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
BADGER PAPER MILLS, INC.
(Name of Registrant as Specified in its Charter)
-----------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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 (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:
BADGER PAPER MILLS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 11, 1999
To the Shareholders of Badger Paper Mills, Inc.:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Badger Paper
Mills, Inc. will be held on Tuesday, May 11, 1999, at 10:00 a.m. local time, at
the Best Western Riverfront Inn, 1821 Riverside Avenue, Marinette, Wisconsin,
for the following purposes:
1. To elect two directors to hold office until the 2002 annual meeting of
shareholders and until their successors are duly elected and qualified;
2. To approve the Badger Paper Mills, Inc. 1998 Stock Option Plan;
3. To consider and act on a shareholder proposal from a group of
shareholders controlled by James D. Azzar (the "Azzar Group") requesting
that the Company provide a written report of all activities conducted by
the Board and management with respect to the consideration of strategic
options, if such proposal is presented at the meeting; and
4. To consider and act on any other business as may properly come before the
meeting or any adjournment or postponement thereof.
The close of business on March 23, 1999 has been fixed as the record date (the
"Record Date") for the determination of shareholders entitled to notice of, and
to vote at, the meeting and any adjournment or postponement thereof.
A proxy for the meeting and a proxy statement are enclosed herewith.
By Order of the Board of Directors
BADGER PAPER MILLS, INC.
/s/Mark D. Burish
Mark D. Burish
Corporate Secretary
Peshtigo, Wisconsin
April 8, 1999
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. TO
ASSURE REPRESENTATION AT THE MEETING, PLEASE DATE THE ENCLOSED PROXY, WHICH IS
SOLICITED BY THE BOARD OF DIRECTORS, SIGN EXACTLY HOW YOUR NAME APPEARS THEREON
AND RETURN IMMEDIATELY.
BADGER PAPER MILLS, INC.
200 West Front Street
Peshtigo, Wisconsin 54157-0149
PROXY STATEMENT
for
ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 11, 1999
This proxy statement is being furnished to shareholders by the Board of
Directors (the "Board") of Badger Paper Mills, Inc. (the "Company" or "Badger")
beginning on or about April 8, 1999, in connection with a solicitation of
proxies by the Board for use at the Annual Meeting of Shareholders to be held on
Tuesday, May 11, 1999, at 10:00 a.m. local time, at the Best Western Riverfront
Inn, 1821 Riverside Avenue, Marinette, Wisconsin, and all adjournments or
postponements thereof (the "Annual Meeting"), for the purposes set forth in the
attached Notice of Annual Meeting of Shareholders.
Execution of a proxy given in response to this solicitation will not
affect a shareholder's right to attend the Annual Meeting and to vote in person.
Presence at the Annual Meeting of a shareholder who has signed a proxy does not
in itself revoke a proxy. Any shareholder giving a proxy may revoke it at any
time before it is first exercised by giving notice thereof to the Company in
writing at or before the Annual Meeting.
A proxy, in the enclosed form, which is properly executed, duly returned
to the Company and not revoked will be voted in accordance with the instructions
contained therein. The shares represented by executed but unmarked proxies will
be voted (i) "FOR" the two persons nominated for election as directors referred
to herein, (ii) "FOR" the 1998 Stock Option Plan, (iii) "AGAINST" the
shareholder proposal requesting that the Company provide a written report of all
activities conducted by the Board and management with respect to the
consideration of strategic options, and (iv) on such other business or matters
which may properly come before the Annual Meeting in accordance with the best
judgment of the persons named as proxies in the enclosed form of proxy. Other
than the election of directors and the shareholder proposal, the Board has no
knowledge of any other matters to be presented for action by the shareholders at
the Annual Meeting.
Only holders of record of the Company's common stock, no par value (the
"Common Stock") as of the close of business on March 23, 1999, are entitled to
vote at the Annual Meeting. On that date, the Company had outstanding and
entitled to vote 1,963,764 shares of Common Stock, each of which is entitled to
one vote per share.
ELECTION OF DIRECTORS
The Company's By-Laws provide that the directors shall be divided into
three classes, with staggered terms of three years each. At the Annual Meeting,
the shareholders will elect two directors to hold office until the 2002 annual
meeting of shareholders and until their successors are duly elected and
qualified. Unless shareholders otherwise specify, shares represented by the
proxies received will be voted in favor of the election as directors of the two
persons named as nominees herein. The Board has no reason to believe that any of
the listed nominees will be unable or unwilling to serve as a director if
elected.
2
However, in the event that any nominee should be unable to serve or for good
cause will not serve, the shares represented by proxies received will be voted
for another nominee selected by the Board. Directors will be elected by a
plurality of the votes cast at the Annual Meeting (assuming a quorum is
present). Consequently, any shares not voted at the Annual Meeting, whether due
to abstentions, broker non-votes or otherwise, will have no impact on the
election of directors. Votes will be tabulated by inspectors of election
appointed by the Board.
The following sets forth certain information, as of March 23, 1999, about
the Board's nominees for election at the Annual Meeting and each director of the
Company whose term will continue after the Annual Meeting.
Nominees for Election at the Annual Meeting
Class III, Term expiring at the 2002 Annual Meeting
Mark D. Burish, 45, was appointed to the Board of Directors in May 1997.
Mr. Burish has been President of the Madison, Wisconsin law firm of Hurley,
Burish & Milliken, S. C., the Company's outside counsel, since 1984.
James L. Kemerling, 59, has served as a director of the Company since
March 1997. Mr. Kemerling is a consultant based in Wausau, Wisconsin, and is a
director of WPS Resources Corporation, a public utility holding corporation
based in Green Bay, Wisconsin.
THE BOARD RECOMMENDS THE FOREGOING NOMINEES FOR ELECTION AS DIRECTORS AND
URGES EACH SHAREHOLDER TO VOTE "FOR" BOTH NOMINEES. SHARES OF COMMON STOCK
REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" BOTH NOMINEES.
Directors Continuing in Office
Class I, Term expiring at the 2000 Annual Meeting
L. Harvey Buek, 57, was appointed to the Board of Directors in May 1998
to fulfill the term of Claude L. Van Hefty, former President and Chief Executive
Officer of the Company who retired in March 1998. Mr. Buek is a consultant based
in Everett, Washington, and served as Interim President of Badger Paper Mills,
Inc. from March through July 1998. Mr. Buek's extensive experience in the paper
industry includes 29 years with Scott Paper Company, including as Vice
President-Everett (Washington) Operations from 1991 to his retirement in 1994.
Thomas W. Cosgrove, 58, was elected President of the Company and
appointed to the Board of Directors in July 1998 to fulfill the term of Ralph D.
Searles, who retired from the Board in May 1998. Prior to July 1998, Mr.
Cosgrove held various positions with Scott Paper Company (now Kimberly Clark
Corporation) over a 33 year period, including General Manager of Kimberly
Clark's Marinette and Oconto Falls, Wisconsin Divisions from September 1990
until July 1998.
Class II, Term expiring at the 2001 Annual Meeting
Thomas J. Kuber, 58, has served as a director of the Company since 1995
and Chairman of the Board of Directors since October 1997. Mr. Kuber has been
President of K&K Warehousing located in
3
Menominee, Michigan since 1973, and was Chief Executive Officer of Great Lakes
Pulp & Fibre, Inc., also located in Menominee, Michigan, from 1993 through
September 1997.
John R. Peterson, 42, has served as a director of the Company since 1997.
Mr. Peterson has been a Managing Director of Cleary Gull Reiland & McDevitt,
Inc., Milwaukee, Wisconsin since 1995. From 1982 to 1994, he practiced corporate
law at Godfrey & Kahn, S. C., Milwaukee, Wisconsin.
BOARD OF DIRECTORS
General
The Board had standing Audit, Compensation and Strategic Planning
Committees in 1998.
The Audit Committee is responsible for reviewing (i) the scope of annual
audit activities; (ii) professional services performed by auditors approved by
the Board and (iii) the independence of such auditors. The Audit Committee also
reviews the annual financial statements of the Company and such other matters
with respect to the accounting, auditing and financial reporting practices and
procedures of the Company as it may find appropriate or as have been brought to
its attention. The Audit Committee held one meeting in 1998. John R. Peterson
(Chairman) and L. Harvey Buek are the members of the Audit Committee.
The Compensation Committee reviews executive compensation policies and
also recommends from time to time to the Board compensation of the elected
officers of the Company. The Compensation Committee held two meetings in 1998.
Mark D. Burish (Chairman) and James L. Kemerling are the members of the
Compensation Committee.
The Strategic Planning Committee meets for the purpose of reviewing,
restructuring, streamlining operations, cost reduction strategies, and business
strategies. The Strategic Planning Committee met twice during 1998. Thomas J.
Kuber (Chairman), James L. Kemerling and Thomas W. Cosgrove were members of the
Strategic Planning Committee in 1998.
The Board has no nominating committee. The Board selects the director
nominees to stand for election at the Company's annual meetings of shareholders
and to fill vacancies occurring on the Board. The Board will consider nominees
recommended by shareholders, but has no established procedures which
shareholders must follow to make a recommendation.
The Board held six meetings in 1998. During 1998 each director attended
at least 75% of the aggregate of the total meetings held by the Board and the
total meetings held by all committees on which each such director served.
Directors Compensation
In 1998, directors received a quarterly retainer payable in Common Stock
with a market value of $3,000. For 1999, directors will receive a quarterly
retainer payable in Common Stock with a market value of $3,750.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of March 23, 1999 by: (i) each director
and nominee; (ii) the executive officers named in the Summary Compensation Table
set forth below; (iii) all of the directors, nominees and executive officers
4
(including the executive officers named in the Summary Compensation Table) as a
group; and (iv) each person or other entity known by the Company to own
beneficially more than 5% of the class of Common Stock. Except as otherwise
indicated in the footnotes, each of the holders listed below has sole voting and
investment power over the shares beneficially owned.
Shares of Percent of
Common Stock Common Stock
Name of Beneficial Owner Beneficially Owned Beneficially Owned
------------------------ ------------------ ------------------
L. Harvey Buek, Director.................... 1,644 *
Mark D. Burish, Director and
Corporate Secretary.................... 19,3021 *
Thomas W. Cosgrove, Director and
President.............................. 1,295 *
James L. Kemerling, Director................ 4,522 *
Thomas J. Kuber, Director and
Chairman of the Board.................. 68,232 3.48
John R. Peterson, Director.................. 2,970 *
All directors, nominees and executive
officers as a group (10 persons)....... 101,7432 5.18
Edwin A. Meyer, Jr.......................... 314,5863 16.02
James D. Azzar.............................. 276,8644 14.10
Walter F. Adrian............................ 112,0005 5.71
Bennie C. Burish............................ 101,0486 5.15
- ----------------------------
*Denotes less than 1%.
1 Includes 1,000 shares owned by Mr. Burish's spouse and 400 shares owned by
Mr. Burish's minor children. Mr. Burish disclaims beneficial ownership of
such shares.
2 In the aggregate, directors and executive officers have sole voting and
dispositive power with respect to 97,843 shares and in the aggregate,
directors and executive officers have shared voting and dispositive power
with respect to 2,500 shares.
3 The share amounts listed are from the Schedule 13G dated October 7, 1998,
filed with the Securities and Exchange Commission and the Company. Amounts
shown include 53,510 shares as to which Mr. Meyer has voting rights but
disclaims beneficial ownership. Mr. Meyer's address is 7255 Cortland Circle,
Egg Harbor, Wisconsin 54209.
4 According to report of beneficial ownership on an amended Schedule 13D dated
February 18, 1998, James D. Azzar, Bomarko, Inc. ("Bomarko") and Extrusions
Division, Inc. ("EDI") (collectively referred to as the "Azzar Group")
constitute a "group" with respect to the acquisition of Common Stock. Of the
reported shares, 276,664 are owned by Bomarko, and 200 are owned by EDI. Mr.
Azzar is deemed to beneficially own all of such shares in his capacity as
chairman of the board, chief executive officer and director of, and investor
in, Bomarko, and president, sole director and sole shareholder of EDI. Mr.
Azzar's address is 208 Pioneer Club Road, East Grand Rapids, Michigan 49506.
The address of Bomarko's principal office is North Oak Road, P. O. Box K,
Plymouth, Indiana 46563. The address of EDI's principal office is 208
Pioneer Club Road, East Grand Rapids, Michigan 49506.
5 The share amount listed is from the Schedule 13G dated April 17, 1995 filed
with the Securities and Exchange Commission and the Company. Mr. Adrian's
address is 201 Emery Avenue, South, Peshtigo, Wisconsin 54157.
6 The share amount listed is from the Schedule 13G dated April 26, 1995 filed
with the Securities and Exchange Commission and the Company. Mr. Burish's
address is 352 Brown Avenue, South, Peshtigo, Wisconsin 54157
5
EXECUTIVE COMPENSATION
Summary Compensation Information
The following table sets forth certain information concerning the
compensation paid by the Company for its last three fiscal years to all of the
officers who served as the Company's Chief Executive Officer during any part of
1998, and to the other executive officers of the Company who earned over
$100,000 combined base salary and bonus in 1998. The persons named in the table
are sometimes referred to herein as "named executive officers."
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------- ------------
Other Securities
Annual Underlying All Other 3
Name and Compen- Stock Compen-
Principal Position Year Salary($) Bonus($) sation ($)1 Options(#)2 sation($)
- ------------------ ---- --------- -------- ------------ ----------- -----------
Thomas W. Cosgrove 1998 $ 72,193 - - 20,000 shares $ 2,898
Pres. & CEO
Michael J. Bekes 1998 $ 143,516 - - 10,000 shares $14,040
Vice Pres. & 1997 $ 133,000 - - - $19,435
COO 1996 $ 84,570 - $28,392 - $ 9,782
Claude L. Van Hefty 1998 $ 175,589 - - - $ 7,583
Former President 1997 $ 175,000 - - - $50,703
& CEO 1996 $ 185,096 - - - $41,164
Thomas J. Kuber 1998 $ 120,000 - - 60,000 shares $ 8,464
Chairman of the 1997 $ 20,900 - - - -
Board
Mark C. Neumann 1998 $ 120,395 $ 10,000 - 10,000 shares $ 8,948
Vice Pres. Sales 1997 $ 80,000 - - - $ 6,870
1996 $ 79,872 $ 8,030 - - $ 6,062
- ---------------------
1 Except as indicated, the aggregate amount of such compensation for the
indicated person was less than 10% of the total salary and bonus reported
for the named executive officer in the Summary Compensation Table in each
year. The amount shown for Mr. Bekes in 1996 includes $22,586 of moving
expenses paid by the Company.
2 Consists of stock options awarded subject to shareholder approval of the
1998 Stock Option Plan.
3 Consists of (a) payments made by the Company under the Company's Profit
Sharing Plan and Trust for Non-Union Employees in the amount of $2,898 to
Mr. Cosgrove in 1998; (b) payments made by the Company under the Company's
Profit Sharing Plan and Trust for Non-Union Employees in the amount of
$4,667, $9,588 and $8,677 to Mr. Bekes in 1996, 1997, and 1998 respectively;
(c) vacation paid in lieu of time off to Mr. Bekes in the amounts of $5,115,
$9,847 and $5,363 in 1996, 1997 and 1998, respectively; (d) life insurance
premiums paid by the Company in the amount of $21,576, $21,000 and $5,250
for Mr. Van Hefty in 1996, 1997 and 1998, respectively; (e) payments made by
the Company under the Company's Profit Sharing Plan and Trust for Non-Union
Employees in the amount of $9,492, $10,184, and $2,333 to Mr. Van Hefty in
1996, 1997 and 1998, respectively; (f) vacation paid in lieu of time off in
the amount of $10,096 and $19,519 to Mr. Van Hefty in 1996 and 1997,
respectively; (g) payment made by the Company under the Company's Profit
Sharing Plan and Trust for Non-Union Employees in the amount of $8,464 to
Mr. Kuber in 1998; (h) payments made by the Company under the Company's
Profit Sharing Plan and Trust for Non-Union Employees in the amount of
$4,524, $4,293 and $6,833 to Mr. Neumann in 1996, 1997 and 1998
respectively; (i) vacation paid in lieu of time off in the amount of $1,538,
$2,577 and $2,115 to Mr. Neumann in 1996, 1997 and 1998 respectively.
6
Stock Options
The following table sets forth information concerning the grant of stock
options under the Company's 1998 Stock Option Plan during 1998 to the named
executive officers. The 1998 Stock Option Plan and all the grants made to date
thereunder, including those listed below, are contingent upon shareholder
approval of the plan at the Annual Meeting.
Option Grants in 1998
Shares Percentage of Potential Realizable Value
Underlying Total Options at Assumed Annual Rates of
Options Granted to All Exercise Stock Appreciation for
Name Granted2 Employees in 1998 Price Expiration Date Option Term 1
- ---------------------------- ------------- ------------------- ----------- ------------------ ------------------------------
5% 10%
-- ---
Thomas J. Kuber 60,000 52.2% $8.09 May 12, 2007 $267,600 $659,400
Thomas W. Cosgrove 20,000 17.4% $8.09 July 1, 2005 $65,800 $153,600
Mark C. Neumann 10,000 8.7% $8.09 May 12, 2005 $32,900 $76,800
Michael J. Bekes 10,000 8.7% $8.09 May 12, 2005 $32,900 $76,800
- -----------------
1 This presentation is intended to disclose the potential value that would
accrue to the optionee if the option were exercised in full the day before
it expires and assumes the per share value of the Common Stock appreciates
from the grant date at the compound annual rate indicated in each column.
The assumed rates of 5% and 10% are prescribed by the rules and regulations
of the Securities and Exchange Commission regarding disclosure of executive
compensation, and are not intended to forecast possible future appreciation,
if any, with respect to the Common Stock. Between the May 12, 1998 grant
date of the options and March 31, 1999, the per share value of the Common
Stock had depreciated approximately 11.6%, from $8.09 to $7.16 per share.
2 The options reflected in the table are nonqualified stock options under the
Internal Revenue Code and were granted on May 12, 1998. The exercise price
of each option granted was equal to the fair market value of a share of
Common Stock on the date of grant. All of the options vest and become
exercisable in 33 1/3% increments over a three-year period from date of
grant, except in the case of Mr. Kuber, whose options vest and become
exercisable in 20% increments over a five-year period from the date of
grant. Upon a "change of control" of the Company (as defined in the 1998
Stock Option Plan), all options then outstanding will become immediately
exercisable in full for the remainder of their term and each optionee will
have the right for a period of 60 days after such change of control to
require the Company to purchase his options for cash at a price provided for
in the 1998 Stock Option Plan.
Agreements with the Named Executive Officers
At the time of his employment in July 1998, the Company and Mr. Cosgrove
entered into an agreement providing for, among other things, his starting
salary, health and other benefits, and life and disability insurance. The
agreement also provides that upon severance of Mr. Cosgrove's employment by the
Company for any reason, the Company will pay him six times his last monthly base
salary as a severance payment.
In December 1998, the Company and Mr. Neumann entered into an agreement
providing for, among other things, certain severance payments to Mr. Neumann
upon the termination of his employment with the Company in certain
circumstances, including a "change in control" as defined in
7
such agreement. If Mr. Neumann's employment with the Company terminates prior to
a change in control for any reason other than death, disability, for cause or
voluntarily, then the Company will continue to pay his base compensation for six
months. If Mr. Neumann's employment with the Company terminates within one year
after a change in control for any reason other than death, disability or cause,
then the Company will continue to pay his base compensation for twelve months.
If his employment terminates more than one year after a change in control for
any reason other than death, disability, cause or voluntarily, then the Company
will continue to pay his base compensation for six months; provided that his
decision to terminate his employment after a material diminishment of his duties
or responsibilities or a reduction in his base pay will not be deemed voluntary.
A "change in control" under the agreement is defined as having the same meaning
as a change in control under the 1998 Stock Option Plan.
Report on Executive Compensation
Executive officer compensation is established through recommendations of
the Compensation Committee of the Board. The Compensation Committee meets as
necessary to review with the President the performance of executive officers of
the Company, and without him in the evaluation of his services. The Compensation
Committee recommends executive compensation to the Board, which then makes its
decisions as to such matters after review and deliberation. The Compensation
Committee also is responsible for establishing and administering policies which
govern incentives.
The philosophy of the Compensation Committee with respect to executive
officer compensation is to position base salaries in the middle of perceived
comparable market compensation. The Compensation Committee makes a review of
compensation for companies perceived by the Compensation Committee to be
similar, based on available public information. The companies included in that
review are not necessarily the same as the companies included in the S&P Paper &
Forestry Products Index used in the following performance graph. The
Compensation Committee then establishes base salaries for the various executive
officer positions based on what the Compensation Committee perceives to be the
mid-range of salaries for positions which, in the Compensation Committee's
judgment, are comparable in responsibilities and function.
Section 162(m) Limitation. It is anticipated that all 1999 compensation
to executives will be fully deductible under Section 162(m) of the Internal
Revenue Code and therefore the Compensation Committee determined that a policy
with respect to qualifying the compensation paid to executive officers for
deductibility is not necessary.
BADGER PAPER MILLS, INC.
COMPENSATION COMMITTEE
Mark D. Burish, Chairman
James L. Kemerling
8
PERFORMANCE INFORMATION
The following graph compares on a cumulative basis changes during the
past five years in (a) the total shareholder return on the Common Stock with (b)
the total return on the Standard & Poor's 500 Stock Index (the "Standard &
Poor's Index") and (c) the total return on the S&P Paper & Forestry Products
Index (the "PF Products Index"). Such changes have been measured by dividing (a)
the sum of (i) the amount of dividends for the measurement period, assuming
dividend reinvestment, and (ii) the difference between the price per share at
the end of and the beginning of the measurement period, by (b) the price per
share at the beginning of the measurement period. The graph assumes $100 was
invested on December 31, 1993 in Common Stock, the Standard & Poor's Index and
the PF Products Index.
[GRAPHIC OMITTED]
------------------------------------------------------------------------------------------
Company/Index December 31, December 31, December 31, December 31, December 31, December 31,
1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
BADGER PAPER MILLS INC $100 $78.72 $128.52 $71.94 $67.58 $69.76
- ---------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX 100 101.32 139.40 171.40 229.00 293.91
- ---------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS-500 100 104.20 114.72 126.90 136.07 138.77
- ---------------------------------------------------------------------------------------------------------------------------
9
1998 STOCK OPTION PLAN
General
The purpose of the Badger Paper Mills, Inc. 1998 Stock Option Plan (the
"Plan") is to promote the best interests of the Company, its shareholders and
its affiliates (including its subsidiaries) by encouraging and providing for the
acquisition of an equity interest in the success of the Company by officers and
key employees and by enabling the Company and its affiliates to attract and
retain the services of officers and key employees upon whose judgment, interest,
skills, and special effort the successful conduct of their operations is largely
dependent.
The Plan was adopted by the Board and became effective on May 12, 1998,
subject to approval by the shareholders of the Company.
The following summary description of the Plan is qualified in its
entirety by reference to the full text of the Plan which is attached to this
Proxy Statement as Appendix A.
Administration
The Plan will be administered by a committee of the Board of Directors
(the "Committee") consisting of not less than two directors, each of whom will
qualify as a "non-employee director" within the meaning of Rule 16b-3 ("Rule
16b-3") under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and as an "outside director" under Section 162(m)(4)(C) of the Internal
Revenue Code. The Board will administer the Plan at any time the Committee is
not in existence. Subject to the terms of the Plan and applicable law, the
Committee will have full power and authority to interpret and administer the
Plan, to establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan, and to make any other determination and take any other action that
the Committee deems necessary or desirable for the administration of the Plan.
The Compensation Committee will serve as the Committee under the Plan.
To the extent permitted by applicable law, the Board may delegate to
another committee of the Board or to one or more senior officers of the Company
any or all of the authority and responsibility of the Committee with respect to
the Plan, other than with respect to participants who are subject to Section 16
of the Exchange Act.
Eligibility
Participants in the Plan will be selected by the Committee from among the
officers and other key employees of the Company and its affiliates. The
Committee will consider such factors as it deems appropriate in selecting
participants and in determining the type and amount of their respective benefits
under the Plan. The Committee's designation of a participant in any year will
not require the Committee to designate such person to receive a benefit in any
other year.
10
Awards Under the Plan; Available Shares
The Plan authorizes the granting to key employees of (a) stock options,
which may be either incentive stock options meeting the requirements of Section
422 of the Internal Revenue Code (ISOs) or non-qualified stock options; or (b)
restricted stock. The Plan provides that up to a total of 130,000 shares of
Common Stock (subject to adjustment as described below) will be available for
the granting of awards thereunder.
If any shares subject to awards granted under the Plan, or to which any
award relates, are forfeited or if an award otherwise terminates, expires or is
cancelled prior to the delivery of all of the shares issuable pursuant to the
award, such shares will be available for the granting of new awards under the
Plan. Any shares delivered pursuant to an award may be either authorized and
unissued shares of Common Stock or treasury shares held by the Company.
No awards may be granted under the Plan after May 1, 2008. However, any
award theretofore granted may extend after such date unless otherwise expressly
restricted by the Plan or the applicable award agreement. The authority of the
Committee to amend, alter, adjust, suspend, discontinue or terminate any such
award and to generally administer the Plan shall also extend beyond such date.
Terms of Awards
Option Awards. Options granted under the Plan may be either ISOs or
non-qualified stock options. No individual key employee may be granted in any
single fiscal year options to purchase in excess of 70,000 shares of Common
Stock under the Plan (subject to adjustment as described below).
The exercise price per share of Common Stock subject to options granted
under the Plan will be determined by the Committee, provided that the exercise
price may not be less than 100% of the fair market value of a share of Common
Stock on the date of grant. The term of any option granted under the Plan will
be as determined by the Committee, provided that the term of such option may not
exceed ten years from the date of its grant. Options granted under the Plan will
become exercisable in such manner and within such period or periods and in such
installments or otherwise as determined by the Committee. Options may be
exercised by payment in full of the exercise price, either (at the discretion of
the Committee) in cash or in whole or in part by tendering shares of Common
Stock having a fair market value on the date of exercise equal to the option
exercise price. All ISOs granted under the Plan will also be required to comply
with the terms of Section 422 of the Internal Revenue Code.
Restricted Stock. Shares of restricted Common Stock granted to key
employees under the Plan will be subject to such restrictions as the Committee
may impose, including any limitation on the right to vote such shares or receive
dividends thereon. The restrictions imposed on the shares may lapse separately
or in combination at such time or times, or in such installments or otherwise,
as the Committee may deem appropriate. Except as otherwise determined by the
Committee, upon termination of a participant's employment for any reason during
the applicable restriction period, all shares of restricted stock still subject
to restriction will be subject to forfeiture by the participant.
11
The Plan limits the total number of shares of restricted stock that may
be awarded thereunder to any individual participant in any fiscal year to 20,000
shares. The foregoing numerical limitation on the issuance of shares of
restricted stock is subject to adjustment as described below.
Adjustments
If any dividend or other distribution, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
shares of Common Stock or other securities of the Company, or other similar
corporate transaction or event affects the shares of Common Stock so that an
adjustment is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Committee will generally have the authority to, in such manner as it
deems equitable, adjust (a) the number and type of shares subject to the Plan
and which thereafter may be made the subject of awards, (b) the number and type
of shares subject to outstanding awards, and (c) the grant, purchase or exercise
price with respect to any award, or may make provision for a cash payment to the
holder of an outstanding award.
Change of Control
In the event of a "change of control" (as defined below) of the Company,
all outstanding options become immediately exercisable in full whether or not
theretofore exercisable, and shares of restricted stock become fully vested. For
60 days after a change of control each share subject to an option may be
exchanged for an amount of cash equal to the difference between (a) the highest
of (1) the fair market value of a share of Common Stock on the date of the
change of control, (2) the highest price per share paid in the transaction
giving rise to such change of control, or (3) the fair market value of a share
of Common Stock on the date of such exchange, and (b) the exercise price per
share of the option. Additionally, for 60 days after a change of control each
share of restricted stock may be exchanged for an amount of cash equal to the
highest of (x) the fair market value of a share of Common Stock on the date of
such exchange, (y) the highest price per share paid in the transaction giving
rise to such change of control, and (z) the fair market value of a share of
Common Stock on the date of the change of control.
A "change of control" of the Company occurs under the Plan if (a) any
person is or becomes the beneficial owner of 30% or more of the outstanding
voting securities of the Company, (b) the shareholders of the Company approve a
merger or consolidation involving the Company other than a merger or
consolidation (1) in which the voting securities of the Company outstanding
prior to such merger or consolidation represent at least 70% of the voting
securities of the surviving entity, or (2) effected to implement a
recapitalization in which no person is or becomes the beneficial owner of 30% or
more of the outstanding voting securities of the Company, and (c) the
shareholders of the Company approve a plan of complete liquidation or
dissolution of the Company, or an agreement to sell all or substantially all of
the assets of the Company to any entity that is not at least 75% owned by the
shareholders of the Company in substantially the same proportion as their
ownership of the Company immediately prior to such sale.
12
Limits on Transferability
No award granted under the Plan (other than an award of restricted stock
on which the restrictions have lapsed) may be assigned, sold, transferred or
encumbered by any participant, otherwise than by will, or by the laws of descent
and distribution; provided, however, that the Committee may allow a participant
to designate a beneficiary or to transfer any award. Each award will be
exercisable during the participant's lifetime only by such participant or, if
permissible under applicable law, by the participant's guardian or legal
representative.
Amendment and Termination
The Board may amend, alter, suspend, discontinue or terminate the Plan at
any time; provided, however, that shareholder approval of any amendment thereto
must also be obtained if required by (a) the Internal Revenue Code or any rules
promulgated thereunder (in order to allow for ISOs to be granted under the Plan
or to comply with the provisions of Section 162(m) of the Internal Revenue Code)
or (b) the listing requirements of the principal exchange or market on which the
Common Stock is then traded (in order to maintain the trading of the Common
Stock on such exchange or market). Termination of the Plan will not affect the
rights of participants under previously granted awards, which will continue in
full force and effect after termination of the Plan in accordance with their
terms and conditions.
Withholding
The Company shall be entitled to withhold the amount of any tax
attributable to any amount payable or shares of Common Stock deliverable under
the Plan after giving the person entitled to receive such amount or shares of
Common Stock notice as far in advance as practicable. The Company may defer
making payment or delivery if any such tax may be pending unless and until
indemnified to its satisfaction. The Committee may permit a participant to pay
all or a portion of the withholding taxes arising in connection with an award
under the Plan by electing to (i) have the Company withhold shares of Common
Stock, (ii) tender back shares of Common Stock received in connection with such
benefit, or (iii) deliver other previously owned shares of Common Stock, having
a fair market value equal to the amount to be withheld; provided, however, that
the amount to be withheld shall not exceed the participant's estimated total
federal, state and local tax obligations associated with the transaction. The
election must be made on or before the date as of which the amount of tax to be
withheld is determined and otherwise as required by the Committee.
Certain Federal Income Tax Consequences of Awards
Stock Options. The grant of a stock option under the Plan will create no
income tax consequences to the participant or the Company. A participant who is
granted a non-qualified stock option will generally recognize ordinary income at
the time of exercise in an amount equal to the excess of the fair market value
of the Common Stock at such time over the exercise price. The Company will be
entitled to a deduction in the same amount and at the same time as ordinary
income is recognized by the participant. A subsequent disposition of the Common
Stock will give rise to capital gain or loss to the extent the amount realized
from the sale differs from the tax basis, i.e., the fair market value of the
Common Stock on the date of exercise. This capital gain or loss will be a
long-term capital gain or loss if the Common Stock has been held for more than
one year from the date of exercise.
13
In general, a participant will recognize no income or gain as a result of
exercise of an ISO (except that the alternative minimum tax may apply). Except
as described below, any gain or loss realized by the participant on the
disposition of the Common Stock acquired pursuant to the exercise of an ISO will
be treated as a long-term capital gain or loss and no deduction will be allowed
to the Company. If the participant fails to hold the shares of Common Stock
acquired pursuant to the exercise of an ISO for at least two years from the date
of grant of the ISO and one year from the date of exercise, the participant will
recognize ordinary income at the time of the disposition equal to the lesser of
(a) the gain realized on the disposition, or (b) the excess of the fair market
value of the shares of Common Stock on the date of exercise over the exercise
price. The Company will be entitled to a deduction in the same amount and at the
same time as ordinary income is recognized by the participant. Any additional
gain realized by the participant over the fair market value at the time of
exercise will be treated as a capital gain. This capital gain will be a
long-term capital gain if the Common Stock has been held for more than one year
from the date of exercise.
Restricted Stock. A participant will not recognize income at the time an
award of restricted stock is made under the Plan, unless the election described
below is made. However, a participant who has not made such an election will
recognize ordinary income at the time the restrictions on the stock lapse in an
amount equal to the fair market value of the restricted stock at such time. The
Company will be entitled to a corresponding deduction in the same amount and at
the same time as the participant recognizes income. Any otherwise taxable
disposition of the restricted stock after the time the restrictions lapse will
result in capital gain or loss (long-term or short-term depending on the length
of time the restricted stock is held after the time the restrictions lapse).
Dividends paid in cash and received by a participant prior to the time the
restrictions lapse will constitute ordinary income to the participant in the
year paid. The Company will be entitled to a corresponding deduction for such
dividends. Any dividends paid in stock will be treated as an award of additional
restricted stock subject to the tax treatment described herein.
A participant may, within 30 days after the date of the award of
restricted stock, elect to recognize ordinary income as of the date of the award
in an amount equal to the fair market value of such restricted stock on the date
of the award. The Company will be entitled to a corresponding deduction in the
same amount and at the same time as the participant recognizes income. If the
election is made, any cash dividends received with respect to the restricted
stock will be treated as dividend income to the participant in the year of
payment and will not be deductible by the Company. Any otherwise taxable
disposition of the restricted stock (other than by forfeiture) will result in
capital gain or loss (long-term or short term depending on the holding period).
If the participant who has made an election subsequently forfeits the restricted
stock, the participant will not be entitled to deduct any loss. In addition, the
Company would then be required to include as ordinary income the amount of the
deduction it originally claimed with respect to such shares.
Awards under the Plan
The following table sets forth information with respect to grants that
have been made under the Plan to date to the various individuals and groups
identified below. All of such options were granted contingent upon shareholder
approval of the Plan. The options are nonstatutory stock options which vest and
become exercisable in 33-1/3% increments over a 3-year period from the date of
grant, except in the case of Mr. Kuber, whose nonstatutory stock option vests
and becomes exercisable in 20% increments over a 5-year period from the date of
grant. The options have a per
14
share exercise price of $8.09, the fair market value of the common stock on the
date of grant. Other than Messrs. Kuber, Cosgrove, Bekes and Neumann, no other
named executive officer has been granted options under the Plan.
Number of Shares of
Common Stock
Name and Position Subject to Options
----------------- ------------------
Thomas J. Kuber 60,000
Chairman of the Board
Thomas W. Cosgrove 20,000
President
Michael J. Bekes 10,000
Vice President and Chief Operating Officer
Mark C. Neumann 10,000
Vice President of Sales
Executive officers as a group (5 persons) 110,000
The Company cannot currently determine the options that may be granted to
eligible participants under the Plan in the future. Such determinations will be
made from time to time by the Committee and/or the Board.
On March 31, 1999, the last reported price per share of the Common Stock
on the Nasdaq National Market was $7.16.
Vote Required
The affirmative vote of the holders of a majority of the shares of Common
Stock represented and voted at the Annual Meeting with respect to the Plan
(assuming a quorum is present) is required to approve the Plan. Any shares of
Common Stock not voted at the Annual Meeting with respect to the Plan (whether
as a result of broker non-votes or otherwise, except abstentions) will have no
impact on the vote. Shares of Common Stock as to which holders abstain from
voting will be treated as votes against the Plan. THE BOARD RECOMMENDS A VOTE
"FOR" THE PLAN AND URGES EACH SHAREHOLDER TO VOTE "FOR" THE PLAN. SHARES OF
COMMON STOCK REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR"
THE PLAN.
15
SHAREHOLDER PROPOSAL
Shareholder Proposal and Shareholder Statement in Support of Proposal
Extrusions Division, Inc., 208 Pioneer Club Road, East Grand Rapids,
Michigan, Bomarko, Inc., North Oak Road, Post Office Box K, Plymouth, Indiana
and James D. Azzar, 208 Pioneer Club Road, East Grand Rapids, Michigan, have
notified the Company that they intend to present the following proposal at the
Annual Meeting. The Company is not obligated to present this proposal at the
Annual Meeting, so unless a member or an authorized representative of the Azzar
Group properly present the proposal at the Annual Meeting, the proposal will not
be introduced as an item of business at the Annual Meeting.
"Shareholder Proposal
RESOLVED, that the shareholders of Badger Paper Mills, Inc. (the
Company), having been informed that the Board of Directors is considering
all strategic options available to the Company and that it welcomes
discussions with shareholders, hereby request that the Board promptly
provide to the shareholders a specific written report of all activities
conducted by the Board and management to this end, detailing investment
bankers and advisors engaged, analyses made, and each inquiry, expression
of interest or offer relating to the acquisition or merger of the Company
or acquisition of a substantial part of the Company's assets received
during the past three years, and that the Board adopt a policy of
reporting all such inquiries, expressions of interest or proposals
received in the future; provided that the Board need not disclose such
matters if and while the Board, based on advice of counsel, determines
that disclosure would jeopardize ongoing negotiations.
Supporting Statement
This proposal is submitted by Bomarko, Inc., Extrusions Division,
Inc. and James Azzar, investors who own over 14% of the Company's shares
of common stock.
At the 1996 annual meeting, we submitted a proposal to create a
shareholder advisory committee to advise the Board as to shareholders'
views concerning extraordinary transactions. The Board recommended that
you vote against the proposal, because it did not believe that such a
committee "is necessary or helpful" and that it "welcomes the opportunity
to discuss the Company, its operations and its future prospects with
shareholders."
In 1997, we submitted a proposal to urge the Board to form a
committee of independent directors to investigate merger or sale of the
Company or substantial assets. That time, the Board recommended a no vote
because the proposal was "moot." The Board stated that it had created a
committee to review strategic options, engaged an investment banking firm
and was reviewing strategic alternatives.
In 1998, we submitted a similar proposal. The Board opposed that
proposal and recommended that you vote against it, stating that it "adds
nothing to Badger's business, particularly in light of the Board's
willingness to consider all strategic
16
options." The Board also stated that it retained Paine Webber in 1996 to
help it evaluate "strategic options" and had appointed a Board member
because of his experience in "advising companies with respect to their
available strategic alternatives."
The Board of Directors has repeatedly assured shareholders that it
will take appropriate action to enhance shareholder value. In my opinion,
it has delivered very little. The time has come for the Board of
Directors to report the shareholders what it has done -- with specificity
and without evasion.
We believe that a "For" vote on this proposal would send a message
to the Board that shareholders want more action on shareholder value and
more open communication."
Board's Statement of Position Against Proposal
THE BOARD UNANIMOUSLY RECOMMENDS THAT COMPANY SHAREHOLDERS VOTE "AGAINST"
THIS SHAREHOLDER PROPOSAL. The Azzar Group has, for the seventh time in three
years, submitted a proposal for consideration by Badger's shareholders. In 1996,
1997 and 1998 the Azzar Group submitted proposals at the Annual Meeting of
Shareholders to establish a committee of directors for the purpose of engaging
an investment banking firm to facilitate and promote the sale or merger of the
Company or the sale of substantially all of its assets. Over the same three-year
period the Azzar Group submitted three proposals to the Company's shareholders,
twice at Special Meetings of Shareholders called by the Azzar Group and once at
an Annual Meeting of Shareholders, to exempt itself from important provisions of
Wisconsin law that generally limit the voting power of 20% or greater
shareholders. Each time, Badger shareholders defeated the Azzar Group proposal
by at least a two-to-one margin.
The latest Azzar Group proposal requires the Board to provide a written
report of all activities conducted by the Board and management with respect to
the consideration of strategic options.
The Board believes that the Azzar Group proposal should be rejected
because the proposal, if adopted could discourage potential strategic partners
and inquiries.
The Board believes that business combinations are most likely to occur in
an environment that is shielded from the glare of the press, so that
negotiations can occur without the threat of intervention by takeover firms and
arbitrageurs. Although the Azzar Group proposal appears to address this problem
by providing that disclosure is not required if it would jeopardize ongoing
negotiations (emphasis added), negotiations often do not proceed smoothly from
beginning to end. A period where one party or the other breaks off negotiations
is not at all unusual, and in many instances negotiations resume days, weeks or
even months later and result in a successful transaction. If the Azzar Group
proposal were adopted, the Company would be forced to disclose the details of
discussions as soon as negotiations broke down, likely eliminating any
likelihood of resurrecting the negotiation process. In fact, sophisticated
parties making legitimate inquiries regarding business combinations typically
require that a confidentiality agreement be executed by both parties to prevent
just the kind of disclosure the Azzar Group proposes. The adoption of the Azzar
Group proposal could prevent the Company from entering into such a
confidentiality agreement with an interested
17
party, thus derailing a potential transaction, or even worse, discouraging an
interested party from approaching the Company in the first place.
The Board has demonstrated its willingness to consider carefully all
available strategic options, including a sale, merger or other business
combination involving the Company. For example, the Board retained Paine Webber,
Inc. in 1996 to provide investment banking advice and created a committee of the
Board to work with Paine Webber, Inc. to evaluate various strategic options,
including a possible sale of the Company. Additionally, John Peterson, a
Managing Director of the investment banking firm Cleary Gull Reiland & McDevitt,
Inc., was appointed to the Board in October 1997 in part because of his
experience in advising companies with respect to their strategic options.
During 1998, the Company earned $1,744,000 on net sales of $65.7 million.
These results were achieved in spite of one of the worst paper markets in recent
memory. Although there is still much room for improvement, the Board believes
that the Company is headed in the right direction. Since the strategic review
process began in 1996, the Board and management have reduced costs and
restructured and streamlined the Company's operations. These cost reduction
efforts have resulted in a $11.7 million reduction in overhead costs in 1998
compared to 1995. New senior management installed in 1998 has focused the
Company's business on more profitable specialty paper products and reduced the
Company's dependence on its traditional low margin commodity paper business.
In summary, the Board believes disclosing the sensitive information Mr.
Azzar and his affiliates propose to make public will add nothing to Badger's
business, particularly in light of the Board's willingness to consider all
strategic options. In fact, the Board believes adopting the Azzar Group's
proposal could harm the Company's ability to attract the kind of strategic
partners that could lead to a successful transaction that maximizes shareholder
value. For these reasons, the Board urges you to vote "AGAINST" the Azzar Group
proposal.
Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "AGAINST" THIS
SHAREHOLDER PROPOSAL. For the reasons identified above under the caption
"Board's Statement of Position Against Proposal," the Board believes the
proposal is not in the best interests of the Company and its shareholders. IF
THIS PROPOSAL IS PRESENTED AT THE ANNUAL MEETING, SHARES OF COMMON STOCK
REPRESENTED BY EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "AGAINST" THE
PROPOSAL.
Vote Required
The number of votes cast "FOR" this shareholder proposal must exceed the
number of votes cast "AGAINST" this shareholder proposal to approve this
shareholder proposal. Consequently, abstentions and broker nonvotes will have no
impact on the approval or disapproval of the proposal.
18
MISCELLANEOUS
Independent Auditors
On July 10, 1997, the Company changed its certifying accountants. The
Board of Directors approved the dismissal of the accounting firm Coopers and
Lybrand LLP ("Coopers & Lybrand") and concurrently resolved to engage Grant
Thornton LLP ("Grant Thornton") in their place. Thus, Grant Thornton served as
the Company's independent auditors and audited the Company's financial
statements for the fiscal years ended December 31, 1998 and 1997.
The reports made by Coopers & Lybrand on the Company's financial
statements for 1996 contained no adverse opinion or disclaimer of opinion, nor
were such reports qualified or modified as to uncertainty, audit scope, or
accounting principles. Furthermore, during fiscal year 1996, and for the interim
period ended July 10, 1997, the Company had no disagreement with Coopers &
Lybrand on any matter of accounting principles or practices, financial statement
disclosure, or audit scope or procedure, which, if not resolved to the
satisfaction of Coopers & Lybrand, would have caused them to make reference to
the matter in their report. No other reportable events occurred within the
Company's two most recent fiscal years.
Representatives of Grant Thornton are expected to be present at the
Annual Meeting with the opportunity to make a statement if they so desire. Such
representatives are also expected to be available to respond to appropriate
questions.
Shareholder Proposals
Any shareholder entitled to submit proposals to be considered at the 2000
annual meeting shall be a record or beneficial owner of at least 1% or $1,000 in
market value of Common Stock at the time the proposal is submitted, shall have
held said Common Stock for at least one year, and shall continue to own said
Common Stock through the date on which the annual meeting is held. Proposals
submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, which shareholders of the Company intend to present at and have
included in the Company's proxy statement for the 2000 Annual Meeting of
Shareholders must be received by the Company by the close of business December
4, 1999. If the Company receives notice of a shareholder proposal that is
submitted other than pursuant to Rule 14a-8 after February 16, 2000, the notice
will be deemed untimely and the persons named in proxies solicited by the Board
for the 2000 Annual Meeting of Shareholders may exercise discretionary voting
power with respect to such shareholder proposal.
Other Matters
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file reports concerning their
ownership of Company equity securities with the Securities and Exchange
Commission and the Company. Based solely upon information provided to the
Company by individual directors and executive officers, the Company believes
that during the fiscal year ended December 31, 1998, all its directors and
executive officers complied with the Section 16(a) filing requirements.
The cost of soliciting proxies will be borne by the Company. In addition
to soliciting proxies by mail, proxies may be solicited personally and by
telephone by certain officers and regular
19
employees of the Company. The Company will reimburse brokers and other nominees
for their reasonable expenses in communicating with the persons for whom they
hold Common Stock.
By Order of the Board of Directors
BADGER PAPER MILLS, INC.
/s/Mark D. Burish
Mark D. Burish
Corporate Secretary
April 8, 1999
20
APPENDIX A
BADGER PAPER MILLS, INC.
1998 STOCK OPTION PLAN
Section 1. Purpose
The purpose of the Badger Paper Mills, Inc. Stock Option Plan (the
"Plan") is to promote the best interests of Badger Paper Mills, Inc. (together
with any successor thereto (the "Company"), its holders and its Subsidiaries as
defined in the Internal Revenue Code of 1986, as amended (the "Code"), and any
entities of which at least 20% of the equity interest is held directly or
indirectly by the Company (together "Affiliates"), by encouraging and providing
for the acquisition of an equity interest in the success of the Company by
officers and key employees and by enabling the Company and its Affiliates to
attract and retain the services of officers and key employees upon whose
judgment, interest, skills, and special effort the successful conduct of their
operations is largely dependent.
Section 2. Effective Date
The Plan shall become effective on May 12, 1998 subject, however, to the
approval of the Plan by the stockholders of the Company at the next annual
meeting of stockholders within twelve months following the date of adoption of
the Plan by the Board of Directors of the Company (the "Board").
Section 3. Administration
The Plan shall be administered by a committee (the "Committee") of the
Board, consisting of not less than two directors, each of whom shall qualify as
a "non-employee director" within the meaning of Rule 16b-3 ("Rule 16b-3") under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as an
"outside director" under Section 162(m)(4)(C) of the Code or any successor
provisions thereto. If at any time the Committee shall not be in existence, the
Board shall administer the Plan. To the extent permitted by applicable law, the
Board may delegate to another committee of the Board or to one or more senior
officers of the Company any or all of the authority and responsibility of the
Committee with respect to the Plan, other than with respect to participants who
are subject to Section 16 of the Exchange Act ("Section 16 participants"). To
the extent that the Board has delegated to such other committee or one or more
officers the authority and responsibility of the Committee, all references to
the Committee herein shall include such other committee or one or more officers.
A-1
Subject to the terms of the Plan and applicable law, the Committee shall
have full power and authority to interpret and administer the Plan and any
instrument or agreement relating to, or made under, the Plan, establish, amend,
suspend, or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan, and make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan. The Committee's decisions and
determinations under the Plan need not be uniform and may be made selectively
among participants, whether or not they are similarly situated. A majority of
the members of the Committee shall constitute a quorum and all determinations of
the Committee shall be made by a majority of its members. Any determination of
the Committee under the Plan may be made without notice or meeting of the
Committee by a writing signed by a majority of the Committee members.
Section 4. Eligibility and Participation
Participants in the Plan shall be selected by the Committee from among
those officers and other key employees of the Company and its Affiliates, as the
Committee may designate from time to time. The Committee shall consider such
factors as it deems appropriate in selecting participants and in determining the
type and amount of their respective benefits. The Committee's designation of a
participant in any year shall not require the Committee to designate such person
to receive a benefit in any other year.
Section 5. Stock Subject to Plan
5.1 Number. Subject to adjustment as provided in Section 5.3, the total
number of shares of Common Stock of the Company, no par value (the "Stock"),
which may be issued under the Plan shall be 130,000. The shares to be delivered
under the Plan may consist, in whole or in part, of authorized but unissued
Stock or treasury Stock. No participant shall be granted benefits under the Plan
that could result in such participant (i) receiving in any single fiscal year of
the Company options for more than 70,000 shares of Stock; or (ii) receiving
benefits in any single fiscal year of the Company relating to more than 20,000
shares of Stock as restricted stock. Such number of shares of Stock as specified
in the preceding sentence shall be subject to adjustment in accordance with the
terms of Section 5.3 hereof. In all cases, determinations under this Section 5
shall be made in a manner that is consistent with the exemption for
performance-based compensation provided by Section 162(m) of the Code (or any
successor provision thereto) and any regulations promulgated thereunder.
5.2 Unused Stock: Unexercised Rights. If, after the effective date of the
Plan, any shares of Stock covered by an award granted under the Plan, or to
which any award relates, are forfeited or if an award otherwise terminates,
expires or is canceled prior to the delivery of all of the shares of Stock or of
other consideration issuable or payable pursuant to such award, then the number
of shares of Stock counted against the number of shares available under the Plan
in connection with the grant of such award, shall again be available for the
granting of additional awards under the Plan to the extent determined to be
appropriate by the Committee.
5.3 Adjustment in Capitalization. In the event that the Committee shall
determine that any dividend or other distribution (whether in the form of cash,
Stock, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Stock or other securities of the Company,
issuance of warrants or other rights to purchase Stock or other securities of
the Company, or other
A-2
similar corporate transaction or event affects the Stock such that an adjustment
is determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee may, in such manner as it may deem equitable,
adjust any or all of (i) the number and type of shares of Stock subject to the
Plan and which thereafter may be made the subject of awards under the Plan; (ii)
the number and type of shares of Stock subject to outstanding awards; and (iii)
the grant, purchase or exercise price with respect to any award, or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
award; provided, however, in each case, that with respect to awards of incentive
stock options no such adjustment shall be authorized to the extent that such
authority would cause such options to cease to be treated as incentive stock
options; and provided further, however, that the number of shares of Stock
subject to any award payable or denominated in Stock shall always be a whole
number.
Section 6. Term of the Plan
No award shall be granted under the Plan after May 1, 2008. However,
unless otherwise expressly provided in the Plan or in an applicable award
agreement, any award theretofore granted may extend beyond such date and, to the
extent set forth in the Plan, the authority of the Committee to amend, alter,
adjust, suspend, discontinue or terminate any such award, or to waive any
conditions or restrictions with respect to any such award, and the authority of
the Board to amend the Plan, shall extend beyond such date.
Section 7. Stock Options
7.1 Grant of Options. Options may be granted to participants at any time
and from time to time as shall be determined by the Committee. The Committee
shall have complete discretion in determining the number, terms and conditions
of options granted to a participant. The Committee also shall determine whether
an option is to be an incentive stock option within the meaning of Section 422
of the Code or a nonqualified stock option.
7.2 Incentive Stock Options. Incentive stock options will be exercisable
at purchase prices of not less than One Hundred percent (100%) of the fair
market value of the Stock on the date of grant, as such fair market value is
determined by such methods or procedures as shall be established from time to
time by the Committee ("Fair Market Value"). Incentive stock options will be
exercisable over not more than ten (10) years after date of grant and shall
terminate not later than three (3) months after termination of employment for
any reason other than death or disability, except as otherwise provided by the
Committee. If the participant should die or become disabled within the meaning
of Code Section 22(e)(3) while employed, then the right of the participant's
successor in interest to exercise an incentive stock option shall terminate not
later than twelve (12) months after the date of death or the date of termination
due to disability, except as otherwise provided by the Committee. In all other
respects, the terms of any incentive stock option granted under the Plan shall
comply with the provisions of Section 422 of the Code (or any successor
provision thereto) and any regulations promulgated thereunder.
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7.3 Nonqualified Stock Options. Nonqualified stock options will be
exercisable at purchase prices of not less than One Hundred percent (100%) of
the Fair Market Value of the Stock on the date of grant, unless otherwise
determined by the Committee. Nonqualified stock options will be exercisable as
determined by the Committee over not more than ten (10) years after the date of
grant and shall terminate at such time as the Committee shall determine.
7.4 Award Agreement. Each option shall be evidenced by an award agreement
that shall specify the type of option granted, the option price, the duration of
the option, the number of shares of Stock to which the option pertains and such
other provisions as the Committee shall determine.
7.5 Fair Market Value. The Fair Market Value of the Stock shall be
determined by such methods or procedures as shall be established from time to
time by the Committee; provided, however, that the Fair Market Value shall not
be less than the par value of the Stock; and provided further, that so long as
the Stock is traded on a public market, Fair Market Value means the average of
the high and low prices of a share of Stock on the relevant date as reported on
the composite list used by the Wall Street Journal for reporting stock prices,
or if no such sale shall have been made on that day, on the last preceding day
on which there was such a sale.
7.6 Payment. The Committee shall determine the methods and the forms for
payment of the purchase price of options, including (a) by delivery of cash or
other shares or securities of the Company having a then Fair Market Value equal
to the purchase price of such shares; or (b) by delivery (including by fax) to
the Company or its designated agent of an executed irrevocable option exercise
form together with irrevocable instructions to a broker-dealer to sell or margin
a sufficient portion of the Stock and deliver the sale or margin loan proceeds
directly to the Company to pay the purchase price.
Section 8. Restricted Stock
8.1 Awards. The Committee is hereby authorized to issue restricted stock
to participants, with or without payment therefor, as additional compensation,
or in lieu of other compensation, for their services to the Company and/or any
Affiliate. Restricted stock shall be subject to such terms and conditions as the
Committee determines appropriate, including, without limitation, restrictions on
sale or other disposition and rights of the Company to reacquire such restricted
stock upon termination of the Participant's employment within specified periods,
as prescribed by the Committee.
8.2 Other Restrictions. Without limitation, such terms and conditions may
provide that restricted stock shall be subject to forfeiture if the Company or
the participant fails to achieve certain goals established by the Committee over
a designated period of time. The goals established by the Committee may relate
to any one or more of the following: revenues, earnings per share, return on
shareholder equity, return on average total capital employed, return on net
assets employed before interest and taxes, economic value added and/or such
other goals as may be established by the Committee in its discretion. In the
event the minimum goal established by the Committee is not achieved at the
conclusion of a period, all shares of restricted stock shall be forfeited. In
the event the maximum goal is achieved, no shares of restricted stock shall be
forfeited. Partial achievement of the maximum goal may result in forfeiture
corresponding to the degree of nonachievement to the extent specified in writing
by the Committee when the grant is made. The Committee shall certify in writing
as to the degree of achievement after completion of the performance period.
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8.3 Registration. Any restricted stock granted under the Plan to a
participant may be evidenced in such manner as the Committee may deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of shares of restricted stock granted under the Plan to a
participant, such certificate shall be registered in the name of the participant
and shall bear an appropriate legend (as determined by the Committee) referring
to the terms, conditions and restrictions applicable to such restricted stock.
8.4 Other Rights. Unless otherwise determined by the Committee, during
the period of restriction, participants holding shares of restricted stock
granted hereunder may exercise full voting rights with respect to those shares
and shall be entitled to receive all dividends and other distributions paid or
made with respect to those shares while they are so held; provided, however,
that the Committee may provide in any grant of shares of restricted stock that
payment of dividends thereon may be deferred until termination of the period of
restriction and may be made subject to the same restrictions regarding
forfeiture as apply to such shares of restricted stock. If any such dividends or
distributions are paid in shares of Stock, the shares shall be subject to the
same restrictions on transferability as the shares of restricted stock with
respect to which they were paid.
8.5 Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment of a participant with the Company (as determined under
criteria established by the Committee) for any reason during the applicable
period of restriction, all shares of restricted stock still subject to
restriction shall be forfeited by the participant to the Company; provided,
however, that the Committee may, when it finds that a waiver would be in the
best interests of the Company, waive in whole or in part any or all remaining
restrictions with respect to shares of restricted stock held by a participant.
Section 9. Transferability
Each award granted under the Plan shall not be transferable other than by
will or the laws of descent and distribution, except that a participant may, to
the extent allowed by the Committee and in a manner specified by the Committee
(a) designate in writing a beneficiary to exercise the award after the
participant's death; or (b) transfer any award; provided, however, that in no
event may incentive stock options be transferred other than by will or the laws
of descent and distribution.
Section 10. Rights of Employees
Nothing in the Plan shall interfere with or limit in any way the right of
the Company or any Affiliate to terminate any participant's employment at any
time nor confer upon any participant any right to continue in the employ of the
Company or any Affiliate.
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Section 11. Change of Control
(a) In the event of a "Change of Control" (as hereinafter defined):
(i) each holder of an option (A) shall have the right at any time
thereafter to exercise the option in full whether or not the option was
theretofore exercisable; and (B) shall have the right, exercisable by
written notice to the Company within 60 days after the Change of Control,
to receive, in exchange for the surrender of the option or any portion
thereof to the extent the option is then exercisable in accordance with
clause (A), the highest of (1) an amount of cash equal to the difference
between the Fair Market Value of the Stock covered by the option or
portion thereof that is so surrendered on the date of the Change of
Control and the purchase price of such Stock under the option, (2) an
amount of cash equal to the difference between the highest price per
share of Stock paid in the transaction giving rise to the Change of
Control and the purchase price per share of Stock under the option
multiplied by the number of shares of Stock covered by the Option, or (3)
an amount of cash equal to the difference between the Fair Market Value
of the Stock covered by the option or portion thereof that is so
surrendered, calculated on the date of surrender, and the purchase price
of such Stock under the option; provided that the right described in this
clause (B) shall be exercisable only if a positive amount would be
payable to the holder pursuant to the formula specified in this clause
(B); and
(ii) Restricted stock that is not then vested shall vest upon the
date of the Change of Control and each holder of such restricted stock
shall have the right, exercisable by written notice to the Company within
sixty (60) days after the Change of Control, to receive, in exchange for
the surrender of such restricted stock, an amount of cash equal to the
highest of (A) the Fair Market Value of such restricted stock on the date
of surrender, (B) the highest price per share of Stock paid in the
transaction giving rise to the Change of Control multiplied by the number
of shares of restricted stock surrendered, or (C) the Fair Market Value
of such restricted stock on the effective date of the Change of Control.
(b) A "Change of Control" of the Company shall be deemed to have occurred
for purposes of this Section 11 if the event set forth in any one of the
following paragraphs shall have occurred:
(i) any "Person" (as such term is defined in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that for purposes of this Section 11, the term "Person"
shall not include (1) the Company or any of its subsidiaries, (2) a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (3) an underwriter
temporarily holding securities pursuant to an offering of such
securities, or (4) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as
their ownership of stock in the Company) is or becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from
the Company or its affiliates) representing 30% or more of either the
then outstanding shares of Stock of the Company or the combined voting
power of the Company's then outstanding voting securities; or
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(ii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation or approve the
issuance of voting securities of the Company in connection with a merger
or consolidation of the Company (or any direct or indirect subsidiary of
the Company) pursuant to applicable stock exchange requirements, other
than (1) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity or any
parent thereof) at least 30% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or (2) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its Affiliates)
representing 30% or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the Company's then
outstanding voting securities; or
(iii) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets (in one transaction or a series of related transactions within any
period of 24 consecutive months), other than a sale or disposition by the
Company of all or substantially all of the Company's assets to an entity,
at least 75% of the combined voting power of the voting securities of
which are owned by Persons in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change of Control" shall be deemed to
have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the Stock of the
Company immediately prior to such transaction or series of transactions continue
to have substantially the same proportionate ownership in an entity which owns
all or substantially all of the assets of the Company immediately following such
transaction or series of transactions.
(c) The Committee may, in its sole and absolute discretion, amend, modify
or rescind the provisions of this Section 11 if it determines that the operation
of this Section 11 may prevent a transaction in which the Company or any
Affiliate is a party from being accounted for on a pooling-of-interests basis.
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Section 12. Amendment, Modification and Termination of Plan
12.1 Amendments and Termination. The Board may at any time amend, alter,
suspend, discontinue or terminate the Plan; provided, however, that stockholder
approval of any amendment of the Plan shall be obtained if otherwise required by
(i) the Code or any rules promulgated thereunder (in order to allow for
incentive stock options to be granted under the Plan or to enable the Company to
comply with the provisions of Section 162(m) of the Code so that the Company can
deduct compensation in excess of the limitation set forth therein), or (ii) the
listing requirements of the principal securities exchange or market on which the
Stock is then traded (in order to maintain the listing or quotation of the Stock
thereon). To the extent permitted by applicable law, the Committee may also
amend the Plan, provided that any such amendments shall be reported to the
Board. Termination of the Plan shall not affect the rights of participants with
respect to awards previously granted to them, and all unexpired awards shall
continue in force and effect after termination of the Plan except as they may
lapse or be terminated by their own terms and conditions.
12.2 Waiver of Conditions. The Committee may, in whole or in part, waive
any conditions or other restrictions with respect to any award granted under the
Plan.
Section 13. Taxes
The Company shall be entitled to withhold the amount of any tax
attributable to any amount payable or shares of Stock deliverable under the Plan
after giving the person entitled to receive such amount or shares of Stock
notice as far in advance as practicable, and the Company may defer making
payment or delivery if any such tax may be pending unless and until indemnified
to its satisfaction. The Committee may, in its discretion and subject to such
rules as it may adopt, permit a participant to pay all or a portion of the
federal, state and local withholding taxes arising in connection with an award
under the plan by electing to (i) have the Company withhold shares of Stock,
(ii) tender back shares of Stock received in connection with such benefit, or
(iii) deliver other previously owned shares of Stock, having a Fair Market Value
equal to the amount to be withheld; provided, however, that the amount to be
withheld shall not exceed the participant's estimated total federal, state and
local tax obligations associated with the transaction. The election must be made
on or before the date as of which the amount of tax to be withheld is determined
and otherwise as required by the Committee. The Fair Market Value of fractional
shares of Stock remaining after payment of the withholding taxes shall be paid
to the participant in cash.
Section 14. Miscellaneous
14.1 Stock Transfer Restrictions.
(a) Shares of Stock purchased under the Plan may not be sold or
otherwise disposed of except (i) pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), or in
a transaction which, in the opinion of counsel for the Company, is exempt
from registration under the Act; and (ii) in compliance with state
securities laws. The Committee may waive the foregoing restrictions, in
whole or in part, in any particular case or cases or may terminate such
restrictions whenever the Committee determines that such restrictions
afford no substantial benefit to the Company.
(b) All certificates for shares delivered under the Plan pursuant
to any award or the exercise thereof shall be subject to such stock
transfer orders and other restrictions as the Committee may deem
advisable under the Plan and any applicable federal or state securities
A-8
laws, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate references to such restrictions.
14.2 Other Provisions. The grant of any award under the Plan may also be
subject to other provisions (whether or not applicable to the benefit awarded to
any other participant) as the Committee determines appropriate, including,
without limitation, provisions for (a) one or more means to enable participants
to defer recognition of taxable income relating to awards or cash payments
derived therefrom, which means may provide for a return to a participant on
amounts deferred as determined by the Committee (provided that no such deferral
means may result in an increase in the number of shares of Stock issuable
hereunder); (b) the purchase of Stock under options in installments; (c) the
financing of the purchase of Stock under the options in the form of a promissory
note issued to the Company by a participant on such terms and conditions as the
Committee determines; (d) restrictions on resale or other disposition; and (e)
compliance with federal or state securities laws and stock exchange or market
requirements.
14.3 Award Agreement. No person shall have any rights under any award
granted under the Plan unless and until the Company and the participant to whom
the award was granted shall have executed an award agreement in such form as
shall have been approved by the Committee.
Section 15. Legal Construction
15.1 Requirements of Law. The granting of awards under the Plan and the
issuance of shares of Stock in connection with an award, shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
15.2 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Wisconsin.
15.3 Severability. If any provision of the Plan or any award agreement or
any award is or becomes or is deemed to be invalid, illegal or unenforceable in
any jurisdiction, or as to any person or award, or would disqualify the Plan,
any award agreement or any award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the intent of the Plan,
any award agreement or the award, such provision shall be stricken as to such
jurisdiction, person or award, and the remainder of the Plan, any such award
agreement and any such award shall remain in full force and effect.
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PROXY CARD
BADGER PAPER MILLS, INC.
Solicited by the Board of Directors
for the Annual Meeting of Shareholders
May 11, 1999
The undersigned Shareholder of Badger Paper Mills, Inc. hereby appoints Mark D.
Burish and James L. Kemerling, and each of them Proxies, with power of
substitution, to vote at the Annual Meeting of Shareholders of the Company to be
held at the Best Western Riverfront Inn, 1821 Riverside Avenue, Marinette,
Wisconsin, on Tuesday, May 11, 1999, at 10:00 a.m. local time, or at any
adjournment or postponement thereof, on the matters described on the reverse
side.
The Board of Directors Favors a Vote FOR All Nominees,
FOR Item 2, and AGAINST Item 3.
(Continued and to be signed on reverse side.)
BADGER PAPER MILLS, INC.
* PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. *
For Withheld For All
All All Except*
1. Election of Directors --
Nominees: Mark D. Burish and [ ] [ ] [ ]
James L. Kemerling
----------------------------------
*(Except nominee written above.)
The Board of Directors Favors a Vote FOR All Nominees.
For Against Abstain
2. Proposal to approve the
1998 Stock Option Plan [ ] [ ] [ ]
The Board of Directors Favors a Vote FOR approval of the Plan.
3. Shareholder Proposal requesting that
the Company provide a written report
of all activities conducted by the
Board and management with respect to
the consideration of strategic options [ ] [ ] [ ]
The Board of Directors Favors a Vote AGAINST the Shareholder Proposal.
4. In the discretion of the proxies, the
transaction of such other business which
may properly come before the meeting, all
as described in the Notice of 1999 Annual
Meeting.
The Shares Represented By This Proxy Will Be Voted
As Directed on Items 1, 2 and 3, But Where No
Direction is Indicated, Will be Voted FOR Items 1
and 2, and AGAINST Item 3.
Dated:___________________________________, 1999
Signature(s) ____________________________________
----------------------------------------------
IMPORTANT! Please sign exactly as name appears.
Joint owners should both sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name by
the President or other authorized officer. If a
partnership, please sign in partnership name by an
authorized person.