<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------------
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
--------------------
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a- 6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
NATIONAL EDUCATION CORPORATION
________________________________________________________________________________
(Name of Registrant as Specified in its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:_____________________________________________
2) Aggregate number of securities to which transaction
applies:_____________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:__________________
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:__________________________________________
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<PAGE> 2
[National Education Corporation letterhead] PRELIMINARY
PROXY MATERIALS
April 5, 1996
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of
Stockholders of National Education Corporation, to be held on Wednesday, May
29, 1996, at the Radisson Lackawanna Station Hotel, 700 Lackawanna Avenue,
Scranton, Pennsylvania 18503, beginning at 8:30 a.m., local (east coast) time.
The business to be conducted at the Annual Meeting includes the election
of three Directors, approval of an amendment to the Company's Restated
Certificate of Incorporation increasing the authorized number of shares of the
Company's Common Stock from 50,000,000 to 65,000,000, ratification of the
selection of independent public accountants, and consideration of any other
matters which may properly come before the Annual Meeting and any adjournment
thereof.
The Company's audited financial statements, certain general information,
five-year highlights and financial review are contained in the enclosed
Appendix to the Proxy Statement as a separately bound document to facilitate
retention as a reference source. The Company's Summary Annual Report, which
will be mailed shortly, will contain our letter to stockholders, a financial
and operating review and outlook, condensed financial statements and five-year
highlights, as well as other information of topical interest.
It is important that your shares be represented; therefore, even if you
presently plan to attend the Annual Meeting, please complete, sign, date and
promptly return the enclosed proxy card. If you do attend the Annual Meeting
and wish to vote in person, you may withdraw your proxy at that time.
I look forward to seeing you at the Annual Meeting.
Sincerely,
David C. Jones
Chairman of the Board
<PAGE> 3
[National Education Corporation letterhead]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 29, 1996
To the Stockholders of National Education Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of National Education Corporation, a Delaware corporation
(the "Company"), will be held at the Radisson Lackawanna Station Hotel, 700
Lackawanna Avenue, Scranton, Pennsylvania 18503, on Wednesday, May 29, 1996, at
8:30 a.m., local (east coast) time, for the following purposes:
(1) To elect three Directors of the Company to hold office for a
three-year term or until their respective successors are elected and
qualified;
(2) To consider approval of an amendment to the Company's Restated
Certificate of Incorporation increasing the authorized number of
shares of the Company's Common Stock from 50,000,000 to 65,000,000;
(3) To consider and act upon the ratification of the selection of Price
Waterhouse LLP as the independent public accountants for the Company;
and
(4) To transact any such business as may properly come before the Annual
Meeting and any adjournment thereof.
Stockholders of record as of the close of business on April 1, 1996, are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. A list of such stockholders will be available for examination by any
stockholder at the Annual Meeting and, for any purpose germane to the Annual
Meeting, at the offices of the Company's subsidiary, ICS Learning Systems,
Inc., 925 Oak Street, Scranton, Pennsylvania, for a period of ten days prior to
the Annual Meeting.
By Order of the Board of Directors
Philip C. Maynard
Secretary
Irvine, California
April 5, 1996
YOUR VOTE IS IMPORTANT
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ACCOMPANYING PROXY
CARD, DATE AND SIGN IT, AND RETURN IT IN THE PREADDRESSED ENVELOPE
PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE> 4
[National Education Corporation Letterhead]
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of National Education Corporation (the
"Company") for use at the Annual Meeting of Stockholders of the Company to be
held on Wednesday, May 29, 1996, at 8:30 a.m., local (east coast) time. The
Annual Meeting will be held at the Radisson Lackawanna Station Hotel, 700
Lackawanna Avenue, Scranton, Pennsylvania 18503. This Proxy Statement and the
accompanying proxy are first being mailed on or about April 5, 1996.
REVOCABILITY OF PROXIES
An executed proxy may be revoked at any time before its exercise by
filing with the Secretary of the Company a written notice of revocation or a
duly executed proxy bearing a later date. Prior to the date of the Annual
Meeting, any such notice or subsequent proxy must be delivered to the Secretary
at the principal executive offices of the Company, located at one of the
following addresses: 18400 Von Karman Avenue, Suite 1100, Irvine, California
92715, on or before April 12, 1996, or 2601 Main Street, Suite 700, Irvine,
California 92714, after April 12, 1996. On the date of the Annual Meeting,
such notice or subsequent proxy should be delivered in person at the Annual
Meeting prior to the time of the vote. Accordingly, the execution of the
enclosed proxy will not affect a stockholder's right to vote in person should
such stockholder find it convenient to attend the Annual Meeting and desire to
vote in person, so long as the stockholder has revoked his or her proxy prior
to its exercise in accordance with the above instructions.
VOTING AND SOLICITATION
On April 1, 1996, the record date with respect to this solicitation,
____________________ shares of the Company's common stock ("Common Stock") were
outstanding. No shares of any other class of stock were outstanding. Only
stockholders of record on such date are entitled to notice of and to vote at
the Annual Meeting and at any adjournment thereof. Each stockholder of record
is entitled to one vote for each share held as of the record date on all
matters to come before the Annual Meeting and at any adjournment thereof.
Quorum. In order to have a valid Annual Meeting, stockholders holding at
least one-half of the Company's Common Stock that is issued, outstanding and
entitled to vote at the Annual Meeting must be present in person or by proxy (a
"Quorum"). Both abstentions (also referred to as withheld votes) and broker
non-votes are counted by the Company for purposes of determining whether a
Quorum is present at the Annual Meeting for the transaction of business.
Vote Required. The three Director nominees receiving the highest number
of affirmative votes of the shares present or represented and entitled to be
voted will be elected as Directors. Accordingly, abstentions and broker
non-votes will have no effect in determining which Directors receive the
highest number of votes. Approval of the amendment to the Company's Restated
Certificate of Incorporation requires the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Common Stock; accordingly,
abstentions and broker non- votes will have the same effect as a vote against
that matter. Ratification of the selection of Price Waterhouse LLP as the
Company's independent public accountants, and any other matter that properly
comes before the Annual Meeting, must be accomplished by the affirmative votes
of a majority of the shares present or represented and entitled to be voted on
the matters at the Annual Meeting; accordingly, an abstention will have the
same effect as a vote against those matters, but broker non-votes will not be
counted for purposes of determining whether those matters are approved.
<PAGE> 5
The shares represented by all valid proxies received will be voted in
accordance with the specifications therein. Unless otherwise directed in the
proxy, the persons named therein will vote FOR the election of the three
nominees listed below, FOR approval of the amendment to the Company's Restated
Certificate of Incorporation, and FOR the ratification of the Company's
selection of independent public accountants. As to any other business which
may properly come before the Annual Meeting, they will vote in accordance with
their best judgment. The Company presently does not know of any other such
business.
Solicitation. Proxies will be solicited principally by mail and the
costs will be borne by the Company. These costs include reimbursements to
banks, brokerage houses and other custodians, nominees and fiduciaries for
their reasonable expenses in forwarding proxy materials to beneficial owners of
the Company's Common Stock. Officers and other employees of the Company may
conduct solicitation of proxies personally, by telephone, or by special letter
without any additional compensation. The Company has engaged D.F. King & Co.,
Inc. ("King") to solicit proxies and distribute materials to banks, brokerage
houses and other custodians and nominees. The Company will pay King $5,500 for
these services.
PROPOSAL 1:
ELECTION OF DIRECTORS
Three Directors are to be elected to the Company's Board of Directors at
the Annual Meeting. The Board currently consists of eleven members divided
into three classes. Three incumbent Directors whose terms expire this year,
Messrs. David Bonderman, Michael R. Klein and John J. McNaughton, have been
nominated for re-election to serve three-year terms. Each Director elected
will serve the term for which he was nominated and until the election and
qualification of his successor or until his earlier resignation or removal.
The Board of Directors currently has fixed its size at eleven members.
On May 4, 1995, the Board of Directors passed a resolution increasing the size
of the Board from ten members to eleven members, effective May 8, 1995, in
order to add Mr. Sam Yau to the Board of Directors. Mr. Yau's Executive
Employment Agreement dated May 8, 1995, named Mr. Yau President and Chief
Executive Officer of the Company and provides that, during the term of that
Agreement, Mr. Yau will serve a member of the Board of Directors. See
"Executive Compensation and Other Information-Severance Benefits and Employment
Arrangements" below. Effective June 27, 1995, the Board of Directors passed a
resolution decreasing the Board size to ten members upon the retirement of Mr.
Jerome W. Cwiertnia from the Board. Effective October 9, 1995, the Board of
Directors passed a resolution increasing the Board size back to eleven members
and named David R. Dukes, Co-Chairman of Ingram Micro Inc., a personal computer
products wholesaler, to fill the vacancy created by the increase. Mr. Dukes'
term as a Director will continue until the Company's 1997 Annual Meeting of its
Stockholders or until the election and qualification of his successor, or until
his earlier resignation or removal.
From time to time in the future, the Nominating Committee of the Board of
Directors may identify qualified potential Board members who would add to the
Board's expertise, experience and diversity, particularly in the education and
new technologies fields. The Board reserves the right to increase its size
during the year to accommodate qualified candidates.
Each stockholder is entitled to one vote per share for each of the three
offices of Director to be elected. The candidates receiving the greatest
number of votes cast at the Annual Meeting in person or by proxy will be
elected. The shares represented by the proxies solicited hereunder will be
voted in favor of the three nominees named below unless authorization to do so
is withheld in the proxy. If any nominee should become unavailable to serve as
a Director, which contingency is not presently anticipated, the persons named
in the proxy, or their substitutes, will be authorized to vote for such other
person or persons as the Board of Directors may designate.
The following table provides information regarding each nominee and the
other continuing members of the Board of Directors, including each person's age
as of April 1, 1996. Titles are as officers of the Company unless otherwise
indicated.
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<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
------------ ---------------------------------- ---------
<S> <C> <C>
CURRENT NOMINEES -- TERM EXPIRING IN 1999
David Bonderman (53) Managing General Partner of TPG Partners, L.P., an 1993
investment partnership, from December 1993 to the present.
Indirect managing general partner of various investment
partnerships from August 1992 to December 1993. Vice
President and Chief Operating Officer of Keystone, Inc.
(formerly Robert M. Bass Group, Inc.) from July 1983 to
August 1992. Director of National Re Corporation, Bell &
Howell Holdings Company and Carr Realty Corporation, and
Chairman of the Board of Continental Airlines, Inc.
Michael R. Klein (53) Partner, Wilmer, Cutler & Pickering law firm since 1974. 1991
Chairman of Realty Information Group, Inc. since 1987.
Director of Steck-Vaughn Publishing Corporation since May
1993.
John J. McNaughton (73) Founder of the Company. President and Chairman of the 1954
Board from 1954 to 1980 and Chairman of the Board from
1954 until retirement in 1988. Director of Intervisual
Books International. Owner of McNaughton Farms.
CURRENT DIRECTORS -- TERM EXPIRING IN 1997
David R. Dukes (52) Co-Chairman of Ingram Micro Inc., a personal computer 1995
products wholesaler, since January 1993, and President of
Ingram Micro Inc. from September 1989 to January 1993.
Chief Executive Officer of Ingram Alliance-Reseller
Company since its formation in July 1994.
Leonard W. Jaffe (77) Vice Chairman of the Board since July 1989. Private 1976
investor and consultant. Director of Steck-Vaughn
Publishing Corporation since May 1993.
Frederic V. Malek (59) Co-Chairman of CB Commercial Real Estate Group, Inc. since 1984
April 1989. Chairman of Thayer Capital Partners since
April 1993. Vice Chairman of Northwest Airlines from June
1990 through December 1991. President of Northwest
Airlines from September 1989 through June 1990. Prior to
1989, President of Marriott Hotels and Resorts. Director
of Automatic Data Processing, Inc., FPL Group, Inc.,
various PaineWebber Mutual Funds, American Management
Systems, Inc., Manor Care, Inc., Caterair International,
ICF Kaiser, Inc., Intrav, Inc. and Northwest Airlines,
Inc. Campaign Manager, Bush-Quayle '92, from December
1991 to November 1992.
</TABLE>
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<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING LAST DIRECTOR
NAME AND AGE FIVE YEARS AND OTHER DIRECTORSHIPS SINCE
------------ ---------------------------------- ---------
<S> <C> <C>
William D. Walsh (65) General Partner of Sequoia Associates, an investment 1987
partnership. Chairman of the Boards of Champion Road
Machinery Limited and Newell Industrial Corporation.
Director of URS Corporation, Newcourt Credit Group, Inc.
and Consolidated Freightways, Inc. Director of Basic
Vegetable Products Corporation. Member of the Board of
Visitors, University of Southern California School of
Business Administration. Member of the Visiting Committee
for Harvard Law School.
CURRENT DIRECTORS -- TERM EXPIRING IN 1998
Richard C. Blum (60) Chairman of Richard C. Blum & Associates, L.P., a merchant 1987
banking firm. Vice Chairman of URS Corporation and
Director of Sumitomo Bank of California, Triad Systems
Corporation, Shaklee Corporation, Northwest Airlines
Corporation and C.B. Commercial Holdings, Inc. Special
foreign advisor to Shanghai International Trust and
Investment Company (China).
David C. Jones (74) Chairman of the Board since July 1989. Acting Chief 1983
Executive Officer from July 1989 to April 1990.
Consultant and lecturer since July 1982. Chairman of the
Joint Chiefs of Staff from June 1978 through June 1982.
Member of the Board of Advisors for SRA International,
Inc., an information technology company. Chairman of the
Board of Advisors of the National Civilian Community
Corps.
Paul B. MacCready (70) Chairman of the Board, AeroVironment, Inc. Director of 1992
MacNeal-Schwendler Corporation.
Sam Yau (47) President, Chief Executive Officer and a Director of the 1995
President and Chief Company since May 1995. Chief Operating Officer of
Executive Officer Advacare, Inc., a medical management company, from May
1993 to November 1994. Senior Vice President of Finance
and Administration for Archive Corporation (now part of
Seagate Technologies Inc.), a computer storage (tape)
company, from May 1987 to May 1993. Director of Steck-
Vaughn Publishing Corporation and Milcom International,
Inc.
</TABLE>
4
<PAGE> 8
INFORMATION REGARDING THE BOARD AND ITS COMMITTEES
DIRECTORS' FEES AND BENEFITS
The Company pays each of its Directors who is not an employee of the
Company an annual fee of $15,000. Pursuant to the Company's Amended and
Restated 1991 Directors' Stock Option and Award Plan, such annual fee is paid
in the form of Common Stock of the Company, valued at the fair market value of
such Common Stock (in addition, $15,000 of the Chairman of the Board's annual
salary is paid in Common Stock of the Company rather than in cash). In
addition, each Director who is not an employee of the Company receives $1,500
for each Board meeting attended. Nonemployee Directors serving on the
Executive Committee receive an additional $6,000 each year, but do not receive
compensation for attending Executive Committee meetings. Nonemployee Directors
serving on Board committees other than the Executive Committee receive $1,000
for each committee meeting attended (unless the committee meeting is in
conjunction with a Board meeting, in which case the Director receives $500 per
committee meeting attended). Mr. Jaffe receives an additional $6,000 for
serving as Vice Chairman of the Board and $6,000 for serving as Chairman of the
Executive Committee; in addition, Mr. Jaffe receives a monthly automobile
allowance of $500 (for an aggregate of $6,000 during 1995). Other committee
chairmen receive an additional $3,000 each year. All Directors are entitled to
a $2,500 annual financial planning allowance.
Under a supplemental benefit plan, each eligible Director receives an
annual accrual equal to the Director's fees received for that year, subject to
a maximum annual accrual of $25,000 for 1991 and future years, and a maximum
annual accrual of $15,000 for 1990 and prior years; however, any Director
failing to attend in a calendar year at least 50% of the aggregate number of
meetings of the Board and of committees on which he serves does not receive any
annual accrual for such year. Upon retirement from the Board, each Director
will be paid monthly installments totalling $25,000 annually until his
retirement benefit is exhausted; however, if his accrued benefit is less than
$125,000, it will be paid over five years. If a Director dies prior to
retirement, his beneficiary will receive the greater of $15,000 per year for
ten years or the Director's retirement benefit. If a Director becomes disabled
prior to retirement, the Company will pay him the retainer through the end of
the elected term and thereafter will pay retirement benefits.
All of the Directors of the Company are eligible to participate in the
supplemental benefit plan, except Messrs. Yau and McNaughton. Mr. McNaughton
receives annual retirement payments from the Company based on his prior service
as an executive officer of the Company. See "Executive Compensation and Other
Information-Transactions with Directors" below.
Under the Amended and Restated 1991 Directors' Stock Option and Award
Plan, each eligible Director receives an initial stock option at fair market
value to purchase 5,000 shares of the Company's Common Stock. The initial
option vests and first becomes exercisable in two equal annual installments of
2,500 shares each, commencing one year from the date of grant. In addition, at
the first regular Board meeting each calendar year through the year 2001, each
eligible Director receives a stock option at fair market value, exercisable in
full one year from the date of grant, to purchase 2,000 shares of the Company's
Common Stock; however, a Director does not receive the annual option grant in
the first year following receipt of the initial 5,000 share option grant if he
received the initial grant at a meeting later than the first regular Board
meeting of the prior calendar year.
All of the Directors of the Company are eligible to participate in the
1991 Directors' Stock Option and Award Plan, except Mr. Yau. Mr. McNaughton
became an eligible Director as of February 1, 1994.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the fiscal year ended December 31, 1995, the Board of Directors of
the Company met five times. In addition, the Board of Directors has six
committees: the Executive Committee, the Compensation and Option Committee,
the Audit Committee, the Acquisition Committee, the Education and Technology
Committee and the Nominating Committee. The following sets forth information
concerning each committee, including membership as of December 31, 1995:
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<PAGE> 9
The Executive Committee was comprised of Messrs. Jaffe (Chairman), Blum,
Cwiertnia (through May 4, 1995), Jones, McNaughton and Yau (as of June 27,
1995). The Executive Committee exercises the power of the Board of Directors
(except for certain powers that by law may only be exercised by the full Board)
in monitoring the management of the business between meetings of the Board of
Directors. The Executive Committee held twelve meetings during 1995.
The Compensation and Option Committee, which held four meetings during
1995, was comprised of Messrs. Walsh (Chairman), Blum, Jaffe and Malek. The
Compensation and Option Committee reviews and recommends the salaries and
bonuses of officers and certain key employees of the Company, establishes
compensation and incentive plans, authorizes and approves the granting of stock
options and restricted stock in accordance with the Company's stock option and
incentive plans, and determines other fringe benefits.
The Audit Committee was comprised of Messrs. Klein (Chairman), Bonderman,
Jaffe and, as of October 9, 1995, Dukes. The Audit Committee recommends
engagement of the Company's independent accountants and is primarily
responsible for approving the services performed by the Company's independent
accountants and for reviewing and evaluating the Company's accounting
principles and its system of internal controls. The Audit Committee held two
meetings during 1995.
The Acquisition Committee, which was comprised of Messrs. Blum
(Chairman), Bonderman, Klein, Malek and Walsh, reviews acquisitions or
divestitures of assets of operating entities. The Acquisition Committee did
not meet during 1995.
The Education and Technology Committee, which did not meet during 1995,
was comprised of Messrs. MacCready (Chairman), Jones, McNaughton, Cwiertnia
(until May 4, 1995) and Dukes (as of October 9, 1995). The Education and
Technology Committee examines the application of the latest technologies to the
Company's business.
The Nominating Committee makes recommendations to the Board of Directors
regarding the composition of the Board of Directors and the selection of
individual candidates for election to the Board of Directors. The committee
was comprised of Messrs. Malek (Chairman), Jones, and MacCready, and met for
one formal meeting during 1995. Nominees may be recommended by stockholders
and should be submitted to the Secretary of the Company for consideration by
the Nominating Committee.
No incumbent Director attended fewer than 75% of the aggregate 1995
meetings of the Board of Directors and meetings of the committees of the Board
on which he served, with the following exceptions: Mr. Malek attended four of
the five Board of Directors meetings, the one Nominating Committee meeting and
two of the four Compensation and Option Committee meetings, and Mr. Bonderman
attended three of the five Board of Directors meetings and neither of the two
Audit Committee meetings.
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<PAGE> 10
COMMON STOCK OWNERSHIP
The following table sets forth information as of February 29, 1996
(unless otherwise noted) concerning the shares of the Company's Common Stock
beneficially owned by (i) each beneficial owner of more than 5% of the
outstanding shares of Common Stock; (ii) each Director of the Company; (iii)
the Chief Executive Officer and the four most highly compensated other
executive officers; and (iv) all current Directors and executive officers of
the Company as a group. Except as otherwise noted, each beneficial owner
listed has sole investment and voting power (or shares such powers with his or
her spouse) of the shares indicated. Beneficial ownership includes any shares
the individual has the right to acquire within 60 days following February 29,
1996, through the exercise of any stock option or other right. As of February
29, 1996, there were [35,137,443] issued and outstanding shares of Common Stock
of the Company, not including treasury shares or shares issuable on exercise of
options or conversion of debentures.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR AMOUNT AND NATURE PERCENT
ENTITY OR NUMBER OF POSITION WITH OF BENEFICIAL OF
PERSONS IN GROUP THE COMPANY OWNERSHIP (1) CLASS
- ----------------- ---------------------------- ----------------- -------
<S> <C> <C> <C> <C>
Richard C. Blum & Associates, L.P. 4,040,205 (2) 11.5%
and Richard C. Blum & Associates, Inc.
Westport Asset Management, Inc. 3,520,950 (3) 10.0%
Tweedy Brown Company L.P., TBK Partners, L.P. 2,856,012 (4) 8.1%
and Vanderbilt Partners, L.P.
The Common Fund 2,204,170 (5) 6.3%
Osterweis Capital Management, Inc. 1,902,340 (6) 5.4%
Richard C. Blum Director 4,059,627 (7) 11.5%
David Bonderman Director 136,097 (8) *
Jerome W. Cwiertnia Former President, Chief 275,653 (9) *
Executive Officer and Director
David R. Dukes Director 1,373 *
Leonard W. Jaffe Director 39,582 *
David C. Jones Chairman of the Board 80,457 *
Michael R. Klein Director 24,582 *
Paul B. MacCready Director 12,582 *
Frederic V. Malek Director 43,635 (10) *
John J. McNaughton Director 32,382 *
William D. Walsh Director 21,496 *
Sam Yau President, Chief Executive
Officer and Director 792,779 2.2%
Christine A. Gattenio Former Vice President and 11,200 (11) *
Corporate Controller
Philip C. Maynard Vice President, Secretary
and General Counsel 55,989 *
Keith K. Ogata Vice President, Chief Financial
Officer and Treasurer 166,656 *
All Current Directors and Executive Officers
as a Group (13 persons) 5,341,722 (1) 14.8%
- ----------------
<FN>
* Less than 1%.
</TABLE>
7
<PAGE> 11
(1) The shares listed in the table include the following stock options
exercisable on or within 60 days after February 29, 1996: Mr. Blum -
13,000 shares; Mr. Bonderman - 7,000 shares; Mr. Cwiertnia - 236,008
shares; Mr. Jaffe - 28,000 shares; Mr. Jones - 56,750 shares; Mr. Klein -
11,000 shares; Mr. MacCready -9,000 shares; Mr. Malek - 13,000 shares;
Mr. McNaughton - 7,000 shares; Mr. Walsh - 13,000 shares; Mr. Yau -
552,779 shares; Mr. Maynard - 35,416 shares; Mr. Ogata - 125,656 shares;
and all current Directors and officers as a group - 871,601 shares.
The shares listed in the table also include the following debentures
convertible into Common Stock of the Company: (a) 4,000 shares issuable
on conversion of 6 1/2% Convertible Subordinated Debentures due 2011 (the
"Company Debentures") owned by Mr. Jaffe; (c) 4,000 shares issuable on
conversion of Company Debentures owned by Mr. Jones; (d) 1,000 shares
issuable on conversion of Company Debentures owned by Ms. Gattenio; and
(e) 6,000 shares issuable on conversion of Company Debentures owned by
Mr. Ogata. All current Directors and officers as a group hold Company
Debentures convertible into an aggregate of 15,000 shares.
(2) Richard C. Blum & Associates, L.P. ("RCBA L.P."), 909 Montgomery Street,
Suite 400, San Francisco, California 94133, holds 15,478 shares directly
and is the sole general partner in the following partnerships, which hold
the specified number of shares: (a) BK Capital Partners II, 557,658
shares; (b) BK Capital Partners III Limited Partnership, 662,992 shares;
(c) BK Capital Partners IV, L.P., 20,900 shares; and (d) BK-NEC II,
579,007 shares. In addition, RCBA L.P. is investment adviser to The
Common Fund, which holds 2,204,170 shares (see fn. 5 below). Richard C.
Blum & Associates, Inc. ("RCBA Inc."), also at 909 Montgomery Street,
Suite 400, San Francisco, California 94133, is the sole general partner
of RCBA L.P. RCBA L.P. and RCBA Inc. each disclaims beneficial ownership
of all securities reported in the table, except to the extent of its
pecuniary interest therein.
(3) According to a Schedule 13G dated January 25, 1995, and filed with the
Securities and Exchange Commission ("SEC"), Westport Asset Management,
Inc., 253 Riverside Avenue, Westport, Connecticut 06880 ("Westport") has
sole voting and dispositive power over 390,600 shares and shared voting
and dispositive power over 3,130,350 shares. From the Schedule 13G, it
appears that the 3,130,350 shares are held in discretionary accounts
managed by Westport, while the 390,600 shares are beneficially owned by
officers and stockholders of Westport. Westport disclaims beneficial
ownership of such 390,600 shares and disclaims the existence of a group.
(4) Tweedy, Browne Company L.P. ("TBC"), TBK Partners, L.P. ("TBK") and
Vanderbilt Partners, L.P. ("Vanderbilt"), each with a principal business
address of 52 Vanderbilt Avenue, New York, New York 10017, jointly filed
Amendment No. 2 to Statement on Schedule 13D with the SEC on or around
January 19, 1996, disclosing the following: (a) TBC may be deemed to
have beneficial ownership of 2,539,812 shares held in TBC's customers'
accounts, over which TBC has sole voting power for 2,303,703 shares and
shared dispositive power for 2,539,812 shares; (b) TBK has sole voting
and dispositive power over 234,500 shares held directly by TBK; (c)
Vanderbilt has sole voting and dispositive power over 81,700 shares held
directly by Vanderbilt; (d) Christopher H. Browne, William H. Browne and
John D. Spears, each a general partner of each of TBC, TBK and
Vanderbilt, and each with a principal business address of 52 Vanderbilt
Avenue, New York, New York 10017, each may be deemed to have beneficial
ownership of the aggregate 2,856,012 shares held directly and indirectly
by TBC, TBK and Vanderbilt, and (e) Thomas R. Knapp, a general partner of
TBK, with a principal business address of 52 Vanderbilt Avenue, New York,
New York 10017, may be deemed to have beneficial ownership of the 234,500
shares held by TBK. All of the foregoing entities and individuals deny
beneficial ownership (except for TBK's and Vanderbilt's interests in
directly held shares) and deny that they are or should be deemed, in any
combination, a group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
(5) Principal administrative offices for The Common Fund, a New York
non-profit corporation, are located at 450 Post Road East, Westport,
Connecticut 06881-0909. RCBA L.P. is investment adviser to The Common
Fund, and all of the shares listed are also listed under RCBA L.P. and
Richard C. Blum. The
8
<PAGE> 12
Common Fund expressly disclaims membership in any group with RCBA L.P.,
Richard C. Blum or any other related entity and disclaims beneficial
ownership of securities owned directly or indirectly by any other person
or entity.
(6) According to a Schedule 13G filed with the SEC on February 13, 1996,
Osterweis Capital Management, Inc. ("OCM") and John Steven Osterweis
("Osterweis"), who is majority shareholder of OCM, each with a principal
business address of One Maritime Plaza, Suite 1201, San Francisco,
California 94111, each has shared voting and dispositive power over
1,746,900 shares of Common Stock and has shared dispositive power over
$3,886,000 in principal amount of Company Debentures that are convertible
into 155,440 shares of Common Stock. Osterweis' beneficial ownership of
the foregoing securities is indirect, based on his stock ownership in
OCM. In addition, Osterweis directly owns $50,000 in principal amount of
Company Debentures that are convertible into 2,000 shares of Common
Stock.
(7) Mr. Blum, the Chairman of the Board and substantial shareholder of RCBA
Inc., directly owns 19,422 shares (including 13,000 shares issuable upon
the exercise of stock options). Of the securities listed in the table,
5,040,205 shares also are reported in the table as indirectly owned by
RCBA L.P. and RCBA Inc. (see fn. 2 above). Mr. Blum disclaims beneficial
ownership of all securities reported in the table except to the extent of
its pecuniary interest therein.
(8) Includes 125,515 shares held by Bonderman Family Limited Partnership, of
which Mr. Bonderman is the general partner.
(9) Mr. Cwiertnia retired effective May 8, 1995, from his position as
President and Chief Executive Officer of the Company and retired
effective June 27, 1995, from his position as Director of the Company.
Shares listed exclude 450 shares owned by Mr. Cwiertnia's wife as
custodian for their son; Mr. Cwiertnia disclaims beneficial ownership of
such shares.
(10) Excludes Mr. Malek's 1.308% interest in BK Capital Partners II (see fn. 2
above), which owns 557,658 shares of Common Stock.
(11) Ms. Gattenio resigned as Vice President and Corporate Controller
effective June 30, 1995.
9
<PAGE> 13
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following tables disclose the cash compensation paid and stock
options granted to the Company's four executive officers plus Jerome W.
Cwiertnia, the Company's former President and Chief Executive Officer, who
retired on May 8, 1995, and Christine A. Gattenio, the Company's former Vice
President and Corporate Controller, who resigned effective June 30, 1995.
<TABLE>
<CAPTION>
TABLE I
SUMMARY COMPENSATION
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
NUMBER OF ALL OTHER
RESTRICTED SECURITIES COMPEN-
STOCK UNDERLYING SATION
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS AWARDS OPTIONS (2)
- --------------------------- ---- ---------- ----- ------ ------- ---
<S> <C> <C> <C> <C> <C> <C>
Sam Yau 1995 $ 285,386 $ 218,750 $ 120,000 1,100,000 $ 0
President and Chief Executive
Officer (from May 8, 1995)
Keith K. Ogata 1995 $ 184,842 $ 148,812 $ 0 96,000 $ 6,000
Vice President, 1994 $ 171,789 $ 0 $ 0 23,000 $ 6,000
Chief Financial Officer 1993 $ 156,500 $ 0 $ 0 15,000 $ 6,376
and Treasurer
Philip C. Maynard 1995 $ 133,547 $ 127,750 $ 0 60,000 $ 4,765
Vice President, Secretary and 1994 $ 112,019 $ 0 $ 0 10,000 $ 0
General Counsel (from and
after February 1, 1994)
David C. Jones 1995 $ 96,861 $ 0 $ 26,865 12,000 $ 0
Chairman of the Board 1994 $ 104,000 $ 0 $ 0 7,000 $ 0
1993 $ 104,000 $ 0 $ 0 7,000 $ 0
Jerome W. Cwiertnia 1995 $ 445,000 (3) $ 0 $ 0 0 $ 6,000
Former Chief Executive Officer 1994 $ 312,000 $ 0 $ 0 25,000 $ 6,000
(through May 8, 1995) 1993 $ 312,000 $ 0 $ 0 25,000 $ 6,746
Christine A. Gattenio 1995 $ 101,292 (3) $ 0 $ 0 17,000 $ 3,936
Former Vice President and 1994 $ 122,580 $ 0 $ 0 11,000 $ 5,414
Corporate Controller 1993 $ 116,865 $ 17,500 $ 0 7,000 $ 5,428
(through June 30, 1995)
- ---------------
<FN>
(1) Amounts shown include cash and noncash compensation earned and received by executive officers as well as amounts earned but
deferred at the election of these officers under the Company's 401(k) Retirement Plan.
(2) Consists of matching contributions made by the Company on behalf of such officers to the Company's 401(k) Retirement Plan.
(3) Includes payment for accrued but unused vacation of $108,000 in the case of Mr. Cwiertnia and $30,303 in the case of
Ms. Gattenio
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
TABLE II
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (10 YEARS) (5)
- ------------------------------------------------------------------------------- ----------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE EXPIR-
UNDERLYING GRANTED TO PRICE ATION
OPTIONS EMPLOYEES IN (PER DATE
NAME * GRANTED FISCAL YEAR SHARE) (M/D/Y) 5% 10%
- ------ ------- ----------- ------ ------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Sam Yau 500,000 (1) 21.41% $ 3.00 3/18/05 $ 943,342 $ 2,390,614
600,000 (2) 25.69% $ 3.00 5/01/05 $ 1,132,010 $ 2,868,736
Keith K. Ogata 36,000 (3) 1.54% $ 3.19 2/22/05 $ 72,166 $ 182,882
60,000 (2) 2.57% $ 5.29 7/26/05 $ 199,517 $ 505,615
Philip C. Maynard 20,000 (3) .86% $ 3.19 2/22/05 $ 40,092 $ 101,601
40,000 (2) 1.71% $ 5.29 7/26/05 $ 133,011 $ 337,077
David C. Jones 2,000 (4) .09% $ 4.00 2/21/05 $ 5,031 $ 12,750
10,000 (3) .43% $ 3.19 2/22/05 $ 20,046 $ 50,801
Christine A. Gattenio ** 17,000 (3) .73% $ 3.19 6/30/95 $ 0 $ 0
- ----------------
<FN>
* Mr. Cwiertnia was not granted any options in 1995.
** Ms. Gattenio's 1995 option grant expired concurrently with her resignation, effective June 30, 1995.
(1) These options are exercisable in thirty-six monthly increments, commencing June 1, 1995, and become exercisable in full
after a change in control of the Company.
(2) One-third of these options became exercisable when the average closing price for the Company's Common Stock over a period of
twenty trading days (the "Average Stock Price") equaled or exceeded $6.00 per share (September 7, 1995), one-third became
exercisable when the Average Stock Price equaled or exceeded $9.00 per share (February 21, 1996), and the final one-third
becomes exercisable when the Average Stock Price equals or exceeds $12.00 per share. If the price targets are not met by
November 1, 2004 (in the case of Mr. Yau) or November 24, 2004 (in the case of Messrs. Ogata and Maynard), the options become
exercisable on that date. In addition, the options become exercisable in full after a change in control of the Company.
(3) These options are exercisable in four equal annual increments commencing one year from the date of grant and become
exercisable in full after a change of control of the Company.
(4) These options are exercisable in full one year from the date of grant and become exercisable in full after a change of
control of the Company.
(5) In accordance with Instruction 6 to Item 402(c) of Regulation S-K promulgated under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, stock price appreciation has been calculated using a base price of the
per share exercise price for each option, which exercise price equals the average closing price for the Company's Common Stock
for the ten trading days prior to the date of grant. Annual 5% and 10% appreciation represents the following per share
increases: (i) from $3.00 per share to $4.89 (5%) and $7.78 (10%); (ii) from $3.19 per share to $5.19 (5%) and $8.27 (10%);
(iii) from $4.00 per share to $6.52 (5%) and $10.37 (10%); and (iv) from $5.29 per share to $8.61 (5%) and $13.71 (10%).
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
TABLE III
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS AT
SHARES AT DECEMBER 31, 1995 DECEMBER 31, 1995 (1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sam Yau 0 $ 0 297,233 802,777 $ 1,560,421 $ 4,214,579
Keith K. Ogata 0 $ 0 82,906 106,250 $ 231,943 $ 356,803
Philip C. Maynard 0 $ 0 15,833 54,167 $ 46,843 $ 202,282
David C. Jones 0 $ 0 49,750 18,250 $ 210,750 $ 71,437
Jerome W. Cwiertnia 0 $ 0 211,008 43,750 $ 777,635 $ 61,563
Christine A. Gattenio 31,006 $ 74,205 0 0 $ 0 $ 0
- ----------------
<FN>
(1) Based upon the difference between the closing price on the New York Stock Exchange on December 31, 1995 of $8.25 and the
option exercise price.
</TABLE>
SEVERANCE BENEFITS AND EMPLOYMENT ARRANGEMENTS
Pursuant to Company policy, in the event any executive officer's (but
not including Mr. Jones') employment is terminated without cause or after a
change of control, that executive officer would be entitled to continuation of
his salary and fringe benefits for one year or, at that executive's option, a
lump sum payment equal to one year's salary. As of February 29, 1996, the lump
sum payments would be $194,000 to Mr. Ogata and $143,000 to Mr. Maynard.
Termination benefits available to Mr. Yau, the Company's President and Chief
Executive Officer, are discussed below. In accordance with prior Company
policy applicable to Mr. Cwiertnia, who retired as President and Chief
Executive Officer of the Company effective May 8, 1995, Mr. Cwiertnia will
receive continuation of his salary (at $312,000 per year) and fringe benefits
for two years following the date of his retirement.
On March 1, 1995, the Board of Directors engaged Mr. Yau as a
consultant to conduct an assessment of the strategic position of the Company
and its principal operating units. On May 8, 1995, following completion of Mr.
Yau's study and his report to the Board, the Company entered into an Executive
Employment Agreement with Mr. Yau, naming him President, Chief Executive
Officer and a Director of the Company. The Agreement provides for a term of
three years at a base salary not less than $350,000 per year (Mr. Yau's 1996
salary is $350,000). Mr. Yau will be entitled to earn an annual bonus based
upon achievement of financial and other goals established annually by the
Compensation Committee of the Board of Directors. Mr. Yau's targeted bonus is
75% of his annual salary; however, Mr. Yau's bonus may be less or more than the
targeted amount based on achievement of the established goals. Mr. Yau will
also receive all Company benefits that historically have been made available to
the Company's Chief Executive Officer. The Agreement may be terminated at any
time by the Company with or without cause; however, if the Company terminates
the Agreement without cause, or Mr. Yau is terminated following a change in
control of the Company, Mr. Yau will be entitled to two years' continuation of
base salary, bonus and benefits.
12
<PAGE> 16
As incentive compensation to Mr. Yau, and in order to align Mr. Yau's
compensation interests directly and significantly with the interests of the
stockholders, the Compensation and Option Committee of the Board (the
"Compensation Committee"), at a meeting held March 17, 1995, granted to Mr. Yau
an option to purchase 500,000 shares of Common Stock at $3.00 per share, the
closing price for the Company's Common Stock as reported by the New York Stock
Exchange ("NYSE") on that date. The option vests monthly in pro-rata
increments over thirty-six months, beginning June 1, 1995, and remains
exercisable for ten years following March 17, 1995. The Compensation Committee
also granted Mr. Yau the right to purchase, and Mr. Yau purchased on May 24,
1995, 240,000 shares of Common Stock from the Company at $3.00 per share, the
closing price for the Company's Common Stock on the Compensation Committee
meeting date. The purchase price was paid by Mr. Yau with the proceeds of an
interest-bearing loan from the Company, secured by the Common Stock purchased
by Mr. Yau, but with full recourse to Mr. Yau. The loan bears interest at
7.12% annually. Interest on the loan is payable annually, and twenty-five
percent of Mr. Yau's annual bonus must be applied to payment of principal.
Otherwise, principal will be due on the earlier of Mr. Yau's disposition of the
Common Stock, ninety days following Mr. Yau's termination of employment from
the Company, or May 1, 2001. In addition, for each of the 240,000 shares of
Common Stock purchased by Mr. Yau pursuant to the foregoing right, Mr. Yau
received an option to purchase 2 1/2 shares of Common Stock at the same price
of $3.00 per share. One-third of the options vested when the average closing
price for the Company's Common Stock over a four week period ("Average Stock
Price") equaled or exceeded $6.00 per share (September 7, 1995), one-third
vested when the Average Stock Price equaled or exceeded $9.00 per share
(February 21, 1996), and the final one-third will vest when the Average Stock
Price equals or exceeds $12.00 per share. In any event, all such options will
fully vest on November 1, 2004, and remain exercisable for six months
thereafter.
On July 27, 1995, on approval from the Compensation Committee and in
order to align the compensation interests of Messrs. Ogata and Maynard directly
and significantly with the interests of the stockholders, Mr. Ogata purchased
30,000 shares and Mr. Maynard purchased 20,000 shares of the Company's Common
Stock, at $5.25 per share, the closing price for the Company's Common Stock on
that day. Each executive paid the purchase price for his stock with the
proceeds of an interest-bearing loan from the Company, secured by the Common
Stock purchased by such executive, but with full recourse to the executive.
Each executive's loan bears interest at 6.76% annually. Interest on each loan
is payable annually, and twenty-five percent of each executive's annual bonus
must be applied to payment of principal. Otherwise, principal will be due on
the earlier of the executive's disposition of the Common Stock, ninety days
following the executive's termination of employment from the Company, or May 1,
2001. In addition, for each share of Common Stock purchased by each executive,
that executive received an option to purchase 2 shares of Common Stock at the
price of $5.2875 per share (the average closing price of the Company's Common
Stock for the ten trading days immediately preceding and including July 27,
1995). One-third of the options vested when the Average Stock Price equaled or
exceeded $6.00 per share (September 7, 1995), one-third vested when the Average
Stock Price equaled or exceeded $9.00 per share (February 21, 1996), and the
final one-third will vest when the Average Stock Price equals or exceeds $12.00
per share. In any event, all such options will fully vest on November 24,
2004, and remain exercisable until July 26, 2005.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has a Supplemental Executive Retirement Plan (the "SERP")
for its executive officers and subsidiary presidents designated by the
Compensation and Option Committee. The SERP currently has thirteen
participants including Messrs. Yau, Ogata, Maynard and Cwiertnia and Ms.
Gattenio. A participant in the SERP will receive lifetime retirement income in
the amount of 60% of the average earnings (as defined in the SERP) of the
participant (reduced by the amount of a participant's primary social security
benefits) multiplied by a percentage based on the participant's number of years
of credited service under the SERP. The credited service percentage for
executive officers is 10% after the sixth year and increases 10% per year
thereafter until it reaches 100% at 15 years of credited service.
The estimated credited years of service and credited service
percentage for the current participating executive officers, plus Mr.
Cwiertnia and Ms. Gattenio, as of December 31, 1995, are as follows: Mr. Yau -
0 years (0%), Mr. Cwiertnia - 15 years (100%), Mr. Ogata - 10 years (50%), Ms.
Gattenio - 10 years (50%) and Mr. Maynard - 2 years (0%). Based on historical
compensation levels and continued employment to age 65,
13
<PAGE> 17
approximate annual retirement benefits would be: Mr. Yau - $342,816, Mr. Ogata
- - $99,692 and Mr. Maynard -$63,441. In the case of Mr. Cwiertnia, based on
historical compensation levels and his deferral of benefits to age 65, his
approximate annual retirement benefits will be $237,265, and in the case of Ms.
Gattenio, based on historical compensation levels and her deferral of benefits
to age 65, her approximate annual retirement benefits will be $22,698. A
reduced retirement benefit is provided to a participant who elects to receive
benefits after age 60 and prior to age 65.
The SERP provides for a death benefit of between two and three times
the average earnings of a participant, and a surviving spouse and minor
children also receive certain benefits under the SERP. The SERP provides for
disability benefits of up to 60% of a participant's average earnings. In
addition to the severance benefits noted in the preceding section, if a
participant's employment with the Company terminates within two years following
a change of control of the Company, a participant is entitled to a cash sum
equal to the present value of full retirement benefits without regard to years
of service completed. As of February 29, 1996, the approximate amounts would
be: Mr. Yau - $2,034,801, Mr.Ogata - $445,200 and Mr. Maynard -$256,600.
The following Table IV presents information regarding estimated annual
benefits payable under the SERP upon retirement at age 65 (normal retirement
age under the SERP) in specified compensation and years of service
classifications:
<TABLE>
<CAPTION>
TABLE IV
PENSION PLAN TABLE (1)
YEARS OF SERVICE
---------------------------------------
REMUNERATION 3 6 9 12 15
- ------------ --- --- --- ---- ----
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 0 $ 7,500 $ 30,000 $ 52,500 $ 75,000
$ 150,000 $ 0 $ 9,000 $ 36,000 $ 63,000 $ 90,000
$ 175,000 $ 0 $ 10,500 $ 42,000 $ 73,500 $ 105,000
$ 200,000 $ 0 $ 12,000 $ 48,000 $ 84,000 $ 120,000
$ 225,000 $ 0 $ 13,500 $ 54,000 $ 94,500 $ 135,000
$ 250,000 $ 0 $ 15,000 $ 60,000 $ 105,000 $ 150,000
$ 300,000 $ 0 $ 18,000 $ 72,000 $ 126,000 $ 180,000
$ 400,000 $ 0 $ 24,000 $ 96,000 $ 168,000 $ 240,000
$ 450,000 $ 0 $ 27,000 $ 108,000 $ 189,000 $ 270,000
$ 500,000 $ 0 $ 30,000 $ 120,000 $ 210,000 $ 300,000
________________
<FN>
(1) Estimated benefits shown before reduction for social security benefits.
</TABLE>
TRANSACTIONS WITH DIRECTORS
In 1995, Mr. McNaughton received consulting fees of $2,750 and
retirement payments totalling $44,498. The consulting fees were paid pursuant
to a one-year consulting and noncompete agreement under which he received a
consulting fee of $33,000 for the one-year period ended January 31, 1995.
Effective February 1, 1994, Mr. McNaughton became eligible to receive fees paid
to nonemployee Directors of the Company. Mr. McNaughton will continue to
receive the retirement payments noted above for the remainder of his life.
From March 1, 1995, to May 8, 1995, Mr. Yau provided consulting
services to the Company, reporting directly to the Board of Directors. For
those consulting services, Mr. Yau was paid an amount equal to a pro-rata
portion of his annual base salary provided for under his Executive Employment
Agreement. See "Severance Benefits and Employment Arrangements" above.
14
<PAGE> 18
See also "Compensation Committee Interlocks and Insider Participation"
for additional information regarding transactions with Directors.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Administration.
---------------
Decisions on compensation of the Company's executive officers are made
by the Compensation and Option Committee of the Board (the "Committee"). Each
of the four members of the Committee is a nonemployee Director. All decisions
made by the Committee relating to the compensation of the Company's executive
officers are reviewed by the full Board, except for decisions regarding awards
under the Company's stock option and incentive plans which are made solely by
the Committee in order for the grants under such plans to satisfy Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Executive Officer Compensation Policy.
--------------------------------------
The Committee's executive compensation policies are designed to
provide appropriate levels of compensation that integrate executive
compensation with the Company's annual performance and long-term goals, reward
attainment of management objectives, and assist the Company in attracting and
retaining qualified executives. The Committee believes a substantial portion
of each executive's compensation should be contingent upon the attainment by
the executive of specific management objectives ("MBOs") and also dependent
upon the Company's financial performance. Accordingly, executives are eligible
for annual bonuses that correspond to varying levels of management and Company
performance (see "Cash Bonus Plan and Relationship to Executive and Company
Performance" below).
Base Salary. The compensation of each executive officer is reviewed
annually by the Committee, with reference to the executive's performance, level
of responsibility and experience, to determine whether the current base salary
is appropriate. If significant changes in an executive's salary are
contemplated, the Committee also refers to the median salary range paid to
executives with comparable duties at companies in the service industry of equal
size in the same geographical area, and the executive officer's salary is
adjusted, if appropriate, according to salary surveys provided by nationally
recognized research organizations. The base salary of executive officers,
other than the Chief Executive Officer, is ultimately fixed by the Committee
after consultation with the Chief Executive Officer. The base salary of the
Chief Executive Officer is recommended by the Committee and approved by the
Board (see discussion under "Chief Executive Officer 1995 Compensation" below).
In 1991, the Board established base salaries for the Company's executive
officers at approximately the median base compensation level for officers in
similar positions based upon a salary survey and report prepared for the Board
by an independent consultant. In 1996, the Committee adjusted Messrs. Ogata's
and Maynard's salaries based, in part, upon a salary survey and report prepared
by an independent consultant. The Board increased base salaries for its
officers by an average of approximately 5% in 1992, 3% in 1993, 4% in 1994, 5%
in 1995 and 3% for 1996. In particular, Mr. Cwiertnia's base salary increased
4% in 1992 and was not increased in 1993, 1994 or 1995. Mr. Yau's base salary
of $350,000 for 1995 was established by arms length negotiation and was set
forth in his Executive Employment Agreement dated May 8, 1995, upon
commencement of his employment. Mr. Yau's base salary will remain unchanged
for 1996.
Cash Bonus Plan and Relationship to Executive and Company Performance.
At the beginning of each fiscal year, a business plan for the Company is
prepared and submitted to the Committee and full Board of Directors for
approval. Based upon the approved business plan, the Committee established the
1995 Management Annual Incentive Compensation Plan (the "1995 MAICP") which
sets forth the methodology for determining incentive (bonus) compensation for
corporate officers and key managers. Pursuant to the 1995 MAICP, the
Committee, in consultation with the Chief Executive Officer, established target
bonus levels for the Company's executive officers. For 1995, the Commission
established a target bonus of 60% for each of Messrs. Ogata's and Maynard's and
Ms. Gattenio's salary. The Committee established a target bonus of 75% of Mr.
Cwiertnia's salary. Mr. Jones was not a participant in the 1995 MAICP.
Individual management objectives ("MBOs") were established for each executive
(other than the Chief Executive Officer and Chief Financial
15
<PAGE> 19
Officer, whose 1995 MAICP incentive compensation was based solely on Company
financial performance, as discussed below). Each executive's MBOs specifically
related to the individual's position and were supportive of the overall
strategy and goals of the Company. For 1995, each participating executive's
bonus was based on his or her accomplishment of his or her MBOs.
Also based upon the approved business plan, the Committee and the
Board established target levels of consolidated pre-tax income and consolidated
cash flow. Under the 1995 MAICP, participating executives who earned a bonus
based upon accomplishment of their MBOs would be eligible for an
overachievement award. An overachievement award would increase the
participating executive's incentive compensation in the same proportion that
the Company's 1995 consolidated pre-tax income and consolidated cash flow
exceed the target consolidated pre-tax income and consolidated cash flow
established by the Committee. The incentive compensation for the Chief
Financial Officer, Mr. Ogata, is based solely upon achievement of the target
consolidated pre-tax income and consolidated cash flow set by the Committee.
For 1995, Messrs. Ogata and Maynard received incentive compensation of $66,312
and $75,250, respectively. Mr. Yau's incentive compensation award is described
below in "Chief Executive Officer 1995 Compensation."
In 1995 the Committee also authorized an extraordinary incentive
program designed to incentivize executives to complete the disposition of the
Company's discontinued operations within the reserve amounts and time periods
established for such disposition. Messrs. Ogata and Maynard received, for
1995, $82,500 and $52,500, respectively, in connection with this extraordinary
incentive program.
Stock Option Grants and Restricted Stock Awards. The Committee
endorses the position that granting stock options and restricted stock awards
to the Company's executive officers can be very beneficial to stockholders
because it aligns management's and stockholders' interests in the enhancement
of stockholder values. Accordingly, the Committee has granted stock options to
the executive officers on an annual basis. The number of options received by
the executive officers is fixed by the Committee after consideration of the
recommendations made by the Chief Executive Officer. The options generally are
exercisable in four equal annual installments commencing one year from the date
of grant and are granted at an exercise price equal to the average closing
stock market price for a ten consecutive trading day period.
In 1995 the Committee authorized certain extraordinary option grants
and restricted stock awards to Mr. Yau in connection with his employment by the
Company (which awards are described below in "Chief Executive Officer 1995
Compensation") and to Messrs. Ogata and Maynard. The awards were designed to
provide reasonable incentives to the executives and to align their compensation
interests directly and substantially with the interests of the Company's
stockholders. In July 1995, Messrs. Ogata and Maynard purchased 30,000 and
20,000 shares, respectively, of restricted Common Stock at the then-current
stock market price. In addition, the Company granted Messrs. Ogata and Maynard
options to purchase 60,000 shares and 40,000 shares, respectively, at an
exercise price equal to the then-current stock market price. The options
become exercisable in three equal installments at such time as the average
closing price of the Company's Common Stock over a twenty- trading day period
equals or exceeds $6.00 (which occurred September 7, 1995), $9.00 (which
occurred February 21, 1996) and $12.00, respectively.
Other Benefits. The executive officers participate in broad-based
employee benefit plans, such as the Company's 401(k) Retirement Plan, in which
the Company provides some matching contributions, and health care insurance
plans. In addition to these plans, the Company provides a supplemental
executive medical plan and other executive benefits. The incremental cost to
the Company of providing these benefits (which, other than the 401(k) matching
contributions, are not set forth in any of the preceding tables) to the
executive officers equaled, on average, approximately 5% of their base
compensation in 1995. Benefits under these plans are not directly or
indirectly tied to Company performance, other than the Company's 401(k)
Retirement Plan, which may be partially invested at the direction of the
participant in the Company's Common Stock.
16
<PAGE> 20
Chief Executive Officer 1995 Compensation.
------------------------------------------
Mr. Cwiertnia retired as President and Chief Executive Officer of the
Company on May 8, 1995. Accordingly, Mr. Cwiertnia did not receive any
incentive compensation for 1995.
On May 8, 1995, following arms length negotiations between the Company
and Mr. Yau, the Company entered into an Executive Employment Agreement with
Mr. Yau, naming him President, Chief Executive Officer and a Director of the
Company. The Agreement provides for a term of three years at a base salary of
not less than $350,000 per year (Mr. Yau's salary will be $350,000 for 1996).
Mr. Yau will be entitled to earn an annual bonus based upon achievement of
financial and other goals established annually by the Compensation Committee of
the Board of Directors. Mr. Yau's targeted bonus is 75% of his annual salary;
however, the bonus may be less or more than the targeted amount based on
achievement of the established goals, and for 1995, pursuant to Mr. Yau's
Executive Employment Agreement, he was paid a bonus equal to 75% of his base
salary earned in 1995.
As incentive compensation to Mr. Yau, and in order to align Mr. Yau's
compensation interests directly and significantly with the interests of the
stockholders, the Committee granted to Mr. Yau an incentive compensation
package consisting of: (i) an option to purchase 500,000 shares of the
Company's Common Stock which option vests monthly in pro rata increments over
thirty-six months beginning June 1, 1995; (ii) the right to purchase, which
right was exercised by Mr. Yau on May 24, 1995, 240,000 shares of Common Stock
(the purchase price was paid with the proceeds from a full recourse interest
bearing loan from the Company secured by the Common Stock purchased by Mr.
Yau); and (iii) an option to purchase 600,000 shares of Common Stock which
option becomes exercisable in three equal increments when the average closing
price of the Company's Common Stock over a twenty-trading day period equals or
exceeds $6.00 (which occurred September 7, 1995), $9.00 (which occurred
February 21, 1996) and $12.00 per share, respectively.
Policy Regarding Deductibility of Compensation.
-----------------------------------------------
Section 162(m) of the Internal Revenue Code (the "Section") provides
that, for federal income tax purposes, the otherwise allowable deduction for
compensation paid or accrued to a covered employee of a publicly held
corporation is limited to no more than $1 million per year, unless certain
requirements are met. The Company presently is not affected by the Section
because, for the fiscal year ended December 31, 1995, no executive officer's
compensation exceeded $1 million, and the Company does not believe that the
compensation of any executive officer of the Company will exceed $1 million for
the 1996 fiscal year. Notwithstanding the foregoing, the Company is committed
to complying with the requirements of Section 162(m) for future compensation
awards so that the corporate tax deduction is maximized without limiting the
Company's flexibility to attract and retain qualified executives to manage the
Company.
Compensation and Option Committee
William D. Walsh, Chairman
Richard C. Blum
Leonard W. Jaffe
Frederic V. Malek
17
<PAGE> 21
STOCK PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change
in the Company's cumulative total shareholder return to the Standard & Poor's
("S&P") 500 Composite Index and a Peer Group Index for the five-year period
commencing January 1, 1991 and ending December 31, 1995. The Company's Peer
Group Index, which first was established for the Company's Proxy Statement for
its 1995 Annual Meeting of Stockholders, consists of the following companies
that provide educational materials and training: Houghton Mifflin,
McGraw-Hill, Inc. and Westcott Communications, Inc. The stockholder return
assumes $100 invested at the beginning of the period in the Company's Common
Stock, the S&P 500 Composite Index and the Peer Group Index. The total return
calculation assumes reinvestment of all dividends for the indexes. The Company
did not pay any dividends on its Common Stock during the time frame set forth
below.
The data points depicted on the graph are as follows:
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31,
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
National Education Corporation 100.0 211.4 154.3 142.9 94.3 188.6
S&P 500 Composite Index 100.0 130.7 140.7 154.4 156.5 215.4
Peer Group Index 100.0 114.7 135.6 160.6 158.1 200.8
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Option Committee is comprised of Messrs. Walsh
(Chairman), Blum, Jaffe and Malek. There are no interlocking relationships
between any executive officers of the Company and any entity whose Directors or
executive officers serve on the Company's Board or Compensation and Option
Committee.
Mr. Blum is the Chairman of Richard C. Blum & Associates, L.P. ("RCBA
L.P.") and is a substantial shareholder of Richard C. Blum & Associates, Inc.
("RCBA Inc."). Mr. Blum, RCBA L.P. and RCBA Inc. are deemed beneficial owners
of more than 5% of the Company's outstanding Common Stock (see "Common Stock
Ownership" above). In the past, RCBA L.P. has provided consulting and
investment banking services on behalf of the Company, including its
subsidiaries, on a variety of strategic issues relating to enhancement of
stockholder
18
<PAGE> 22
values. For example, RCBA L.P. was actively involved in the public offering of
one of the Company's subsidiaries, Steck-Vaughn Publishing Corporation, in
1993, for which it was paid a fee of $393,000. RCBA L.P. did not provide
compensable services for the Company in 1995.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
Directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and the New York
Stock Exchange. Officers, Directors and stockholders owning greater than 10%
of the Common Stock of the Company are required by SEC regulation to furnish
the Company with copies of all reports filed with the SEC pursuant to Section
16(a).
Based solely on review of the copies of such reports required by
Section 16(a) and written representations as to the need for the filing of such
reports the Company believes that, during the fiscal year ended December 31,
1995, its officers, Directors and stockholders owning greater than 10% of the
Common Stock of the Company complied with all applicable Section 16(a) filing
requirements.
PROPOSAL 2:
APPROVAL OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
INCREASING AUTHORIZED CAPITAL STOCK
GENERAL
The Company's Restated Certificate of Incorporation presently
authorizes the Company to issue up to 50,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock. The Company's Board of Directors has
adopted, and recommends that the stockholders approve, an amendment to the
Restated Certificate of Incorporation increasing the authorized number of
shares of the Company's Common Stock from 50,000,000 to 65,000,000 shares. The
number of authorized shares of Preferred Stock will remain unchanged. The
proposed amendment would become effective upon filing with the Secretary of the
State of Delaware a Certificate of Amendment to the Restated Certificate of
Incorporation. The text of the proposed amendment is attached to this Proxy
Statement as Exhibit A.
CAPITALIZATION OF THE COMPANY
As of February 29, 1996, there were [35,137,443] shares of Common
Stock outstanding and 697,556 treasury shares. Of the remaining 14,165,001
authorized but unissued shares of Common Stock, [5,143,325] shares have been
reserved for issuance pursuant to employee benefit plans and 2,300,000 shares
have been reserved for issuance upon conversion of the Company's 6 1/2%
Convertible Subordinated Debentures due 2011 (the "Company Debentures").
Accordingly, [6,721,676] shares of Common Stock remain unissued and unreserved.
No shares of the Company's Preferred Stock are issued, outstanding or reserved.
USES OF ADDITIONAL AUTHORIZED SHARES
The Board of Directors believes that it is prudent to have a greater
number of authorized shares of Common Stock available to issue in the future
for, among other things, raising additional capital, acquisitions, stock
dividends and other corporate purposes. Having authorized shares of Common
Stock available for issuance in the future for such corporate purposes as the
Board of Directors deems necessary and advisable will give the Company greater
flexibility and the ability to respond quickly to circumstances in which the
utilization or issuance of shares would be in the stockholders' best interests.
The additional shares of Common Stock authorized by the proposed amendment
would be available for future issuance without further action by stockholders,
unless stockholder approval is required by applicable law or the rules of any
stock exchange on which the Company's securities may then be traded.
19
<PAGE> 23
The Board of Directors believes that the small number of shares of
authorized, unissued and unreserved Common Stock remaining under the Restated
Certificate of Incorporation could pose an impediment to the growth of the
Company, and could affect the Company's competitive position by limiting its
ability to quickly and effectively raise additional capital, invest in or
acquire businesses in strategic areas and conduct its corporate affairs. For
example, the Board of Directors and the Company's management can more
effectively pursue and promote the business and growth of the Company with
additional authorized shares of Common Stock, which could be used, among other
purposes, to raise funds for acquisitions or as currency in acquisitions.
In addition, while the Company is not aware of any proposed takeover
or other attempt to acquire control of the Company, under certain
circumstances, the additional shares of Common Stock authorized by the proposed
amendment could be used to deter or impair an attempted non- negotiated
takeover of the Company, if the Board of Directors believes that such
non-negotiated takeover attempt is not in the best interests of the
stockholders. Additional shares of Common Stock could, for example, be
privately placed with purchasers negotiating with management of the Company in
opposing a tender or other acquisition offer made by a third party.
The Board of Directors believes that the increase in the authorized
number of shares of Common Stock available to the Company is in the best
interests of the stockholders and, accordingly, recommends approval of the
proposed amendment to the Company's Restated Certificate of Incorporation to
increase the authorized number of shares.
REQUIRED APPROVAL
Approval of the amendment to the Company's Restated Certificate of
Incorporation requires the affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock. Proxies solicited hereby
will be voted FOR approval of the amendment to the Company's Restated
Certificate of Incorporation, unless a vote against approval or abstention is
specifically indicated. If the amendment to the Company's Restated Certificate
of Incorporation is not approved by the stockholders at the Annual Meeting or
at any adjournment thereof, the existing Restated Certificate of Incorporation
will remain in full force and effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE APPROVAL OF THE AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
PROPOSAL 3:
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Price Waterhouse LLP has been the Company's independent certified
public accountants since 1979, and the Board of Directors has appointed Price
Waterhouse LLP to continue as such for the fiscal year ending December 31,
1996, and to audit the books and accounts of the Company for that year, subject
to ratification of their appointment by the stockholders at the Annual Meeting.
A representative of Price Waterhouse LLP will be present at the Annual Meeting.
The representative will respond to questions and will have an opportunity to
make a statement if desired.
OTHER MATTERS
The Company's audited financial statements, certain general
information, five-year highlights and financial review are contained in the
enclosed Appendix to the Proxy Statement as a separately bound document. The
Company's Summary Annual Report, which will be mailed shortly to all
stockholders of record as of April 1, 1996, will contain the Company's letter
to stockholders, a financial and operating review and outlook, condensed
financial statements and five-year highlights, as well as other information of
topical interest.
20
<PAGE> 24
STOCKHOLDER PROPOSALS
For stockholder proposals to be considered for inclusion in the proxy
materials for the Company's 1997 Annual Meeting, they must be received by the
Company no later than December 6, 1996. Proposals should be addressed to:
Corporate Secretary, National Education Corporation, 2601 Main Street, Suite
700, Irvine, California 92714.
By Order of the Board of Directors
Philip C. Maynard
Secretary
Dated: April 5, 1996
21
<PAGE> 25
EXHIBIT A
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
--------------------------------------------------
Paragraph 4 of the Restated Certificate of Incorporation of this
Corporation shall be amended to read in full as follows:
4. The total number of shares of stock which the
Corporation shall have authority to issue is Seventy Million
(70,000,000) consisting of two classes of shares designated
respectively "Common Stock" and "Preferred Stock." The number of
shares of Common Stock shall be Sixty-Five Million (65,000,000) and
shall have a par value of $.01 per share, and the number of shares of
Preferred Stock shall be Five Million (5,000,000) and shall have a par
value of $.10 per share.
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized to fix the number
of shares of any series of Preferred Stock and to determine the
designation of any such series. The Board of Directors is also
authorized to determine or alter the rights, preferences, privileges,
and restrictions granted to or imposed upon any wholly unissued series
of Preferred Stock and, within the limits and restrictions stated in
any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent to the
issue of shares of that series.
<PAGE> 26
PRELIMINARY PROXY CARD
PROXY NATIONAL EDUCATION CORPORATION PROXY
18400 VON KARMAN AVENUE
IRVINE, CALIFORNIA 92715
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Philip C. Maynard, Keith K. Ogata and Glen
Medwid, and each of them, the undersigned's proxy, with full power of
substitution, to attend the Annual Meeting of Stockholders of National
Education Corporation on Wednesday, May 29, 1996 at the Radisson Lackawanna
Station Hotel, 700 Lackawanna Avenue, Scranton, Pennsylvania, at 8:30 a.m.,
local (east coast) time, and any and all adjournments or postponements thereof,
and to vote all shares of common stock held by the undersigned as of April 1,
1996 (the record date with respect to this solicitation) as designated on the
reverse side.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
SEE REVERSE
SIDE
<PAGE> 27
[Reverse side of Proxy]
X PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED, BUT WHEN NO
DIRECTION IS GIVEN, THEY WILL BE VOTED IN FAVOR OF ITEMS 1, 2 AND 3.
1. ELECTION OF DIRECTORS
NOMINEES: David Bonderman, Michael R. Klein
John J. McNaughton
____ FOR ____ WITHHELD
____ ______________________________________
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
2. APPROVAL OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION INCREASING
THE AUTHORIZED NUMBER OF SHARES AVAILABLE FOR ISSUANCE FROM 50,000,000 TO
65,000,000.
____ FOR ____ AGAINST ____ ABSTAIN
3. AUDITORS
Approval and ratification of selection of Price Waterhouse as the Company's
independent auditors for the fiscal year ending December 31, 1996.
____ FOR ____ AGAINST ____ ABSTAIN
In their discretion, the proxy holders are authorized to vote on all such
other matters as may properly come before the meeting or any adjournment
thereof.
MARK HERE
FOR ADDRESS
CHANGE AND
NOTE AT LEFT ____
Please sign exactly as your name appears hereon, date, and return this Proxy
promptly in the reply envelope provided. Please correct your address before
returning this Proxy. Persons signing in a fiduciary capacity should indicate
that fact and give their full title. 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 authorized person. Joint owners must each
sign personally.
PLEASE BE CERTAIN YOU HAVE Signature:__________________________Date__________
DATED AND SIGNED THIS PROXY. Signature:__________________________Date__________
<PAGE> 28
PRELIMINARY PROXY CARD
CONFIDENTIAL VOTING INSTRUCTIONS
PROXY NATIONAL EDUCATION CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TO: PUTNAM FIDUCIARY TRUST COMPANY AS TRUSTEE UNDER THE NATIONAL EDUCATION
CORPORATION RETIREMENT PLAN
I hereby instruct the Trustee to vote in person or by proxy all the shares of
National Education Corporation Common Stock which are credited to my account at
the Annual Meeting of Stockholders of National Education Corporation to be held
at the Radisson Lackawanna Station Hotel, 700 Lackawanna Avenue, Scranton,
Pennsylvania, at 8:30 a.m., local (east coast) time, on Wednesday, May 29,
1996, and at any adjournment thereof, on the following matters, as provided in
the Proxy Statement, and in its discretion, or the discretion of its proxy,
upon any other matter which may properly come before the meeting or any
adjournment thereof.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
SEE REVERSE
SIDE
<PAGE> 29
[Reverse side of Proxy]
X PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED, BUT WHEN NO
DIRECTION IS GIVEN, THE TRUSTEE WILL VOTE THE SHARES IN THE NATIONAL EDUCATION
CORPORATION RETIREMENT PLAN AS DIRECTED BY THE NATIONAL EDUCATION CORPORATION
RETIREMENT PLAN COMMITTEE, EXCEPT AS LIMITED BY LAW.
1. ELECTION OF DIRECTORS
NOMINEES: David Bonderman, Michael R. Klein
John J. McNaughton
____ FOR ____ WITHHELD
____ ______________________________________
FOR ALL NOMINEES EXCEPT AS NOTED ABOVE
2. APPROVAL OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION INCREASING
THE AUTHORIZED NUMBER OF SHARES AVAILABLE FOR ISSUANCE FROM 50,000,000 TO
65,000,000.
____ FOR ____ AGAINST ____ ABSTAIN
3. AUDITORS
Approval and ratification of selection of Price Waterhouse as the Company's
independent auditors for the fiscal year ending December 31, 1996.
____ FOR ____ AGAINST ____ ABSTAIN
In their discretion, the proxy holders are authorized to vote on all such
other matters as may properly come before the meeting or any adjournment
thereof.
MARK HERE
FOR ADDRESS
CHANGE AND
NOTE AT LEFT ____
Please sign exactly as your name appears hereon, date, and return this Proxy
promptly in the reply envelope provided. Please correct your address before
returning this Proxy. Persons signing in a fiduciary capacity should indicate
that fact and give their full title. Joint owners must each sign personally.
PLEASE BE CERTAIN YOU HAVE Signature:__________________________Date__________
DATED AND SIGNED THIS PROXY. Signature:__________________________Date__________
