SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-
5(d)(2))
[X] Definitive Information Statement
CASH SYSTEMS, INC.
------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A.
(2) Aggregate number of securities to which transaction applies: N/A.
(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): N/A.
(4) Proposed maximum aggregate value of transaction: N/A.
(5) Total fee paid: N/A.
[ ] 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 number, or the Form
or Schedule and the date of its filing.
(1) Amount Previously Paid: $0.
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
CASH SYSTEMS, INC.
3201 West County Road 42, Suite 106
BURNSVILLE, MN 55306
INFORMATION STATEMENT
INTRODUCTION
This Information Statement is being furnished to the stockholders of
Cash Systems, Inc., a Delaware corporation ("Cash Systems," "we", "our"
or "us"), in connection with certain corporate actions (the "Proposals")
unanimously approved by our Board of Directors that will be presented to an
annual meeting of our stockholders to be held on December 20, 2002, as
outlined in the Notice of Annual Meeting of Stockholders (the "Annual
Meeting") that accompanies this Information Statement. Certain persons who
own in excess of a majority of our outstanding voting securities have agreed
to vote in favor of these Proposals. No other votes are required or necessary
to adopt and complete these Proposals. It is anticipated that these Proposals
will be completed immediately following the Annual Meeting.
The Proposals are as follows:
1) To amend the Bylaws of Cash Systems, Inc. to increase the number of
directors from three to up to 21 and to require that any
shareholder before owning 5% or more of the Company's outstanding
common stock agree, in writing, to cooperate with us in obtaining
required gaming licenses.
2) To elect three directors for the coming year, with the election of
the third director, James Mandel, to be subject to Equity Securities
Investments' prior satisfactory performance, in the sole judgment
of the Company's then-incumbent directors, of its obligations
under the Agency Agreement entered into by Cash Systems and Equity
Securities Investments on September 6, 2002.
3) To ratify the appointment of the firm of Virchow, Krause & Company,
LLP, Certified Public Accountants, as the independent accountants of
the Company for the fiscal year ending December 31, 2002.
4) To approve the 2001 Stock Option Plan.
ONLY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON DECEMBER 2, 2002
(THE "RECORD DATE"), ARE ENTITLED TO NOTICE OF AND TO VOTE ON THESE PROPOSALS.
MEMBERS OF OUR MANAGEMENT AND CERTAIN OF OUR PRINCIPAL STOCKHOLDERS WHO
COLLECTIVELY OWN IN EXCESS OF A MAJORITY OF OUR OUTSTANDING VOTING SECURITIES
HAVE AGREED TO VOTE IN FAVOR OF THESE PROPOSALS. AS A RESULT, THESE PROPOSALS
WILL BE APPROVED WITHOUT THE VOTE OF ANY OTHER STOCKHOLDERS. WE ARE NOT ASKING
YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
APPROXIMATE DATE OF MAILING IS DECEMBER 10, 2002
The present members of the Board of Directors, who collectively own
approximately 76% of the outstanding voting securities of the Company,
which is in excess of the majority vote that is required to adopt these
Proposals.
The cost of preparing, printing and mailing the Information Statement
will be borne by the Company. The Company will request brokers, custodians,
nominees and other like parties to forward copies of the Information Statement
to beneficial owners of the Company's common stock and will reimburse such
parties for their related reasonable and customary charges or expenses. The
estimated expense of this mailing is approximately $2,500.
DISSENTERS' RIGHTS OF APPRAISAL
The Delaware General Corporation Law does not provide for dissenters'
rights with respect to the Proposals being presented at the Meeting.
INTEREST OF MANAGEMENT IN MATTERS TO BE ACTED UPON
No director, executive officer, nominee to become a director, or any
associate of any of the foregoing persons, has any substantial interest,
direct or indirect, by security holdings or otherwise, in the matters to be
submitted to a vote of the stockholders at the Meeting, which is not shared by
all other stockholders, pro rata, and in accordance with their respective
interests in the Company.
OUTSTANDING SHARES, VOTING AND PROXIES
Record Date and Outstanding Shares.
- -----------------------------------
The Board of Directors has fixed December 2, 2002, as the record date
for the determination of holders of common stock entitled to notice of the
Meeting. At the close of business on that date, there were 12,600,195
shares of $0.001 par value common stock outstanding and entitled to vote.
MEMBERS OF OUR MANAGEMENT AND CERTAIN OF OUR PRINCIPAL STOCKHOLDERS WHO
COLLECTIVELY OWN IN EXCESS OF A MAJORITY OF OUR OUTSTANDING VOTING SECURITIES
HAVE AGREED TO VOTE IN FAVOR OF THESE PROPOSALS. AS A RESULT, THESE PROPOSALS
WILL BE APPROVED WITHOUT THE VOTE OF ANY OTHER STOCKHOLDERS. WE ARE NOT ASKING
YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
PROPOSAL 1.
TO AMEND THE BY-LAWS OF CASH SYSTEMS, INC. TO INCREASE THE NUMBER OF
DIRECTORS FROM THREE TO UP TO 21 AND TO REQUIRE THAT ANY SHAREHOLDER
BEFORE OWNING 5% OR MORE OF THE COMPANY'S COMMON STOCK AGREE, IN WRITING,
TO COOPERATE WITH US IN OBTAINING REQUIRED GAMING LICENSES.
Article III, Section 2 of the Company's Bylaws currently provides for us
to have three directors. Management believes that this provision is overly
restrictive in that it limits the number of people who may serve on the Board,
even though there may be more people who are qualified and willing to serve.
We believe that this restriction may unnecessarily exclude from the Board many
people who may make a valuable contribution by serving as directors. By
amending Article III, Section 2 to increase the authorized number of directors
to 21, management believes that the Company will gain the flexibility to elect
to the Board a larger, more diverse group of people whose service will benefit
the Company and its stockholders.
As a vendor to the gaming industry, Cash Systems is required, in certain
jurisdictions, to apply for and obtain licenses/permits. Typically, members
of an applicant's board of directors, its officers, key employees and
stockholders holding five percent or more of the applicant's stock must submit
to a personal background check. This process can be time consuming and
intrusive. If an individual is unwilling to provide this background
information or is unsatisfactory to a licensing authority, the Company must
have a mechanism for making the necessary changes in management or stock
ownership before beginning the application process.
In order to address this issue, the Board of Directors has prepared
Amended and Restated Bylaws (the "Amended Bylaws"). These Amended Bylaws
contain an Article VIII, which is entitled "Gaming License Matters." Article
VIII, Section 1 provides that no person may become the beneficial owner of
five percent or more of any class or series of the Company's capital stock
unless that person agrees in writing to:
provide to the relevant gaming authorities such information about
himself or herself as the authorities may require;
respond to written or oral questions that the gaming authorities
may propound; and
consent to the performance of any background check that the gaming
authorities may require, including the investigation of any
criminal record.
If a holder of five percent or more of our common stock does not agree to
these requirements, Article VIII, Section 2 of the Amended Bylaws provides for
us to redeem all or a portion of that person's shares by paying fair market
value for the shares after giving the holder 30 days' notice of such
redemption. The redemption price may be paid, at the discretion of the Board
of Directors, in cash or securities having a fair market value equal to the
value of the common stock being redeemed. Management believes that this
procedure will give us flexibility to ensure compliance with the background
check requirements of the jurisdictions in which we may seek gaming licenses.
As such, management believes that the proposed amendment to our bylaws is in
our best interests. A copy of the Amended Bylaws is attached hereto as
Exhibit B.
PROPOSAL 2.
TO ELECT THREE DIRECTORS FOR THE COMING YEAR, WITH THE ELECTION OF
THE THIRD DIRECTOR, JAMES MANDEL, TO BE SUBJECT TO EQUITY SECURITIES
INVESTMENTS' PRIOR SATISFACTORY PERFORMANCE, IN THE SOLE JUDGMENT
OF THE COMPANY'S THEN-INCUMBENT DIRECTORS, OF ITS OBLIGATIONS
UNDER THE AGENCY AGREEMENT ENTERED INTO BY CASH SYSTEMS AND EQUITY
SECURITIES INVESTMENTS ON SEPTEMBER 6, 2002.
The number of directors currently serving on the Company's Board of
Directors is two. Each director holds office until the next Annual Meeting of
Shareholders or until his or her successor is elected and qualified. The
Board of Directors has designated the incumbent directors, Craig Potts, and
Christopher Larson as nominees for reelection to the Board of Directors of the
Company. It has also designated James Mandel as nominee for election to the
Board, subject to the closing of all or part of the Company's private
placement of an offering of 1,250,000 Units, as discussed below. Each of the
nominees has consented to serve as director, if elected.
Certain biographical information about each of the nominees is presented
below.
CRAIG POTTS, age 30, is the founder of Cash Systems, Inc., a Minnesota
corporation formed in May 1997 ("Cash Systems Minnesota"). In October 2001,
the Company acquired all of the outstanding common stock of Cash Systems
Minnesota. At that time, Mr. Potts was elected the Company's President, Chief
Executive Officer and Chairman of the Board of Directors.
CHRISTOPHER LARSON, age 30, has been a member of the Company's Board of
Directors and its Chief Financial Officer since it acquired Cash Systems
Minnesota in 2001. Mr. Larson is a Certified Public Accountant and has served
as Cash Systems Minnesota's CFO and Board member since May 2000.
JAMES MANDEL, age 45, has been the Chief Executive Officer and a director
of Vicom, Inc., since October 1, 1998. He was co-founder of Call 4 Wireless,
LLC, a telecommunications company specializing in wireless communications, and
served as its chairman and a member of the Board of Directors from December,
1996, until October, 1998, and as its interim Chief Executive Officer from
December, 1996, until December, 1997. From October, 1991, to October, 1996,
he was Vice President of Systems for Grand Casinos, Inc., where his duties
included managing the design, development, installation and ongoing
maintenance for the 2,000 room, $507 million Stratosphere Hotel, Casino and
Tower in Las Vegas. Mr. Mandel also managed the systems development of Grand
Casino Mille Lacs in Onamia, Minnesota; Grand Casino Hinckley in Hinckley,
Minnesota; and six other casinos nationwide. He also serves on the Board of
CorVu Corporation and is a trustee of the Boys and Girls Club of Minneapolis.
On September 6, 2002, the Company entered into an Agency Agreement with
Equity Securities Investments, Inc., a Minnesota corporation ("Equity
Securities"). Under the Agency Agreement, Equity Securities agreed to act as
the Company's agent in the offer and sale, on a "best efforts" basis, of up to
1,250,000 Units, with each Unit consisting of one share of the Company's
common stock and one warrant to purchase one additional share of common stock
at a price of $2.50 per share. As a condition to the closing of the offering,
the Company has agreed to elect a representative selected by Equity Securities
to the Company's Board of Directors, subject to the Company's approval.
Equity Securities has selected Mr. Mandel to serve in this regard and the
holders of a majority of the Company's issued and outstanding common stock
have indicated their intention to vote in favor of Mr. Mandel's election,
subject to Equity Securities' prior satisfactory performance of its
obligations under the Agency Agreement.
PROPOSAL 3.
TO RATIFY THE APPOINTMENT OF THE FIRM OF VIRCHOW, KRAUSE & COMPANY, LLP,
CERTIFIED PUBLIC ACCOUNTANTS, AS THE INDEPENDENT ACCOUNTANTS OF THE
COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2002.
The Company ratifies the appointment of Virchow Krause & Company, LLP,
Certified Public Accountants ("VK"), by the Board of Directors to act as
independent accountants of the Company for the fiscal year ending December 31,
2002. VK are independent accountants and auditors who have audited the
consolidated financial statements of the Company and its subsidiaries for the
year ended December 31, 2001.
Representatives of VK will attend the shareholder meeting. They will
have the opportunity to make a statement if they desire to do so, and will be
available to answer appropriate questions that may be asked by shareholders.
AUDIT AND NON-AUDIT FEES
For the fiscal year ended December 31, 2001, fees for services provided by VK
were as follows:
A. Audit and review of consolidated financial statements for
fiscal year ended December 31, 2001 and for reviews of
financial statements included in the Company's quarterly
reports on Form 10-QSB $21,690
B. Financial information systems design and implementation $ 0
C. Fees billed for all other non-audit services, including
fees for tax-related services and Form 8-K filings $12,485
The Board has considered the effect of non-audit services provided by VK
on VK's independence, and does not believe that such independence has been
impaired or otherwise compromised.
PROPOSAL 4.
TO APPROVE THE 2001 STOCK OPTION PLAN.
The Company's 2001 Stock Option Plan (the "2001 Plan") was adopted by
Cash Systems, Inc., a Minnesota corporation and adopted by the Company in
connection with the reorganization of Unistone, Inc., contemporaneously with
Unistone, Inc.'s name change to Cash Systems, Inc., a Delaware corporation.
The 2001 Plan was adopted as a means of promoting the interests of the Company
and its stockholders by providing key personnel of the Company and other
individuals who are not employees but who provide services to the Company in
the capacity of an advisor or consultant, including non-employee directors,
with an opportunity to acquire a proprietary interest on the Company and
thereby develop a stronger incentive to put forth maximum effort for the
continued success and growth of the Company. In addition, the opportunity to
acquire a proprietary interest in the Company will aid in attracting and
retaining key personnel of outstanding ability. The 2001 Plan will expire in
September, 2011, prior to the anticipated date of the 2011 Annual Meeting of
Shareholders, and currently provides for up to 1,000,000 shares of the
Company's common stock to be issued thereunder. Pursuant to the terms of the
2001 Plan, although the 2001 Plan shall expire in September, 2011, the options
issued under the 2001 Plan shall continue to be exercisable until the relevant
dates set forth in the individual stock option grants. A copy of the 2001 Plan
is attached as Exhibit C.
The 2001 Plan is administered by the Company's Board. The Board
determines whether each option is to be an Incentive Option or Non-Qualified
Option, and determines the terms of options granted under the 2001 Plan,
including the exercise price, the number of shares subject to the option and
the period of exercisability. No Incentive Option may be exercised more than
10 years after its grant date, provided, however, that no Incentive Option
granted to a person owning more than 10% of the total combined voting power of
all classes of stock of the Company or any parent or subsidiary of the Company
(a "Ten Percent Stockholder") may be exercised more than five years from the
date the option is granted. To the extent the aggregate fair market value,
determined at the time the option is granted, of the Common Stock with respect
to which all Incentive Options are exercisable for the first time by an
employee during any calendar year exceeds $100,000, such options shall be
treated as options which do not qualify as Incentive Options. During the
lifetime of the optionee, only the optionee may exercise the option. In the
event of a change in control of the Company as defined in the 2001 Plan, the
Board may provide for the acceleration of vesting of Options.
The exercise price of all Incentive Options granted under the 2001 Plan
must be not less than the fair market value of the Common Stock at the time
the Incentive Options are granted, as determined according to the 2001 Plan.
The exercise price of any Incentive Options granted to a Ten Percent
Stockholder must be not less than 110% of the fair market value of the Common
Stock at the time the Incentive Options are granted, as determined by the
Board of Directors in good faith.
Under the 2001 Plan, the Board may permit participants, subject to
compliance with applicable securities laws and the discretion of the Board and
upon such terms and conditions as it may impose, to surrender shares of the
Common Stock (either shares received upon the exercise of the option or shares
previously owned by the optionee) to the Company to satisfy federal and state
withholding tax obligations. In addition, the Board may grant, subject to its
discretion and such rules as it may adopt, a bonus to a participant in order
to provide funds to pay all or a portion of federal and state taxes due as a
result of the exercise of the option. The amount of any such bonus will be
taxable to the participant as ordinary income, and the Company will have a
corresponding deduction equal to such amount (subject to the tax rules
concerning reasonable compensation).
The grant of a stock option pursuant to the 2001 Plan will result in no
tax consequences to the optionee or the Company. The holder of an Incentive
Option generally will have no taxable income upon exercising an Incentive
Option (except that the alternative minimum tax may apply), and the Company
generally will receive no tax deduction when an Incentive Option is exercised.
Upon exercise of a Non-Statutory Option, the optionee must recognize ordinary
income equal to the excess of the fair market value of the shares acquired on
the date of exercise over the option price, and the Company will be entitled
to a tax deduction for the same amount for its taxable year in which the
exercise occurs. The tax consequences to an optionee of a disposition of
shares acquired through the exercise of an option will depend on how long the
shares have been held and upon whether such shares were acquired by exercising
an Incentive Option or a Non-Statutory Option. Generally, there will be no tax
consequence to the Company in connection with a disposition of shares acquired
under an option except that the Company may be entitled to a tax deduction in
the case of a disposition of shares acquired under an Incentive Option before
the applicable Incentive Option holding period has been satisfied.
Special rules apply in the case of individuals subject to Section 16(b)
of the Securities Exchange Act of 1934. In particular, under current law,
shares received pursuant to the exercise of a stock option may be treated as
restricted as to transferability and subject to a substantial risk of
forfeiture for a period of up to six months after the date of exercise.
Accordingly, unless a special tax election is made, the amount of ordinary
income recognized and the amount of the employer's deduction may be determined
as of such later date.
Although the Board may amend, suspend or discontinue the 2001 Plan, the
approval of the Company's stockholders is required to increase the number of
shares of the Common Stock authorized for issuance under the 2001 Plan, change
the manner of determining the exercise price of an option issued under the
2001 Plan, increase the maximum term of Options provided for under the 2001
Plan or change class of persons eligible to receive Options under the 2001
Plan.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth the share holdings of management and those
persons who own more than five percent of the Company's Common Stock:
Number of Shares Percentage
Name and Address Beneficially Owned of Class(1)
- ---------------- ------------------ --------
Kristen Potts 9,147,086 (2) 70.9%
3201 W. County Rd. 42,
Suite 106
Burnsville, MN 55306
(1) Calculations are based upon 12,910,195 shares outstanding on October 17,
2002, which includes a total of 340,000 shares issuable under the 2001
Stock Option Plan.
(2) Consists of 9,047,086 shares owned by Kristen Potts, who is the spouse of
Craig Potts, and 100,000 shares issuable upon currently exercisable
options held by Mr. Potts.
Security Ownership of Management.
- ---------------------------------
The following table sets forth the shareholdings of the Company's
directors and executive officers as of the date of this Report:
Number of Percentage of
Name and Address Shares Beneficially Owned of Class(1)
- ---------------- ------------------------- --------
Craig Potts 9,147,086 (2) 70.9%
18091 Clearly Lake Ct.
Prior Lake, MN 55372
Christopher Larson 529,500 (3) 4.1%
20482 Idaho Ave.
Lakeville, MN 55044
All Directors and Executive
Officers as a group 9,676,586 75.0%
(2 persons)
(1) Calculations are based upon 12,910,195 shares outstanding on October 17,
2002, which includes the 340,000 shares that are currently issuable under
the 2001 Stock Option Plan.
(2) Consists of 9,047,086 shares owned by Kristen Potts, who is the spouse of
Craig Potts, and 100,000 shares issuable upon currently exercisable
options held by Mr. Potts.
(3) Includes 25,000 shares issuable under currently exercisable options held
by Mr. Larson.
Collectively, Messrs. Potts and Larson beneficially own 9,551,586 shares
or approximately 76% of the Company's presently outstanding common voting
securities. It is expected that each of these persons will vote for these
Proposals, which they together could adopt, ratify and approve on the
Company's behalf, without the votes of any other stockholder.
Changes in Control.
- -------------------
The Company sold to VirtualFund.com, Inc. a convertible note for up to
$500,000 with an interest rate of 12.5% and is due in November of 2003. The
note is convertible at the holder's option into up to 250,000 shares of common
stock of the Company at a rate of $2.00 per share. Kristen Potts has agreed
to pledge five shares of her common stock for every dollar borrowed under the
loan. As of the date of this Information Statement, 2,000,000 shares have
been pledged to secure the $500,000 borrowed to date. If the Company were to
borrow and default on the full $500,000 under the VirtualFund.com convertible
note, VirtualFund.com would be able to foreclose on 2,500,000 shares of our
common stock, which equals approximately 21% of our currently issued and
outstanding shares, and Ms. Potts' holdings would be reduced to 6,545,000
shares, or approximately 55% of our issued and outstanding shares. There are
no other present arrangements or pledges of the Company's securities that may
result in a change in control of the Company.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information.
- -------------------
There is no "established trading market" for shares of the Company's
common stock. The Company's common stock was approved for quotations on the
OTC Bulletin Board of the NASD on March 15, 2001. Our common stock is
currently quoted under the symbol "CSHS."
The range of high and low closing bid quotations for the Company's common
stock during each quarter of the year ended December 31, 2001, and the first
three calendar quarters of 2002, is shown below. Prices are inter-dealer
quotations as reported by Pink Sheets, LLC (formerly known as the "National
Quotation Bureau") and do not necessarily reflect transactions, retail
markups, mark downs or commissions.
STOCK QUOTATIONS
BID
Quarter or period ended: High Low
- ------------------------ ---- ---
March 16, 2001, through Unpriced Unpriced
March 31, 2001
June 30, 2001 0.10 0.05
July 23, 2001 0.09 0.09
September 30, 2001* 0.10 0.05
December 31, 2001* 2.20 0.10
March 31, 2002* 1.50 1.50
June 30, 2002* 1.50 0.55
September 30, 2002* 2.25 0.55
* Reflects a one-for-two reverse split of the Company's common stock on
July 24, 2001.
No assurance can be given that any "established trading market" for the
Company's common stock will develop or be maintained.
The future sale of presently outstanding "unregistered" and "restricted"
common stock of the Company by present members of management and persons who
own more than five percent of the outstanding voting securities of the Company
may have an adverse effect on any "established trading market" that may
develop in the shares of common stock of the Company.
Holders
- -------
The number of record holders of the Company's common stock as of October
17, 2002 is approximately 165. This does not include an indeterminate
number of stockholders who may hold their shares in "street name."
Dividends
- ---------
The Company has not declared any cash dividends with respect to its
common stock and does not intend to declare dividends in the foreseeable
future. There are no material restrictions limiting, or that are likely to
limit, the Company's ability to pay dividends on its common stock.
Recent Sales of Unregistered Securities.
- ----------------------------------------
The following table provides information about all "unregistered"
and "restricted" securities that Cash Systems has sold during the past three
calendar years, and since then, which were not registered under the 1933 Act:
Number
Date of Aggregate
Name of Owner Acquired Shares (1) Consideration
- ------------- -------- ------ -------------
Jenson Services, Inc. 9-21-99 3,000,000 $6,000
Stockholders of Cash 10-17-01 10,550,000 All of the common stock
Systems, Inc. of Cash Systems, Inc.
Corporate Capital 11-27-01 200,000 Conversion of promissory
Management note
10 investors 3-19-02 55,069 Exercise of "cashless"
warrants
Private placement 7-26-02 701,667 $877,083.75
investors
Convertible note 7-26-02 340,000 Conversion of convertible
holders notes
Joseph A. Geraci, II 8-22-02 54,292 Exercise of warrants
Six investors 9-26-02 300,000 Settlement of dispute over
canceled shares
Four investors 10-3-02 40,680 Exercise of warrant
(1) All figures herein reflect a reverse split of the Company's common
stock in the ratio of two shares to one, effective July 24, 2001.
Identification of Directors and Executive Officers.
- ---------------------------------------------------
The following table sets forth the names of all current directors and
executive officers of the Company. These persons will serve until the next
annual meeting of the stockholders or until their successors are elected or
appointed and qualified, or their prior resignation or termination.
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
- ---- ---- ----------- ---------------
Craig Potts CEO 10-12-01 *
President 10-12-01 *
Director 10-12-01 *
Christopher Larson CFO 10-12-01 *
Director 10-12-01 *
* These persons presently serve in the capacities indicated.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
Other ities All
Name and Year or Annual Rest- Under- LTIP Other
Principal Period Salary Bonus Compen- ricted lying Pay- Comp-
Position Ended ($) ($) sat'n Stock Options outs ensat'n
- ------------------------------------------------------------------------------
Craig
Potts, 12/31/99 0 0 0 0 0 0 0
CEO, Pres. 12/31/00 0 0 0 0 0 0 0
Director 12/31/01 85,000 0 0 0 100,000(1) 0 0
Christopher12/31/99 0 0 0 0 0 0 0
Larson, 12/31/00 0 0 0 0 0 0 0
CFO 12/31/01 68,000 0 0 0 25,000(2) 0 0
Director
(1) These options are exercisable at a price of $1.38 per share, and are
fully vested.
(2) These options are exercisable at a price of $1.25 per share, and are
fully vested.
STOCK OPTIONS
In the event of dissolution, liquidation or a change in control of the
Company (as described in the Company's stock option plans), all outstanding
options under the Company's stock option plans will become exercisable in full
and each optionee will have the right to exercise his or her options in
certain circumstances.
2001 STOCK OPTION PLAN
The following table summarizes certain information concerning stock
option grants made in 2001 to the Named Executive Officers.
Options/SAR Grants in Last Fiscal Year
--------------------------------------
Individual Grants
-----------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ----------- ----------- ------------ ----
Craig Potts 100,000 33% $1.38 9/25/11
Christopher
Larson 25,000 8% $1.25 9/25/11
Option Exercises During 2001 Fiscal Year-End Option Values
----------------------------------------------------------
No options were exercised by the named executive officers during 2001.
The following table provides information related to the number and value of
options held at December 31, 2001.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End (1)
-------------------------- ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- --------------
Craig Potts 100,000 -0- -0- -0-
Christopher Larson 25,000 -0- -0- -0-
(1) Value is calculated on the basis of the difference between the
option exercise price and $1.72, the average of the closing bid and
ask price on December 31, 2001, as quoted on the OTC Bulletin Board.
Compensation of Directors.
- --------------------------
There are no standard arrangements pursuant to which the Company's
directors are compensated for any services provided as a director. No
additional amounts are payable to the Company's directors for committee
participation or special assignments.
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements.
- -------------------------------
There are no employment contracts, compensatory plans or arrangements,
including payments to be received from the Company, with respect to any
director or executive officer of the Company which would in any way result in
payments to any such person because of his or her resignation, retirement or
other termination of employment with the Company or any subsidiary, any change
in control of the Company, or a change in the person's responsibilities
following a change in control of the Company.
Transactions with Management and Others.
- ----------------------------------------
Except as indicated below, during the calendar year ended December 31,
2001, there were no material transactions, series of similar transactions,
currently proposed transactions, or series of similar transactions, to which
the Company or any of its subsidiaries was or is to be a party, in which the
amount involved exceeded $60,000 and in which any director or executive
officer, or any security holder who is known to the Company to own of record
or beneficially more than five percent of the Company's common stock, or any
member of the immediate family of any of the foregoing persons, had a material
interest.
Certain Business Relationships.
- -------------------------------
Except as indicated under the heading "Transactions with Management and
Others," during the calendar year ended December 31, 2001, there were no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director or executive officer, or any
security holder who is known to the Company to own of record or beneficially
more than five percent of the Company's common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Indebtedness of Management.
- ---------------------------
Except as indicated under the heading "Transactions with Management and
Others," during the calendar year ended December 31, 2001, there were no
material transactions, series of similar transactions, currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party, in which the amount involved
exceeded $60,000 and in which any director or executive officer, or any
security holder who is known to the Company to own of record or beneficially
more than five percent of the Company's common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.
Compliance with Section 16(a) of the Exchange Act.
- --------------------------------------------------
On October 22, 2001, each of the Company's current directors, executive
officers and owners of 10% or more of the Company's issued and outstanding
common stock filed with the Securities and Exchange Commission a Form 3
Initial Statement of Beneficial Ownership of Securities. Each of these Forms
3 is available for review at the Commission's web site: www.sec.gov.
On or about May 6, 2002, Christopher Larson filed with the Securities and
Exchange Commission a Form 4 Statement of Changes in Beneficial Ownership
disclosing his purchases of 1,800 shares of our common stock in market
transactions, at purchase prices ranging from $1.05 to $2.50 per share. These
purchases took place in April, 2002.
On or about May 6, 2002, Kristin Potts, who is the wife of our Chief
Executive Officer, Craig Potts, filed with the Securities and Exchange
Commission a Form 4 disclosing the purchase of 2,086 shares of the Company's
common stock in market transactions, at prices ranging from $1.20 to $1.60 per
share. These purchases occurred in April, 2002.
On or about October 23, 2002, Mr. Larson filed with the Securities and
Exchange Commission a Form 4 disclosing his purchase of an additional 200
shares of our common stock in market transactions, at a price of $2.50 per
share. This purchase occurred on May 21, 2002.
VOTE REQUIRED FOR APPROVAL
A majority of the outstanding common voting securities of the Company
constitutes a quorum for the transaction of business at any Meeting. Under
applicable law, if a quorum is present at the Meeting, the plurality of votes
cast in favor of these Proposals shall be sufficient to adopt, ratify and
approve these Proposals.
OTHER MATTERS
The Board of Directors of the Company is not aware of any business other
than these Proposals that will be presented for consideration at the Meeting.
If other matters properly come before the Meeting, it is the intention of
members of our management and certain of our principal stockholders who
collectively own in excess of a majority of our outstanding voting securities
to vote thereon in accordance with their best judgment.
By Order of the Board of Directors
/s/ Craig Potts
December 10, 2002 Craig Potts
Burnsville, Minnesota Chief Executive Officer, President and
Director