incumbent
fully meets the experience and skills necessary for success in that position.
Additional financial compensation is based on performance related to success
factors set by the Company's Board of Directors annually. In 1997 a profit
sharing plan was adopted by the board of directors whereas an award could be
made to employees if the Company meets certain pretax return goals. No payments
are made under the plan until shareholders attain a 6% pretax operating ROE. The
plan then begins awarding increasing amounts based on pretax operating ROE to a
pool shared with all employees as shareholder returns increase.
Executives also participate in an additional plan based on annual
objectives of the Company similar to the profit sharing plan with amounts
ranging up to 50% of base compensation. Participants can be awarded qualified
employee stock options to recognize long term contributions to the Company. The
total pool of qualified options is limited to 10% of the Company's outstanding
securities.
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned
by, or paid for all services rendered to the Company by the Company's Chief
Executive Officer and the other most highly compensated executive officers whose
total compensation exceeded $100,000 at the fiscal year end, for services to the
Company in all capacities during the three fiscal years ended December 31, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Other Restricted Options/SARs
Name and Principal Fiscal Annual Stock No. of
Position Year Salary Bonus Compensation Awards Shares
-------- ---- ------ ----- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
James Hansen 1997 $85,462(1) $40,019(3) $0 0 50,000(4)
President, Chairman, 1996 $20,000(2) 0 $0 0 150,000(5)
Chief Executive Officer
& Treasurer
</TABLE>
(1) Includes compensation received as part of a consulting agreement see
"Employment Contracts and Compensatory Arrangements" and compensation
received as part of an employment agreement dated June 1, 1997 see also
"Employment Contracts and Compensatory Arrangements".
(2) Includes compensation received as part of a consulting agreement see
"Employment Contracts and Compensatory Arrangements" for the interim
period of November 1, 1996 to December 31, 1996.
(3) Includes a management bonus of $35,000 paid to The Hansen Company
(company wholly owned by Mr. Hansen) and an employee profit sharing
bonus of $5,019. Both earned for 1997, but not paid until January 1998.
(4) Includes qualified employee stock options granted that were 100% vested
and exercisable on the date of the grant.
(5) Includes non-qualified stock options granted that were 100% vested and
exercisable on the date of the grant.
INDIVIDUAL OPTIONS
The following table sets forth certain information with respect to
individual options granted during 1997 by the Company's Chief Executive Officer
and the other most highly compensated executive officers whose total
compensation exceeded $100,000 at the fiscal year end.
Individual Option Grants
Number % of Total
Options Options Granted
Name Granted to Employees(1) Exercise Price Expiration Date
---- ------- --------------- -------------- ---------------
James Hansen 50,000(2) 50% $1.00 May 29, 2007
(1) During fiscal year 1997, options to acquire an aggregate of 100,000
shares of Common Stock were granted to employees.
(2) Includes qualified employee stock options granted that were 100% vested
and exercisable on the date of the grant.
<PAGE>
AGGREGATE OPTIONS EXERCISED AND HOLDINGS
The following table sets forth certain information with respect to
aggregate options exercised during 1997 and options held at the end of such year
by the Company's Chief Executive Officer and the other most highly compensated
executive officers whose total compensation exceeded $100,000 at the fiscal year
end.
. Aggregated Option Exercises in Last Fiscal Year and
iscal Year End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-The-Money Options
Shares Options at Fiscal Year End at December 31, 1997 (1)
Acquired on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James Hansen 0 0 200,000 0 $221,925 0
</TABLE>
(1) Based on the December 31, 1997, closing bid price of the Company's
Common Stock of $1.969 per share.
COMPENSATION OF DIRECTORS
On June 3, 1994, the Company's Board of Directors authorized payment
to non-employee Directors of $50.00 per meeting. On May 29, 1997 the Company's
Board of Directors authorized an increase in payments to non-employee Directors
to $250.00 per meeting effective June 1, 1997 and an annual grant of 2,000
non-qualified options pursuant the Company's Nonqualified Stock Option Plan.
EMPLOYMENT CONTRACTS AND COMPENSATORY ARRANGEMENTS
In November of 1996 the Company entered into an agreement with The
Hansen Company and James W. Hansen its principal, to provide executive
leadership to the Company and to develop a strategic plan to optimize
shareholder value. The agreement called for a minimum three month commitment
ending February 15, 1997 and extended monthly thereafter at the mutual agreement
of both parties. James Hansen received 150,000 non-qualified options at an
exercise price of $0.8125 as an inducement to provide services to the Company
and The Hansen Company received a retainer of $8,000 per month for services of a
minimum of 24 hours per week as well as reimbursement of normal business
expenses. Mr. Hansen continued under this consulting agreement after the minimum
three month commitment until June 1, 1997. On June 1 ,1997 the company entered
into a three year employment agreement with Mr. Hansen. The agreement calls for
a minimum monthly base salary of $5,000 as well as reimbursement of normal
business expenses. Mr. Hansen received 50,000 qualified employee stock options
at an exercise price of $1.00 per the employment agreement. The consulting
agreement between the Company and The Hansen Company has been terminated and a
consulting provision has been included in Mr. Hansen's employment agreement to
allow for consulting services and assistance as required by the Company for a
monthly retainer of $2,000 payable to The Hansen Company. Mr. Hansen was elected
Chairman of the Board of Directors at the annual meeting dated May 29, 1997.
In November of 1996 the Company entered into an agreement with Mr.
Ward Johnson, its founder and President, to retire from active management and as
an employee of the Company but to continue to provide advice and to serve as the
Chairman until the annual meeting. The agreement calls for a decreasing monthly
retainer over 17 months totaling $101,000. These payments may be offset by net
revenues earned by Mr. Johnson in his development activities of certain projects
abandoned by the Company, but continuing to be pursued by Mr. Johnson and new
investors. Mr. Johnson has agreed to continue to provide continuing assistance
to the Company during this time period.
At the sole discretion of the Company Mr. Johnson may receive an
additional payment from the Company if certain projects under his direction
become viable products for the Company and the Company retains a right of first
refusal on any related technologies developed by Mr. Johnson during the term of
his retainer.
<PAGE>
CERTAIN TRANSACTIONS
SALE OF REAL ESTATE IN ROTTERDAM
In 1994 the Company purchased a condominium in Rotterdam, The
Netherlands for $137,579, for use by Company sales representatives. From
September, 1994 through November 15, 1996, this condominium was occupied by Greg
Craven, a former sales representative of the Company who is also the adult son
of Richard F. Craven, a Director of the Company. Greg Craven is no longer
employed by the Company and the condominium was sold in April 1997.
NON QUALIFIED OPTIONS GRANTED
In May 1997 the Company granted on a one-time basis non qualified
options to purchase 20,000 shares of Common Stock to non-employee members of the
Board of Directors, Mr. Craven and Mr. Collins at an exercise price of $1.00
expiring on May 29, 2007.
WARRANT ADJUSTMENT
The Company had outstanding warrants to purchase an aggregate of
481,764 shares of Company common stock that were originally issued at exercise
prices of $1.50, $2.50, $2.65 and $2.80 per share. Such warrants contained
provisions for the adjustment of the purchase price and the number of shares
purchasable under the warrant in the event the Company subsequently issued
certain securities. As part of a settlement with a former employee, the Company
issued options to purchase common stock at an exercise price of $.6875 per
share. On April 28, 1997, the Company notified the holders of the adjustable
warrants that as a result of the issuance of the options, the purchase price for
shares of Company common stock under their warrants had adjusted down to $.6875
per share, and the number of shares of Company common stock purchasable under
their warrants proportionately increased, pursuant to the terms of their
respective warrants. Other outstanding warrants, issued at exercise prices of
$3.50 and $4.20 per share did not adjust. As a result of the adjustments, as of
April 28, 1997 the aggregate number of shares of Company common stock
purchasable under the adjusted warrants increased from 481,764 to 1,842,894, and
the aggregate number of shares of Company common stock purchasable under all
warrants outstanding increased from 819,264 to 2,180,394. Of the total adjusted
warrants, 404,137 were beneficially owned by Mr. Craven, Mr. Collins and Mr.
Johnson, members of the Board of Directors of the Company. Mr. Collins and Mr.
Craven exercised 109,091 warrants in July 1997 and Mr. Johnson exercised 121,091
warrants in March 1998.
RELATED PARTIES
Mr. Collins and Mr. Johnson, Directors of the Company, have adult
sons employed at the Company. Mr. Collin's adult son, Sean Collins is the
Company's Director of Sales and Marketing and Mr. Johnson's adult son, Christian
Johnson is an Inside Sales Representative for the Company.
Mr. Johnson, a director of the Company, is the Director of a current
supplier of the Company, Production Technologies. The Company has used
Production Technologies services to stuff circuit boards with components. Net
purchases by the Company from Production Technologies totaled approximately
$130,000 and $127,000 during fiscal year 1997 and 1996 respectively.
COMPLIANCE OF OFFICERS AND DIRECTORS WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the
Securities and Exchange Commission (the "SEC") and the National Association of
Security Dealers, Inc. Such officers, directors and ten percent (10%)
shareholders are also required by SEC rules to furnish the Company with copies
of all section 16(a) forms that they file.
Based solely on its review of copies of such reports received or
written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 31, 1997, all Section 16(a) filing
requirements applicable to its officers, directors and ten percent (10%)
shareholders were complied with.
<PAGE>
PROPOSAL TWO
AMENDMENT OF 1993 STOCK OPTION PLAN
In April of 1993 the Board of Directors adopted the VideoLabs, Inc.
1993 Stock Option Plan (the "Plan"), which was subsequently amended and approved
by the Company's shareholders on March 3, 1994. In May of 1995 the "Plan" was
again amended by the Company's shareholders to increase the number of shares
reserved for issuance under the Plan by 100,000 shares to an aggregate of
300,000 shares. The Board of Directors has again amended the Plan to increase
the number of shares reserved for issuance under the Plan by 200,000 shares,
subject to shareholder approval.
PURPOSE OF THE PLAN
The purpose of the Plan is to advance the interests of the Company
and its stockholders by enabling the Company to attract and retain persons of
ability to perform services for 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 economic
objectives.
ELIGIBLE PLAN PARTICIPANTS
The Plan provides for the granting of stock options to key employees
of the Company. All employees are eligible to participate in the Plan and, as of
December 31, 1997, the Company had twenty one full-time employees. If the Plan's
amendment is approved by the Company's shareholders, an aggregate of 500,000
shares of the Company's Common Stock will be reserved for issuance upon exercise
of options granted under the Plan.
ADMINISTRATION
The Plan is administered by the Company's Board of Directors, a
majority of whom acting on any matter with regard to the Plan are to be
"disinterested persons" within the meaning of Rule 16b-3 under the Exchange Act,
or by a committee (the "Committee") composed of not fewer than three members of
the Board of Directors who are "disinterested persons".
TERMS AND CONDITIONS OF OPTIONS
Granting. A participant may be granted one or more Options under the
Plan, and such Options shall be subject to the terms and conditions, consistent
with the other provisions of the Plan, as shall be determined by the Committee
in its sole discretion.
Exercise. An Option shall become exercisable at such times and such
installments, if any, as shall be determined by the Committee at the time the
Option is granted. Unless otherwise determined by the Committee at or after its
date of grant, no Options shall be exercisable prior to six (6) months from its
date of grant. Upon completion of its exercise period, an Option, to the extent
not exercised, shall expire.
Exercise Price. The per share price to be paid by the participant at
the time of an Option is exercised shall be determined by the Committee, in its
discretion, at the date of 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 the time the
Option is granted, the Participant owns, directly or indirectly, more than 10%
of the total combined voting power of all the classes of stock of the Company as
determined pursuant to Section 422 of the Internal Revenue Code (the "Code").
Duration. The period during which an Option may be exercised shall
be fixed by the Committee in its sole discretion at such time the Option is
granted; provided, however, that in no event shall such period exceed ten years
from its date of grant, or, in the case of a participant who owns, directly or
indirectly more than 10% of the total combined voting power of all the classes
of stock of the Company as determined pursuant to Section 422 of the Code, five
years from its date of grant.
<PAGE>
Manner of Option Exercise. An Option may be exercised by a
participant in whole or in part from time to time, subject to the conditions
contained in the Plan, by delivery, in person or through certified or registered
mail, of written notice of exercise to the Company at its principal executive
offices, and by paying in full the total option exercise price for the shares of
Common Stock to be purchased. If a participant exercises any Option with respect
to some, but not all, of 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 the terms. No Option
shall be exercisable except in whole shares.
Payment of the Exercise Price. The total purchase of the shares to
be purchased upon exercise of an Option shall be paid entirely in cash,
including check, bank draft, or money order.
AMENDMENT
The Plan may be amended by the Board of Directors, subject to
approval by affirmative vote of the holders of a majority of the shares of the
Company's Common Stock present and entitled to vote at a meeting at which a
quorum is present.
TAX CONSEQUENCES
Under the present federal tax regulations, there will be no federal
income tax consequences to either the Company or the participant upon the grant
of an Option, nor will the participants exercise of an Option result in federal
income tax consequences to the Company. Although a participant will not realize
ordinary income upon his exercise of an Option, the excess of the fair market
value of the shares of Common Stock acquired at the time of exercise over the
exercise price will constitute an "item of tax preference" within the meaning of
Section 57 of the Code and, thus, may result in the imposition of the
"alternative minimum tax" pursuant to Section 55 of the Code on the participant.
If a participant does not dispose of shares of Common Stock acquired through the
exercise of Option within two (2) years from the date of grant and within one
(1) year of the exercise of the Option, any gain realized upon a subsequent
disposition of such shares will constitute long-term capital gain to the
participant. If a participant disposes of such shares within two (2) years from
the date of grant or within one (1) year of the date of exercise of the Option,
an amount equal to the lesser of (i) the excess of the fair market value of such
shares on the date of exercise over the exercise price, or (ii) the actual gain
realized upon such disposition will constitute ordinary income to the
participant in the year of disposition. Any additional gain upon such
disposition will be taxed as short-term capital gain. The Company will receive a
deduction in an amount equal to the amount constituting ordinary income to the
participant.
ACCOUNTING TREATMENT
Under accounting rules currently in effect, the grant or exercise of
an option under the Plan does not result in a charge against the earnings of the
Company provided that the exercise price is 100% of fair market value at the
date of the grant.
OUTSTANDING OPTIONS
As of December 31, 1997, the following options were outstanding
under the Option Plan: (i) options for 115,000 shares at $3.13 to $.81 per share
to the current executive officers of the Company, and (ii) options for 131,000
shares at $3.13 to $.81 per share to all eligible employees, including current
officers who are not executive officers, as a group. The exercise period is
determined by the Committee at the date of grant. The exercise period for these
options is ranges from zero to four years.
PROPOSED AMENDMENT
The Company initially reserved 100,000 shares of Common Stock for
issuance under the Plan. The Board of Directors authorized and the shareholders
approved an increase in the number of reserved shares to 300,000. Subsequently,
the Board of Directors has approved increases in the number of shares reserved
by the Company to 500,000, subject to shareholder approval. Approval of this
amendment requires the affirmative vote of a majority of the shares of common
stock voting at the annual meeting.
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the
proposal to amend the Plan by increasing the number of shares reserved for
issuance under the Plan by 200,000 shares to an aggregate of 500,000 shares of
Common Stock.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed Proxy to vote the shares they
represent according to their best judgment.
It is important that your shares be represented at the Annual
Meeting, regardless of the number of shares which you hold. You are, therefore,
urged to execute and return the accompanying Proxy in the envelope which has
been enclosed, at your earliest convenience.
THE BOARD OF DIRECTORS
Dated: April __, 1998
<PAGE>
VIDEOLABS, INC.
5960 GOLDEN HILLS DR. GOLDEN VALLEY, MN 55416
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, having duly received the Notice of Annual Meeting and Proxy
Statement dated April , 1998, hereby appoints James W. Hansen and Jill R.
Larson proxies (each with the power to act alone and with the power of
substitution and revocation), to represent the undersigned and to vote, as
designated below, all common shares of VideoLabs, Inc. which the undersigned is
entitled to vote at the annual meeting of shareholders of VideoLabs, Inc., to
be held at 3:00 pm on Wednesday, May 20, 1998, at The Metropolitan, 5418
Wayzata Blvd., Minneapolis, Minnesota, and any adjournment thereof.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below
(EXCEPT AS MARKED TO THE CONTRARY BELOW):
[ ] WITHHOLD AUTHORITY
TO VOTE FOR ALL NOMINEES LISTED BELOW:
(INSTRUCTION: to withhold authority to vote for any individual nominee strike
a line through the nominee's name in the list below:)
WARD C. JOHNSON RICHARD F. CRAVEN JOHN COLLINS JAMES W. HANSEN
2. Proposal to authorize a 200,000 share increase in the number of shares of
common stock available for stock options under the Company Employee Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED, AND TO BE COMPLETED AND SIGNED ON THE REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
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 all directors named in Item 1 and for proposal 2.
PLEASE SIGN, DATE AND MAIL THIS PROXY STATEMENT IN THE ENCLOSED ADDRESSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE U.S.
Sign exactly as your name appears below, in the case of joint tenancy, both
joint tenants must sign; fiduciaries please indicate title and authority.
Dated:_________________ ,1998
____________________________
Signature
____________________________
Signature
