<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
HEI, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applied:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(1):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
- ------------------------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
PRELIMINARY--DATED JUNE 3, 1998
[LOGO]
P.O. BOX 5000
1495 STEIGER LAKE LANE
VICTORIA, MINNESOTA 55386
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1998
------------------------
Dear HEI Shareholder:
A Special Meeting of Shareholders of HEI, Inc., a Minnesota corporation,
will be held on , , 1998, at .m., local
time, at , , Minnesota to consider the following
proposals:
(1) Proposals by Anthony J. Fant and Fant Industries Inc. (collectively, the
"Fant Group") to remove from office all of the current directors of the
Company except Eugene W. Courtney and, if such directors are removed, to
elect directors to the Board to fill the vacancies created and to fill
the currently vacant position on the Board.
(2) A proposal by the Fant Group to amend the Company's Bylaws to opt out of
the Minnesota Control Share Acquisition Statute, Minn. Stat. Section
302A.671.
Only shareholders of record at the close of business on , 1998
will be entitled to notice of and to vote at the meeting and any adjournment
thereof.
YOUR BOARD OF DIRECTORS unanimously urges you to vote AGAINST items (1) and
(2) by signing, dating, and returning the enclosed WHITE proxy card in the
enclosed postage-paid envelope. If you have any questions or need any assistance
in voting your shares, please contact the company assisting us in this matter,
Innisfree M&A Incorporated, at their toll-free number, 1-888-750-5834.
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE, AND RETURN THE ENCLOSED WHITE
proxy card regardless of whether you have previously signed a proxy card sent to
you by the Fant Group.
BY ORDER OF THE BOARD OF DIRECTORS
Jerald H. Mortenson
CORPORATE SECRETARY
, 1998
<PAGE>
PRELIMINARY--DATED JUNE 3, 1998
[LOGO]
P.O. BOX 5000
1495 STEIGER LAKE LANE
VICTORIA, MINNESOTA 55386
------------------------
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1998
------------------------
This proxy statement is furnished to the shareholders of HEI, Inc. (the
"Company" or "HEI") in connection with the solicitation of proxies to be used in
voting at the Special Meeting of the Shareholders to be held on ,
1998 and any adjournment thereof. The Special Meeting is being held at the
demand of Fant Industries Inc. and Anthony J. Fant (collectively, the "Fant
Group"), which together hold more than 10% of the outstanding shares of HEI
Common Stock. The enclosed WHITE proxy card is solicited by the Board of
Directors of the Company to retain your current Board in opposition to the Fant
Group's proposals to remove the current members of the Company's Board of
Directors (other than Eugene W. Courtney), and fill the vacancies created
thereby (and the currently vacant position on the Board), and to amend the
Company's Bylaws to opt out of the Minnesota Control Share Acquisition Statute,
Minn. Stat. Section 302A.671. EUGENE W. COURTNEY HAS ADVISED THE BOARD THAT IF
THE OTHER DIRECTORS ARE REMOVED AT THE SPECIAL MEETING AND NOT RE-ELECTED, HE
WILL RESIGN FROM THE BOARD OF DIRECTORS. This proxy statement and enclosed proxy
card are being furnished to the Company's shareholders on or about ,
1998.
YOUR BOARD OF DIRECTORS URGES YOU TO SUPPORT YOUR CURRENT INDEPENDENT
DIRECTORS BY VOTING AGAINST THE FANT GROUP'S PROPOSALS TO REMOVE YOUR
INDEPENDENT DIRECTORS, TO ELECT ONE OR MORE OF THE FANT GROUP'S HAND-PICKED
NOMINEES, AND TO AMEND THE COMPANY'S BYLAWS. YOU ARE STRONGLY URGED NOT TO SIGN
OR RETURN THE GREEN PROXY CARD SENT TO YOU BY THE FANT GROUP.
WHETHER OR NOT YOU HAVE ALREADY RETURNED THE FANT GROUP'S PROXY CARD, THE
BOARD URGES YOU TO SIGN, DATE, AND RETURN THE ENCLOSED WHITE PROXY CARD TODAY. A
LATER DATED WHITE PROXY CARD WILL REVOKE ANY EARLIER PROXY RETURNED TO THE FANT
GROUP.
If your shares are held in the name of a bank, broker, or other nominee, you
are urged to contact the person responsible for your account and direct him or
her to execute a WHITE proxy card on your behalf.
Your vote is of special importance. The Fant Group is attempting to obtain
control over your Company without paying you a control premium for ALL of your
shares. The Fant Group wants to replace all of the current independent directors
with its own hand-picked slate of nominees. Your Board believes that the Fant
Group nominees lack the experience in the Company's high-tech business necessary
to direct that business successfully. Your Board also believes that the Fant
Group nominees lack the independence necessary to protect the interests of all
of the Company's shareholders.
<PAGE>
<TABLE>
<S> <C>
YOUR VOTE IS IMPORTANT
A VOTE FOR YOUR BOARD IS A VOTE FOR:
- AN EXPERIENCED BOARD THAT INCLUDES THREE INDEPENDENT DIRECTORS (ALL OF WHOM THE FANT
GROUP WANTS REMOVED)
- A BOARD COMMITTED TO THE BEST LONG-TERM INTERESTS OF ALL SHAREHOLDERS
- A MANAGEMENT TEAM THAT HAS SUCCESSFULLY GROWN SHAREHOLDERS' EQUITY FROM $1 MILLION IN
1990 TO OVER $17 MILLION
- A MANAGEMENT TEAM THAT HAS SUCCESSFULLY GROWN THE COMPANY'S MAINSTREAM BUSINESS,
CUSTOM MICROELECTRONICS, FROM APPROXIMATELY $3.7 MILLION A YEAR IN 1990 TO $30 MILLION
IN FISCAL 1997
- A MANAGEMENT TEAM WITH THE DEPTH OF EXPERIENCE, SPECIALIZED MARKETING CAPABILITIES,
INDUSTRY KNOWLEDGE, VISION AND COMMITMENT TO BUILD ON THIS STRONG FOUNDATION
</TABLE>
If you have any questions concerning the Company's solicitation or need
assistance in voting your shares, please contact:
INNISFREE M&A INCORPORATED
501 Madison Avenue
20th Floor
New York, New York 10022
Call toll-free 1-888-750-5834.
WHY YOU SHOULD VOTE FOR YOUR BOARD
YOUR BOARD BELIEVES THAT IT HAS EARNED YOUR SUPPORT AND THAT YOU SHOULD VOTE
AGAINST THE PROPOSALS OF THE FANT GROUP BECAUSE OF THE PROVEN TRACK RECORD OF
THE CURRENT MANAGEMENT AND DIRECTORS, THE FANT GROUP'S LACK OF EXPERIENCE IN
HEI'S HIGH-TECH BUSINESS, THE FANT GROUP NOMINEES' LACK OF INDEPENDENCE FROM MR.
FANT, THE ABSENCE OF MEANINGFUL INFORMATION ABOUT THE FANT GROUP'S
QUALIFICATIONS, PLANS OR PROPOSALS AND THE TACTICS USED BY THE FANT GROUP.
Do not be misled by Mr. Fant's offer of an immediate cash premium for a
small percentage of outstanding shares. Even if Mr. Fant completes his tender
offer, over 70% of the Company's shares will be owned by shareholders other than
Mr. Fant. Until December 1997, Mr. Fant apparently owned no stock of the
Company. As reported, he simply sifted through possible investments and found
HEI--a company with excellent basic characteristics and a large cash reserve,
but with a relatively low stock price at that time. He is not a long-time
shareholder of HEI complaining about performance. He is an opportunist
benefiting from buying at a low price. If Mr. Fant wants to control the Company,
the Board believes he should pay a control premium for all of the shares of the
Company, rather than for just a small percentage. The future of your investment
will be dependent on Mr. Fant and his hand-picked slate of nominees if your
current Board is removed. Your Board believes that the Fant Group's nominees
lack the experience necessary to direct the management of the Company's business
and the independence necessary to protect the interests of all of the Company's
shareholders. Your Board also believes that you should not give Mr. Fant control
of the Company without receiving an appropriate premium for all of your shares.
No matter how many or how few shares you own, your Board urges you to
promptly sign, date and mail (or fax both sides of) the enclosed WHITE proxy
card.
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DIRECTOR REPLACEMENT PROPOSAL
YOUR BOARD OF DIRECTORS UNANIMOUSLY OPPOSES THE FANT GROUP'S PROPOSAL TO
REMOVE ALL OF THE MEMBERS OF THE BOARD, OTHER THAN EUGENE W. COURTNEY, AND TO
REPLACE THEM WITH THE FANT GROUP'S NOMINEES. MR. COURTNEY HAS ADVISED THE BOARD
THAT IF THE OTHER DIRECTORS ARE REMOVED AT THE SPECIAL MEETING AND NOT
RE-ELECTED, HE WILL RESIGN FROM THE BOARD OF DIRECTORS.
The Fant Group's proposal to remove all of the members of the Board, other
than Mr. Courtney, and to replace them with Mr. Fant's hand-picked nominees
should not be approved for the following reasons:
1. PROVEN TRACK RECORD.
All of the directors that Mr. Fant proposes to remove are independent
directors duly elected by the shareholders--most recently at the Company's
January 1998 Annual Meeting. These independent directors have provided strategic
direction for the Company and overseen the performance of the current senior
management of the Company. As the charts below indicate, the current management
team has transformed HEI from an unprofitable operation in desperate financial
straits in 1990 to a vibrant, profitable, focused business with greatly enhanced
capabilities and financial strength. To take just two examples, over that period
shareholders' equity has grown from $1 million to $17 million and the Company's
mainstream business, custom microelectronics, has grown from about $3.7 million
(of the $8.5 million total) in fiscal 1990 to $30 million in fiscal 1997.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HEI REVENUE
<S> <C>
FY 1990-1997
TOTAL REVENUE
Millions
1990 $8.5
1991 $9.0
1992 $14.1
1993 $18.9
1994 $17.3
1995 $23.4
1996 $20.7
1997 $31.0
FISCAL YEAR 1990-1997
Revenues have grown from $8.5 million in
1990
to $31.0 million in 1997, a 20% compound
annual growth rate.
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HEI CASH AND INVESTMENTS
<S> <C>
FY 1990-1997
CASH/INVESTMENTS
Millions
1990 $0.0
1991 $0.2
1992 $0.9
1993 $2.0
1994 $2.3
1995 $5.3
1996 $6.7
1997 $12.6
FISCAL YEAR 1990-1997
Cash and Investments were just a few
thousand dollars during 1990 and 1991
but by 1997 had grown to nearly $13
million.
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HEI PROFIT BEFORE TAX
<S> <C> <C>
FY 1990-1997
NPBT % RETURN
Millions ON REVENUE
1990 ($0.8) (9.7%)
1991 $0.1 0.6%
1992 $2.0 14.2%
1993 $4.0 21.2%
1994 $2.1 12.2%
1995 $3.3 13.9%
1996 $2.8 13.7%
1997 $4.0 12.9%
FISCAL YEAR 1990-1997
From a loss of nearly $1 million in
1990,
profits have been solid since 1992 and
have
consistently exceeded 12.0% to 13.0% of
revenues through 1997.
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HEI SHAREHOLDER EQUITY
<S> <C> <C>
FY 1990-1997
EQUITY BOOK VALUE
Millions PER SHARE
1990 $1.1 $0.77
1991 $1.6 $0.56
1992 $3.6 $1.14
1993 $6.8 $1.86
1994 $8.7 $2.35
1995 $11.0 $2.90
1996 $13.8 $3.43
1997 $17.0 $4.14
FISCAL YEAR 1990-1997
In 1990, shareholder equity was only
$1.1M with retained earnings at a
negative
$3.1M. By 1997, shareholder equity
increased to $17.0 M with retained
earnings at a positive $9.3 M.
The book value per share increased
from $.77 in 1990 to $4.14 in 1997.
</TABLE>
3
<PAGE>
For the six months ended March 28, 1998, the corresponding amounts were as
follows: total revenue, $8.7 million; profit before tax, $100,000; percentage
return on revenue, 1.1%; cash and investments, $13 million; shareholder equity,
$17 million; and book value per share, $4.17.
During the period from fiscal 1990 through fiscal 1997, the Company also
invested $10 million on capital improvements in plant and equipment. This
included upgrading the Company's existing facility, adding two class-10,000
clean rooms, more than doubling production capacity, and installing new
precision, high-speed equipment.
Since 1991, the Company has had only one unprofitable quarter, the first
quarter of fiscal 1998, and cash flow has continued positive throughout this
period. This loss was attributable to an earlier than expected end to the
Company's contract with its then largest disk drive customer, who took its
business in house and "offshore." Your Board has taken aggressive action to
address this development, and in the second quarter of fiscal 1998 the Company
returned to profitability, in part as a result of new, replacement business as
well as implementing substantial reductions in manufacturing costs and expenses.
As part of the Company's strategy to achieve financial recovery in the early
1990s, it decided to focus on its custom microelectronics business and to pursue
opportunities in the disk drive industry, knowing that with the potential
opportunities would come certain risks. The Company's first opportunity allowed
it to demonstrate its capabilities for design and production to serve this
dynamic market, including serving as supplier of the long-term, high volume
needs of this customer.
The Company subsequently provided similar design and production needs for
two other major customers, realizing in each case substantial revenues and
significant profits. These programs all ended when the customer either
discontinued a product line or encountered other internal reasons for
terminating HEI's involvement. None was terminated because HEI failed to meet
the customer's expectations.
As a result of these successful programs in the disk drive market, the
Company has been able to build a financial base that enables it to seek new
opportunities in other markets, including the medical instrumentation and
telecommunications markets, for its custom microelectronics business. These
successful programs also gave HEI the opportunity to greatly enhance, expand and
demonstrate its technical capabilities for design and production of
microelectronic products.
Part of the natural business cycle of a custom manufacturing business is the
routine termination of contracts, large and small. Your Board has demonstrated
its ability to manage these setbacks and to cause the Company to rebound
relatively quickly. Already, HEI increased revenues from non-disk drive
applications 25% in the first six months of fiscal 1998 as compared to the first
six months of fiscal 1997 and 42% as compared to the last six months of fiscal
1997. Revenues from non-disk drive applications during the first six months of
fiscal 1997, the last six months of fiscal 1997, and the first six months of
fiscal 1998 were $6,842,000, $6,043,000 and $8,586,000, respectively. The
Company anticipates that growth in revenues from non-disk drive applications
will continue in the near future. Further, the applications areas chosen for new
business development, primarily medical electronics (including hearing
instrumentation) and telecommunications, are viewed by your Board as strategic
target markets for future growth and increased stability.
Your Board believes that the Company is in a position to capitalize on the
strong financial and technology platform put in place over the past eight years.
It also believes that inexperienced leadership in the highly competitive and
technical arena in which the Company operates could easily squander this
opportunity. As part of its strategic-planning process, in September 1997 your
Board retained an executive search firm to identify a top-level executive to
enhance the Company's already solid management team. As a result of that search,
your Board hired Donald R. Reynolds, appointing him President in April 1998,
with initial responsibilities for guiding HEI's new business development and
strategic-planning efforts. Mr. Reynolds was your Board's first choice, and your
Board is delighted that it was able to obtain Mr. Reynolds' services,
notwithstanding the substantial uncertainties created by the Fant Group's
activities. Mr. Reynolds joins the Company after a 17-year career with Rosemount
Aerospace Inc. where he held
4
<PAGE>
ever-increasing responsibilities for matters such as marketing and sales, key
account management, strategic business development, engineering and finance.
The Company has in place a strong management team and a strong financial and
technology platform. Even the Fant Group apparently believes "the Company has
plenty of talented, highly skilled people." Your Board is acutely aware of the
importance of these key employees, particularly in the current labor market, and
is very concerned about the Company's ability to attract and retain key
employees if the Fant Group obtains control.
BASED UPON PAST PERFORMANCE, YOUR BOARD AND THE COMPANY'S MANAGEMENT BELIEVE
THAT THEY HAVE EARNED YOUR SUPPORT.
2. THE FANT GROUP'S LACK OF EXPERIENCE IN HEI'S BUSINESS.
Your Board has no meaningful information about the Fant Group's nominees
other than the information provided to you. Summary information provided by Mr.
Fant about his nominees is included as Exhibit B. None of the nominees has
recent experience in designing or manufacturing microelectronic devices or any
other high-technology products. None of the nominees resides in Minnesota, the
Company's principal place of business. The Company's business does not operate
by remote control. Your Board is very concerned about how these nominees,
without experience in the industry, can effectively manage or direct the
management of the business and affairs of the Company by long distance.
Buying, operating and selling television and radio businesses is not the
Company's business. Your Board does not believe that the Fant Group has the
hands on, high-tech experience necessary to direct the management of the
Company's business and affairs.
By contrast, the directors that the Fant Group wants you to remove not only
have extensive experience and knowledge of the Company's business but extensive
experience and knowledge in other high technology industries.
William R. Franta, the longest serving board member, currently serves as a
technology and business development manager for Centron-DPL, a VAR/Integrator
for networking infrastructure, on matters related to markets and product
development. From 1987 through 1996, he served as a senior vice president and in
other positions with Network Systems Corporation (which was acquired by Storage
Technology Corporation in 1995), primarily in charge of advanced development,
product development, and product marketing. Prior thereto he served as treasurer
and vice president of corporate development for ADC Telecommunications, Inc., a
designer, manufacturer, and marketer of carrier infrastructure equipment. From
1982 to 1985, Dr. Franta was employed by First Midwest Ventures, Inc., a venture
capital firm, as vice president and then president. Dr. Franta has a Ph.D. in
Computer Science from the University of Minnesota Institute of Technology. He
also serves as a director of Waters Instruments, Inc.
Eugene W. Courtney, who has served as the Company's Chief Executive Officer
since 1990 and as a director since 1989, spent eight years at National Computer
Systems as a vice president and group vice president with responsibility for
operations in the educational and international markets. Before joining National
Computer Systems, Mr. Courtney served as corporate development vice president of
San Diego-based Topaz, Inc., where his responsibilities included successfully
creating and implementing a new market entry business plan. Earlier in his
career, Mr. Courtney was president and CEO of San Diego-based Digital Scientific
Corporation, leading the company into the main frame emulation market as the
first commercial plug-compatible CPU manufacturer. Mr. Courtney also serves on
the board of Datakey, Inc.
Robert L. Brueck, who joined the Board in 1995, has focused since 1981 on
venture capital investing and business consulting with early stage technology
companies. He currently serves as a director for The DII Group and ArborText,
Inc. (a privately held company) and has formerly served as a director for
Storage Technology Corporation, MAI, Inc., and CompuPsych, Inc. (private) and
was a founder (in 1965)
5
<PAGE>
and former president of MRI Systems Corporation, a pioneering firm in data base
management software, prior to its acquisition by Intel Corporation in 1979.
Frederick M. Zimmerman, who joined the Board in 1995, founded and was the
first director of the graduate program in Manufacturing and Manufacturing
Systems Engineering at the University of St. Thomas in 1985. This program was
one of the first of its kind and has served as a model for other graduate
programs. Dr. Zimmerman currently serves as a professor in that department.
Prior to his return to academia, Dr. Zimmerman had spent 25 years in industry as
an engineer, a manager, and executive officer with IBM (1955-1963), Control Data
Corporation (1963-1966, 1970-1974), National Computer Systems (1974-1981), and
other manufacturing companies. He served as president and CEO of Computool/
CAMAX, a pioneer in CAD/CAM. During his career he has served on twelve corporate
boards, of both public and private companies, including Winnebago Industries,
Minnesota Wire and Cable Co., Numerex Corporation, Valley Computer Corporation
and Camax Systems, Inc. Dr. Zimmerman has a Ph.D. in Strategic Management and
Organizational Studies from the University of Minnesota Carlson School of
Management.
YOUR BOARD DOES NOT BELIEVE THAT THE FANT GROUP HAS THE HANDS-ON, HIGH-TECH
EXPERIENCE NECESSARY TO DIRECT THE MANAGEMENT OF THE COMPANY'S BUSINESS AND
AFFAIRS.
3. LACK OF INDEPENDENCE FROM MR. FANT.
Mr. Fant and Mr. Tondera are business associates and Mr. Finch is an
investment banker from Birmingham, Alabama, Mr. Fant's hometown. Your Board does
not know how Mr. Fant became acquainted with Mr. Ortlieb or why he picked Mr.
Ortlieb as one of his nominees. All of the nominees are hand-picked by Mr. Fant.
Your Board of Directors was elected by you and is subject to re-election at each
annual meeting.
Each of the directors that the Fant Group wants to remove is an independent
director with no business or family relationships with other board members or
management of the Company, other than as directors of HEI. Mr. Fant has
attempted to paint this Board as an entrenched Board. Your Board is not
entrenched. If your Board were comfortable that Mr. Fant and his nominees could
run the Company well, they would welcome his involvement. The Board has
repeatedly invited Mr. Fant to share his plans and proposals with the Board and
he has declined to do so with any more specificity than the information provided
to shareholders. If Mr. Fant has plans and proposals that are in the best
interests of all of the shareholders, the Board does not understand why he
refuses to work with the Board to implement these proposals. The Board has
indicated to Mr. Fant that it would consider plans and proposals that would
benefit the shareholders and it does not understand why personal control of the
Company is an essential element of Mr. Fant's plans for the Company,
particularly where he apparently is only willing to buy an additional 11.5% of
the outstanding shares.
YOUR BOARD DOES NOT BELIEVE THE FANT GROUP HAS THE INDEPENDENCE NECESSARY TO
ENSURE THAT THE INTERESTS OF ALL SHAREHOLDERS WILL BE CONSIDERED.
4. ABSENCE OF MEANINGFUL INFORMATION.
While Mr. Fant has consistently demanded that he be given control of your
Board, he has not provided you or the Board with meaningful information about
his qualifications, plans and proposals. The only information that the Board has
received from Mr. Fant is in his tender offer materials and proxy statement. He
has provided only limited information with respect to his nominees. With respect
to his own qualifications, we know that he has been active in the television and
radio business and that, according to him, he has been successful in selling
these stations at a profit. He has not, however, provided any information that
would allow shareholders to accurately assess whether his stated success in the
radio and television business is due to his unique skills or to industry trends.
Nor has he offered any information about how other unrelated shareholders or
employees may have fared. With respect to his other business
6
<PAGE>
activities, we know nothing other than that he asserts that he owns a number of
businesses in diverse industries.
As to his plans and proposals, in addition to gaining control, they seem
limited to exploring ways to employ the Company's assets more productively, to
increase the utilization and operating efficiency of the Company's Victoria
facility and to seek to stabilize cash flow. These are objectives that your
Board has pursued and continues to pursue. While "thinking globally," "tapping
the true potential of the Company," "paradigm shifts," "partnerships,"
"strategic acquisitions," "strategic alliances," "synergistic benefits," and
"increasing visibility" are nice buzz words, very little information is given
about how the Fant Group will accomplish these goals. Moreover, Mr. Fant is
careful to point out that "[n]o assurance can be given that the Fant Nominees
will be able to implement any of the foregoing plans or produce favorable
financial results" and that "to date, no specific transactions have been
identified or defined."
On the basis of the information that Mr. Fant provided, your Board was
unable to conclude that it was in the best interests of the Company's
shareholders for the Board to hand Mr. Fant control of the Company, despite the
efforts by Mr. Fant to pressure the Board to do so without a shareholder vote.
As the Board explained to Mr. Fant, the Board believes that a change in control
of the Board is appropriately a decision for the Company's shareholders, not the
Board. Moreover, the shareholders should not be rushed to make a hasty decision
concerning the future of the Company without being able to fully analyze the
relevant information concerning the Fant Group and your Board.
YOUR BOARD BELIEVES THAT, DESPITE THE TIME THAT HAS ELAPSED SINCE MR. FANT'S
INITIAL EFFORTS TO PERSUADE THE DIRECTORS TO CHANGE CONTROL OF THE BOARD, MR.
FANT HAS NOT PROVIDED YOU OR YOUR BOARD WITH INFORMATION THAT SHOULD LEAD YOU OR
YOUR BOARD TO CONCLUDE THAT IT IS IN YOUR BEST INTERESTS TO HAND OVER CONTROL OF
THE COMPANY TO THE INEXPERIENCED FANT GROUP NOMINEES.
5. MR. FANT'S TACTICS.
Mr. Fant wants to control your Company without paying you the control
premium that you would be entitled to for all your shares if the Company were
acquired. Mr. Fant could have offered to purchase all of your shares. He chose
not to. If Mr. Fant completes his tender offer in accordance with its terms and
conditions, Mr. Fant will have acquired control of your Company while owning
less than 30% of the Company's outstanding stock at an average acquisition price
of only $6.81 per share. Moreover, Mr. Fant's offer is highly conditional. If
you vote for the Fant Group's nominees and Mr. Fant does not complete his tender
offer, he will have acquired control of your Company while owning only 18.1% of
the Company's outstanding stock at an average acquisition price of only $6.05
per share. As a result, if you elect the Fant Group's nominees, Mr. Fant will
have acquired control of your Company--a company with over $13 million in cash
and other valuable assets--for a total purchase price of approximately either
$4.4 million or $8.2 million, depending upon whether he completes his highly
conditional tender offer. If Mr. Fant acquires control of your Company, he will
substantially reduce the likelihood that shareholders will receive a control
premium other than through a transaction supported by Mr. Fant.
YOUR BOARD BELIEVES THAT YOUR INTERESTS ARE BEST SERVED BY AN INDEPENDENT
BOARD THAT WILL ASSURE THAT YOUR INTERESTS ARE PROTECTED, NOT BY A BOARD
COMPRISED OF HAND-PICKED NOMINEES OF MR. FANT WHO DO NOT HAVE ANY RELEVANT
INDUSTRY EXPERIENCE AND WHO ARE TRYING TO ACQUIRE CONTROL OF THE COMPANY WITHOUT
PAYING YOU A CONTROL PREMIUM FOR ALL OF YOUR SHARES.
YOUR BOARD OF DIRECTORS UNANIMOUSLY OPPOSES THE FANT GROUP'S PROPOSAL TO
REMOVE YOUR CURRENT INDEPENDENT DIRECTORS, REPLACING THEM WITH HAND-PICKED
NOMINEES OF THE FANT GROUP, AND URGES YOU TO VOTE FOR YOUR CURRENT DIRECTORS AND
AGAINST THE FANT PROPOSAL.
If the independent directors are removed, the Board of Directors has
nominated the three independent directors currently serving on the Board for
re-election to the Board and recommends that you vote
7
<PAGE>
to fix the number of directors at four and for the election of the Board's
nominees by signing and returning the WHITE proxy card.
If at the time of the Meeting any of the nominees should be unable to or
should decline to serve, the persons named in the WHITE proxy card will vote for
such persons as the Board of Directors recommends. The Board of Directors has no
reason to believe that any nominee will be unable or will decline to serve as a
director if elected.
BYLAWS AMENDMENT PROPOSAL
The Fant Group proposes that the shareholders amend the Company's Bylaws to
eliminate the protections afforded by Section 302A.671 of the Minnesota Business
Corporation Act (the "Control Share Acquisition Statute"). YOUR BOARD BELIEVES
THAT THE COMPANY'S DISINTERESTED SHAREHOLDERS SHOULD BE ALLOWED TO EXERCISE
THEIR RIGHTS UNDER MINNESOTA LAW.
The Control Share Acquisition Statute was adopted in Minnesota to protect
shareholders from the abuses that can arise from acquisitions of control without
the consent of disinterested shareholders. An acquisition of control without
acquiring all or even a majority of the Company's shares and without a
disinterested shareholder vote is precisely the type of transaction that the
Fant Group is trying to effect. BECAUSE A STATUTORY MERGER BETWEEN THE COMPANY
AND AN ACQUIRING CORPORATION OR ANY SUBSIDIARY OF AN ACQUIRING CORPORATION IS
EXEMPTED FROM THE DEFINITION OF A "CONTROL SHARE ACQUISITION" UNDER THE
MINNESOTA BUSINESS CORPORATION ACT, THE CONTROL SHARE ACQUISITION STATUTE DOES
NOT APPLY IF THE COMPANY IS ACQUIRED IN SUCH A MERGER TRANSACTION. NOR DOES IT
APPLY TO A CASH TENDER OFFER FOR ALL SHARES THAT IS PRE-APPROVED BY A COMMITTEE
OF DISINTERESTED DIRECTORS IF A MAJORITY OF THE VOTING STOCK WOULD BE
BENEFICIALLY OWNED BY THE OFFEROR AFTER SUCCESSFUL COMPLETION OF THE TENDER
OFFER. However, the Minnesota legislature was concerned about partial tender
offers and open market purchase transactions that do not allow all shareholders
to sell all of their shares at control premiums. That is just the type of
transaction the Fant Group is proposing. The Minnesota legislature did not
attempt to prohibit such partial tender offers or substantial open market
purchases. It instead provided that a person or group could not vote more than
20% of the voting power of the outstanding shares, whether acquired in a partial
tender offer, open market purchase transaction, or otherwise, unless full voting
rights were approved by a majority of the voting power of both (i) the
outstanding shares of the corporation and (ii) the outstanding shares of the
corporation that were not interested shares.
If the Fant Group had provided the information and undertaking referred to
below in "Description of the Control Share Acquisition Statute," the Board of
Directors would have held a special shareholder meeting within 55 days, as
required by the Control Share Acquisition Statute. At that meeting, the holders
of disinterested shares, in addition to the holders of all shares, would have
decided whether to grant full voting rights to the Fant Group. Neither shares
held by the Fant Group nor those held by the officers of the Company would have
been included as disinterested shares for this purpose.
The Fant Group obviously did not want to leave this decision to the holders
of the disinterested shares. The Fant Group intends to try to control the vote
by voting its own interested shares in favor of the bylaw provision to eliminate
application of the Control Share Acquisition Statute, thereby sidestepping the
disinterested shareholder vote required by the Minnesota legislature.
YOUR BOARD OF DIRECTORS WANTS YOU AS DISINTERESTED SHAREHOLDERS TO MAKE THE
DECISION CONCERNING WHETHER THE FANT GROUP, OR ANY PERSON ACQUIRING A
SUBSTANTIAL NUMBER OF SHARES, SHOULD HAVE FULL VOTING RIGHTS. This was the
intent of the Minnesota legislature. The Board strongly encourages you not to
surrender the rights that the Minnesota legislature has given to disinterested
shareholders.
YOUR BOARD OF DIRECTORS UNANIMOUSLY OPPOSES THE FANT GROUP'S PROPOSAL TO
AMEND THE COMPANY'S BYLAWS TO RENDER THE CONTROL SHARE ACQUISITION STATUTE
INAPPLICABLE AND DEPRIVE THE HOLDERS OF DISINTERESTED SHARES OF THE RIGHT
8
<PAGE>
TO VOTE SEPARATELY ON WHETHER TO GRANT FULL VOTING RIGHTS TO 20% OR GREATER
SHAREHOLDERS. YOUR BOARD URGES YOU TO VOTE AGAINST THE PROPOSAL.
BACKGROUND REGARDING FANT OFFER
Your Board of Directors first became aware of the Fant Group's accumulation
of shares of the Company's Common Stock when the Fant Group filed a Schedule 13D
on February 17, 1998. By the time of that filing, the Fant Group had already
quietly accumulated 14.6% of the Company's outstanding Common Stock. In its
filing, the Fant Group indicated its intent to gain control of the Company. The
Board and the Company's legal advisers met on February 19 and March 2 to
consider the implications of the Fant Group's stock accumulation and stated
intentions.
Following the March 2 Board meeting, at the request of the Fant Group's
representative, three members of the Board, Eugene W. Courtney, the Company's
Chief Executive Officer, and outside directors Robert L. Brueck and William R.
Franta, along with the Company's legal advisers, met with Mr. Fant, a
representative of Mr. Fant's financial adviser, R.J. Steichen & Co.
("Steichen"), Mr. Fant's counsel, and other advisers. Mr. Fant proposed that the
Company's Board act to increase its size to seven without shareholder action,
that one of the current directors resign and that the Board appoint Mr. Fant and
three other nominees of the Fant Group to the Board. Mr. Fant did not provide
any meaningful information about himself, his proposals for the Company or the
identity of his proposed nominees, but indicated that he would provide further
information at a later date upon the Company's written request. Board members
indicated that they were willing to consider any proposals that might be in the
best interests of all of the Company's shareholders and that they would
appreciate, and would make a written request for, further information from the
Fant Group.
On March 4, without prior notice to the Company and before receiving the
Company's written request for further information, the Fant Group issued a press
release announcing that it would commence a tender offer to acquire up to
467,886 shares of Company Common Stock (or such greater number that will equal
11.5% of the outstanding shares of Common Stock as of the date that the shares
are accepted for payment) at a price of $8.00 per share, subject to a number of
conditions (the "Offer").
In response to the Company's written request on March 5 for further
information concerning the Offer and Mr. Fant's and his associates' backgrounds
and ideas for the Company, Mr. Fant responded in writing that day stating that
further information about the Offer would be provided no later than Tuesday,
March 10 and that "[w]e will also furnish additional information about ourselves
and our plans in a timely manner in accordance with applicable laws." The
Company received a copy of the Fant Group's Tender Offer Statement on Schedule
14D-1 on March 10, which did not contain any additional information about Mr.
Fant's slate of nominees or his plans for the Company, other than his intention
to increase the equity interest of the Fant Group in the Company and to gain
control over the Company's management, operations and assets. The Fant Group
commenced the Offer on the same day.
At special meetings held on March 13 and March 18, the Board met with the
Company's legal advisers, Moss & Barnett, A Professional Association, and Faegre
& Benson LLP, to review the terms and conditions of the Offer. Piper Jaffray
Inc., an investment banking firm, also attended the March 13 meeting.
On March 16, 1998, Mr. Fant suggested a meeting at a mutually agreeable time
to discuss a change of control of the Company, and Mr. Courtney responded on
March 20, 1998 that, prior to any further discussions, the Board would require
information in writing regarding Mr. Fant's plans and ideas for the Company.
On March 20, the Board filed a Solicitation/Recommendation Statement on
Schedule 14D-9 in response to the Fant Offer. Based on the Board's review of the
Offer and its discussions with its legal
9
<PAGE>
advisers, the Board determined that the Offer was not in the best interests of
the Company or its shareholders and recommended that shareholders not tender
their shares to the Fant Group.
On March 27, the Fant Group filed suit against the Company and its directors
in the federal district court for the Northern District of Alabama, making a
variety of allegations under federal and state law. The Company filed suit
against the Fant Group in the federal district court for the District of
Minnesota on April 20, alleging violations of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), including illegal proxy solicitation. See
"Legal Proceedings" for a discussion of these actions.
On April 6, Mr. Courtney wrote to Mr. Fant, expressing his concern over the
expenses that the Company and its shareholders were being forced to incur
because of the Fant Group's actions, including initiating litigation in a
far-off forum. Nevertheless, Mr. Courtney stated that the Board was willing to
consider granting the Fant Group Board representation commensurate with its
share ownership, so long as the Board was given sufficient information to make
an informed decision as to whether such an action would benefit the Company's
shareholders as a whole. Mr. Fant responded the next day with a proposal even
more over-reaching than before: to increase the size of the Board to seven
directors, five of whom would be named by the Fant Group, and to designate
himself and his associate as senior executives of the Company. He again provided
no information regarding his proposed nominees.
During this time, through numerous letters, press releases and newspaper
advertisements, the Fant Group continued its attempt to pressure the Board into
turning over control of the Company to it, but strangely did not demand a
special meeting of the Company's shareholders, at which the shareholders, not
the Board, could determine whether a group lacking relevant experience or any
pretense of independence should run the Company. Further, without making a
demand for a shareholders' meeting, the Fant Group filed preliminary proxy
materials with the Securities and Exchange Commission (the "SEC") on March 30
and filed definitive proxy materials with the SEC on April 24, seeking to amass
shareholder proxies for a hypothetical meeting, based on only one side of the
issues. And again, these proxy materials evidence the Fant Group's method of
operating: a quest to seize control while disclosing as little relevant
information about itself and its plans as possible. The Fant Group finally faxed
a copy of a demand for a special meeting of shareholders on the evening of May
6, which was received by an officer of the Company on May 7.
IN ACCORDANCE WITH MINNESOTA LAW, THE COMPANY HAS CALLED A SPECIAL MEETING
TO CONSIDER THE FANT GROUP'S PROPOSALS BUT URGES YOU TO SUPPORT YOUR CURRENT
BOARD AND VOTE AGAINST THE FANT GROUP'S PROPOSALS.
PROXY AND VOTING INFORMATION
The person giving the enclosed proxy has the power to revoke it at any time
before the Special Meeting is convened. Revocation must be in writing, signed in
exactly the same manner as the proxy, and dated. Revocations of proxies will be
honored if received at the offices of the Company, addressed to an officer of
the Company, before the vote on the items of business at the meeting. In
addition, on the day of the Special Meeting, but before the vote on the items of
business at the meeting, revocations may be delivered to an officer of the
Company at the Special Meeting. Revocation may also be effected by delivery of
an executed, later dated proxy before the vote on the items of business at the
meeting. Unless revoked, all properly executed proxies received in time will be
voted at the Special Meeting.
Proxies not revoked will be voted in accordance with the choices specified
by shareholders on the proxy. Proxies that are signed but that lack any such
specification will, subject to the following, be voted AGAINST the proposals of
the Fant Group and, if the Fant Group's proposal for removal of directors is
adopted, FOR the re-election of your current independent directors and to fix
the number of directors at four. If a shareholder abstains from voting as to any
matter, then the shares held by the shareholder shall be deemed present at the
meeting for purposes of determining a quorum and for purposes of calculating the
vote with respect to the matter, but shall not be deemed to have been voted in
favor of the matter.
10
<PAGE>
Abstentions, therefore, as to any proposal will have the same effect as votes
against the proposal. If a broker turns in a "non-vote" proxy, indicating a lack
of voting instruction by the beneficial holder of the shares and lack of
discretionary authority on the part of the broker to vote on a particular
matter, then the shares covered by the non-vote proxy shall be deemed present at
the meeting for purposes of determining a quorum only if a voting instruction
has been given to the broker with respect to at least one of the matters to be
voted upon and shall not be deemed to be represented at the meeting for purposes
of calculating the vote required for approval of any matter with respect to
which the broker did not receive a voting instruction.
Each shareholder of record is entitled to one vote for each share registered
in his or her name except that, as described in more detail in "Description of
Control Share Acquisition Statute," a shareholder (or group of shareholders
acting pursuant to any written or oral agreement, arrangement, relationship,
understanding or otherwise for the purposes of acquiring, owning or voting
shares) that beneficially owns 20% or more of the outstanding shares of the
Company will not be entitled to vote more than 20% of the total voting power of
the outstanding Common Stock of the Company because of the Control Share
Acquisition Statute unless and until the Company's Bylaws are amended to opt out
of the Control Share Acquisition Statute or such shareholder or group receives
the shareholder vote required under the Control Share Acquisition Statute. In
the Company's litigation described in "Legal Proceedings," the Company has
sought a judgment ordering the Fant Group to disclose that it is acting in
concert as a "group" with Steichen for federal securities law purposes, and your
Board similarly believes they have acted as a "group" for purposes of the
Control Share Acquisition Statute, and that that group beneficially owns more
than 20% of the Company's outstanding common stock. Cumulative voting is not
permitted.
With respect to the proposal to remove directors, the Minnesota Business
Corporation Act generally permits removal by the affirmative vote of the holders
of the proportion or number of the voting power of the shares sufficient to
elect them, but provides that the removal provisions in the statute may be
modified by the articles of incorporation or the bylaws of the corporation. The
Bylaws of the Company permit removal of directors only by a majority of the
voting power of all of the shares of Common Stock of the Company entitled to
vote at the shareholders' meeting. Therefore, under the Company's Bylaws, both
abstentions and broker non-votes will have the same effect as votes against the
proposal to remove directors, and the new directors proposed by the Fant Group
will not be elected unless existing directors are removed. If the directors are
removed, the vote necessary to elect the Fant Group nominees is a majority of
the shares present or represented by proxy at the Special Meeting. For this
purpose, broker "non-vote" proxies will not be deemed to be present or
represented by proxy. With respect to the proposal to amend the Company's Bylaws
to opt out of the Control Share Acquisition Statute, the proposal will be
adopted if approved by the vote of a majority of shares present or represented
by proxy. For this purpose, abstentions will have the same effect as votes
against the amendment, but broker "non-vote" proxies with respect to this
proposal will not be deemed to be present or represented by proxy with respect
to the proposal, and, accordingly, the total number of shares present or
represented by proxy will not include broker non-votes, and the number of shares
required for a majority vote will be determined without regard to broker
non-votes.
SHAREHOLDERS WHO TENDER THEIR SHARES PURSUANT TO THE FANT GROUP'S OFFER MAY
NEVERTHELESS VOTE THOSE SHARES AT THE SPECIAL MEETING, IN ANY MANNER THE
TENDERING SHAREHOLDER DESIRES TO VOTE, INCLUDING AGAINST THE FANT GROUP'S
PROPOSALS, WHETHER THE SHARES ARE TENDERED BEFORE, ON, OR AFTER THE RECORD DATE,
PROVIDED THAT SUCH SHARES SHALL HAVE NOT PREVIOUSLY BEEN PURCHASED BY THE FANT
GROUP.
11
<PAGE>
SHARES AND PRINCIPAL SHAREHOLDERS
Only shareholders of record at the close of business on , 1998
are entitled to notice of and to vote at the Special Meeting or at any
adjournment thereof. As of that date, there were 4,095,195 outstanding shares of
Common Stock of HEI, the only class of securities entitled to vote at the
meeting.
The following table shows as of May 18, 1998 (as of March 10, 1998 with
regard to the Fant Group) information regarding the share ownership of each
person or group known to HEI to own beneficially more than 5% of the outstanding
Common Stock of HEI, each current director of the Company, each Named Executive
Officer (as defined below), Donald R. Reynolds, the Company's recently hired
President, and all directors and executive officers as a group. Except as
otherwise indicated, the persons listed in the table have sole voting and
investment powers with respect to the shares owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
------------------------------
NUMBER OF SHARES PERCENTAGE
----------------- -----------
<S> <C> <C>
Anthony J. Fant
Fant Industries Inc.
2154 Highland Avenue
Birmingham, Alabama 35205...................................... 734,900(2) 17.9
Eugene W. Courtney............................................. 160,547(3) 3.8
William R. Franta.............................................. 45,211(4) 1.1
Robert L. Brueck............................................... 32,000(5) *
Frederick M. Zimmerman......................................... 30,900(5) *
Jerald H. Mortenson............................................ 99,179(5) 2.4
Dale A. Nordquist.............................................. 59,064(6) 1.4
Donald R. Reynolds............................................. 0 0
All directors and executive officers as a group (7 persons).... 426,901(7) 9.8
</TABLE>
- ------------------------
* Less than 1%.
(1) Represents outstanding shares beneficially owned both directly and
indirectly as of May 18, 1998, including shares that may be acquired by
exercise of options either currently exercisable or becoming exercisable
within 60 days after May 18, 1998 ("currently exercisable options").
Percentage of class is shown to the nearest tenth of a percent.
(2) Based on an amendment to Schedule 13D filed by the Fant Group on March 10,
1998.
(3) Includes 75,000 shares purchasable pursuant to currently exercisable
options. Also includes 46,974 shares held jointly with Mr. Courtney's
spouse.
(4) Includes 40,000 shares purchasable pursuant to currently exercisable
options.
(5) Includes 30,000 shares purchasable pursuant to currently exercisable
options.
(6) Includes 44,500 shares purchasable pursuant to currently exercisable
options.
(7) Includes 249,500 shares purchasable pursuant to currently exercisable
options.
12
<PAGE>
CURRENT BOARD OF DIRECTORS
Following is information regarding the current directors of the Company,
three of whom the Fant Group is seeking to remove. The Fant Group is not seeking
to remove from the Board the Company's Chief Executive Officer, Eugene W.
Courtney, although Mr. Courtney has advised the Board of Directors that he will
resign from the Board if the other directors are removed at the Special Meeting
and not re-elected. Unless otherwise indicated, each person has held the
principal occupation indicated for more than the past five years.
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
- --------------------------------------------------------------------------------------------- --- ---------------
<S> <C> <C>
WILLIAM R. FRANTA ........................................................................... 56 1985
Business Development Director, Centron-DPL (since August 1997), 6455 City West Parkway,
Eden Prairie, Minnesota 55344; Independent Business Consultant (1996-1997); Senior Vice
President, Network Systems Corporation (1987-1996); Director, Waters Instruments, Inc.
EUGENE W. COURTNEY .......................................................................... 62 1989
Chief Executive Officer of the Company; Director, Datakey, Inc.
ROBERT L. BRUECK ............................................................................ 62 1995
Business Development Consultant, Business Development Associates, P.O. Box 623, Cascade,
Idaho 83611; Director, The DII Group
FREDERICK M. ZIMMERMAN ...................................................................... 62 1995
Professor of Manufacturing Systems Engineering and International Management, University of
St. Thomas, 2115 Summit Avenue, St. Paul, Minnesota 55105; Director, Winnebago Industries,
Inc.
</TABLE>
MEETINGS OF THE BOARD AND CERTAIN COMMITTEES
During the fiscal year ended August 31, 1997, the Board held a total of six
meetings. Each director attended at least 75% of the aggregate of the total
number of meetings of the Board plus the total number of meetings of all
committees of the Board on which he served.
The Audit Committee, which consists of the three outside directors, reviews
the annual audit plan and results with the Company's independent accountants and
also reviews the Company's financial statements and its accounting and reporting
practices. The Audit Committee held two meetings during fiscal 1997 to review
the Company's fiscal 1996 financial statements and the related audit and to
consider the selection of independent accountants for fiscal 1997.
The Nominating Committee, consisting of all directors, met once during
fiscal 1997 to recommend nominees for the Board of Directors. The Committee will
consider persons whom the Company's shareholders recommend that the Nominating
Committee nominate as candidates for election as directors. Any shareholder
wishing to make such a recommendation should submit it along with complete
biographical data to the Company's Corporate Secretary at least 50 days in
advance of the Company's annual meeting in accordance with the Company's Bylaws.
The Compensation Committee, which consists of the three nonemployee
directors, met informally several times during the 1997 fiscal year to discuss
executive compensation.
DIRECTORS' FEES
Each nonemployee director in fiscal 1997 received $750 per quarter ($1,000
for fiscal 1998) plus $700 ($1,000 for fiscal 1998) for each regular board
meeting and $300 for each committee or special board meeting attended. Each
committee chairman receives an annual fee of $300. For services during the
fiscal year ended August 31, 1997, $29,400 in directors' fees was paid or
accrued, in the aggregate, to the then
13
<PAGE>
four nonemployee directors (one nonemployee director did not stand for
re-election at the Company's 1998 Annual Meeting of Shareholders and retired
from the Board), plus expenses.
DIRECTORS' STOCK OPTIONS
Under the Company's Stock Option Plan for Nonemployee Directors (the "1991
Plan"), an option to purchase 10,000 shares of Common Stock at an exercise price
equal to the fair market value (as defined) on the date of grant is granted each
year to all nonemployee directors then in office on the business day next
following the annual shareholders' meeting or April 1, whichever is earlier.
Awards under the 1991 Plan may be made to any director who is not a regular
employee of the Company or any subsidiary or affiliate. The options become
exercisable on the earlier of one year following the date of grant or the next
annual shareholders meeting, so long as the director is still serving on such
date, and terminate ten years following the date of grant. Upon the death or
disability of an optionee prior to the end of one year following grant, the
option will become immediately fully exercisable. Effective January 22, 1998,
each of the Company's nonemployee directors was granted an option to purchase
10,000 shares at an exercise price of $4.925 per share. These options become
exercisable on January 22, 1999, and are exercisable until January 22, 2008.
During fiscal year 1997, two of the nonemployee directors exercised options
to purchase a total of 20,000 shares, realizing aggregate net value of $135,125.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that officers and directors of
the Company and persons who own more than 10% of a registered class of the
Company's equity securities file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal 1997 and written representations from certain reporting
persons, the Company believes that all filing requirements have been complied
with.
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
The following is a list of the Company's executive officers, their ages,
positions, and offices as of May 18, 1998. The principal business address for
each of the executive officers is P.O. Box 5000, 1495 Steiger Lake Lane,
Victoria, Minnesota 55386.
EUGENE W. COURTNEY. Mr. Courtney became Chief Executive Officer of the
Company in June 1990 and also served as its President from that time until April
1998. He had served as Executive Vice President and Chief Operating Officer
since August 1988 and has served as a director since 1989. From 1980 to 1988,
Mr. Courtney served as Vice President and Group Vice President of National
Computer Systems. He is 62 years old.
DONALD R. REYNOLDS. Mr. Reynolds joined the Company in March 1998 as
Executive Vice President and was appointed President in April 1998. Before
joining the Company, he was employed for 17 years with Rosemount Aerospace Inc.,
most recently as Business Unit Director. He is 40 years old.
JERALD H. MORTENSON. Mr. Mortenson joined the Company in March 1990 and
currently serves as its Vice President of Finance and Administration, Chief
Financial Officer, and Treasurer. Before joining the Company, he was employed
for ten years with CTS Fabri-tek, first as Chief Financial Officer and the last
five years as Group President. He is 63 years old.
DALE A. NORDQUIST. Mr. Nordquist joined the Company in 1981 as Western
Regional Manager. He has served as Vice President of Sales and Marketing since
1986. He is 43 years old.
14
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three complete fiscal years to the
Company's chief executive officer and the other executive officers whose total
annual compensation for fiscal 1997 (based on salary and bonus) exceeded
$100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ----------------- OTHER ANNUAL
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS AWARDS/OPTIONS(1) COMPENSATION(2)
- ---------------------------------------------- ----------- ---------- --------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Eugene W. Courtney............................ 1997 $ 164,900 $ 42,606 -- $ 4,727
Chief Executive Officer 1996 157,734 41,012 -- 4,496
1995 150,091 40,785 90,000 3,648
Jerald H. Mortenson........................... 1997 $ 116,422 $ 20,052 -- $ 3,778
Chief Financial Officer 1996 111,348 19,301 -- 3,369
1995 105,946 19,194 60,000 2,401
Dale A. Nordquist............................. 1997 $ 96,546 $ 30,128 -- $ 3,778
Vice President of Sales 1996 92,334 21,522 -- 3,249
1995 87,866 30,608 52,500 2,762
</TABLE>
- ------------------------
(1) The number indicated is the number of shares of Common Stock subject to
options granted in fiscal 1995, which become exercisable in three equal
annual increments commencing in January 1996 and will expire in January
2005.
(2) In each case, consists solely of Company matching contributions to 401(k)
plan.
OPTIONS GRANTED DURING FISCAL 1997
No options were granted to the Named Executive Officers during fiscal year
1997.
AGGREGATED OPTION EXERCISES DURING FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION
VALUES
The following table provides information related to options exercised by the
Named Executive Officers during fiscal year 1997 and the number and value of
options held at fiscal year-end. The Company does not have any outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISABLE
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE ($)(2)
- ------------------------------------------------ ----------- ----------- --------------- -----------------------
<S> <C> <C> <C> <C>
Eugene W. Courtney.............................. 15,000 $ 101,813 45,000/30,000 0 / 0
Jerald H. Mortenson............................. 30,000 $ 145,250 10,000/20,000 0 / 0
Dale A. Nordquist............................... 8,000 $ 51,180 27,000/17,500 0 / 0
</TABLE>
- ------------------------
(1) Value realized is calculated as the difference between the fair market value
of the Common Stock on the date of exercise of the option and the option
exercise price multiplied by the number of shares acquired.
(2) Value is calculated as the amount by which the closing price of the Common
Stock on August 29, 1997 ($4.625) exceeds the option exercise price
($4.7125), multiplied by the number of shares subject to the option.
15
<PAGE>
CHANGE IN CONTROL AGREEMENTS
The Company has entered into agreements regarding employment/compensation
upon change in control (the "Agreements") with each of the Named Executive
Officers and Mr. Reynolds. The Agreements are operative only upon the occurrence
of certain changes in control of the Company. Absent a change in control, the
Agreements do not require the Company to retain the executive officers or to pay
them any specified level of compensation or benefits. Election of the Fant
Group's nominees constitutes a change in control. Each Agreement provides that
if, within 24 months following a change in control, the executive officer's
employment is terminated by the Company other than for cause, on account of the
death, disability, or retirement of the executive, or voluntarily by the
executive (other than voluntary terminations following events that constitute
"good reason" (as defined in the Agreements, including compensation reductions,
demotions, relocations)), the executive is entitled to receive a lump sum
severance payment. The amount of the lump sum severance payment is equal to two
times the executive's "annualized includable compensation for the base period"
as defined in Section 280G(d) of the Code. The Agreements also allow the
executive to continue his participation in certain insurance and other benefit
plans of the Company for a period of two years following the date of his
termination. If a change in control of the Company had occurred and resulted in
the termination of a Named Executive Officer, giving rise to payments under
these Agreements as of August 31, 1997, the approximate amounts payable to the
Named Executive Officers would be as follows: Mr. Courtney, $383,090, Mr.
Mortenson, $254,164, and Mr. Nordquist, $234,760. If a change in control of the
Company had occurred and resulted in the termination of Mr. Reynolds, based on
his 1998 compensation, the approximate amount payable to Mr. Reynolds would be
$258,000.
DESCRIPTION OF CONTROL SHARE ACQUISITION STATUTE
The Control Share Acquisition Statute generally provides that a shareholder
(or group of shareholders acting pursuant to any written or oral agreement,
arrangement, relationship, understanding, or otherwise for the purposes of
acquiring, owning or voting the shares) beneficially owning stock constituting
20% or more of the voting power of the outstanding stock of any publicly held
Minnesota corporation, such as the Company, with 50 or more shareholders (the
"Issuing Public Corporation") cannot vote more than 20% of the total voting
power of the outstanding stock of that corporation unless voting power with
respect to the shares in excess of 20% is approved by holders of (i) a majority
of all shares of the corporation entitled to vote and (ii) a majority of all
shares, excluding "interested shares," entitled to vote. Similar limitations on
voting rights are imposed at the 33 1/3% and 50% stock ownership thresholds such
that even if the shareholders by majority vote and majority vote of holders of
shares, other than interested shares, approved of an acquiring shareholder's
voting of shares in the 20% to 33 1/3% range, a subsequent vote would be
necessary if the shareholder acquired or proposed to acquire additional shares
that would increase its beneficial ownership to 33 1/3% or more in order to vote
more than 33 1/3% of the outstanding voting power of the stock. The same
procedure would be required at the 50% level. For purposes of the Control Share
Acquisition Statute, interested shares are those beneficially owned by the
acquiring shareholder (in this case the Fant Group and anyone acting as a group
with the Fant Group for purposes of acquiring, owning or voting the Company's
Common Stock, which your Board believes includes Steichen), any officer of the
Issuing Public Corporation, and any employee of the corporation who is also a
director of the corporation.
The Control Share Acquisition Statute applies to each Issuing Public
Corporation unless otherwise provided in articles of incorporation or bylaws
approved by the shareholders of the Issuing Public Corporation. Neither the
Company's articles of incorporation nor bylaws currently contains such a
provision, but the Fant Group is seeking to add such a provision. While there is
an exception from the shareholder-voting requirement for cash tender offers for
all shares of voting stock of the corporation that are pre-approved by a
committee of disinterested directors and that would result in the acquiring
shareholder becoming the owner of more than 50% of the voting stock of the
Issuing Public Corporation,
16
<PAGE>
that exception would not apply to the Fant Group's Offer, which is for only
11.5% of the Common Stock of the Company and would result in the Fant Group's
beneficial ownership of less than 30% of the shares (exclusive of the shares
beneficially owned by Steichen). If any acquiring shareholder, such as the Fant
Group, wants the Company to call a special meeting of shareholders to vote on
granting full voting rights under the Control Share Acquisition Statute for
shares beneficially owned or to be owned by the acquiring shareholder, the
acquiring shareholder must deliver an information statement (the "Information
Statement") to the Company, together with copies of definitive financing
agreements with responsible financial institutions, or other entities having the
necessary financial capacity, for any financing of the stock acquisition not to
be provided by funds of the acquiring shareholder and a written undertaking to
reimburse the Company's expenses for the special meeting, other than those
expenses incurred in opposing the approval of voting rights for the shares. The
Information Statement must include information regarding the identity and
background of the acquiring shareholder, plans and proposals of the acquiring
shareholder concerning the corporation and certain other specified information.
If such information and undertaking is provided, the Issuing Public Corporation,
within ten days after receipt of the Information Statement, must call a special
meeting of its shareholders to be held on a date no later than 55 days (unless
the acquiring shareholder agrees to a later date) after receipt of the
Information Statement and the written undertaking to pay meeting expenses. If
the Information Statement and any required financing agreements are provided but
a special meeting is not requested, the issue whether to approve voting rights
must be submitted by the Issuing Public Corporation at the next shareholders
meeting of which notice has not previously been sent and which occurs at least
55 days after the receipt of the Information Statement and definitive financing
agreement.
If any acquiring shareholder, such as the Fant Group, does not provide an
Information Statement within ten days after crossing the 20% stock ownership
threshold, or if the Issuing Public Corporation's shareholders vote not to
approve full voting rights for the acquiring shareholder, the Issuing Public
Corporation, unless otherwise provided in its articles of incorporation or
bylaws approved by its shareholders, can redeem the shares of the acquiring
shareholder in excess of the 20% threshold at a price equal to their average
closing sale price during the 30 trading days before the date of the call for
redemption. Any call for redemption must be given by the Issuing Public
Corporation within 30 days after the event giving rise to its right to call for
redemption. Neither the Company's articles of incorporation nor bylaws modifies
this provision.
For purposes of the Control Share Acquisition Statute, "beneficial
ownership" generally includes, without limitation, the direct or indirect, sole
or shared power, through any written or oral agreement, arrangement,
relationship, understanding or otherwise, to vote, or direct the voting of,
shares of stock or to dispose, or direct the disposition, of shares, except that
tendered shares are not beneficially owned by the offeror until accepted for
purchase. The definition further provides that when two or more persons act or
agree to act as a group for the purposes of acquiring, owning, or voting shares
of a corporation, all members of the group are deemed to constitute a "person"
and to have acquired beneficial ownership, as of the first date they so act or
agree to act together, of all shares beneficially owned by any of them.
LEGAL PROCEEDINGS
On April 20, 1998, the Company filed a complaint against the Fant Group in
the federal district court for the District of Minnesota. The complaint alleges
that the Fant Group violated: (1) Section 14(a) of the Exchange Act and Rules
14a-3, 14a-6, 14a-9, 14a-11, and 14a-12 thereunder by soliciting proxies without
complying with the federal proxy rules and by soliciting proxies using
misleading statements and material fact omissions; (2) Sections 14(d) and (e) of
the Exchange Act and the rules thereunder by making misleading statements in its
Tender Offer Statement on Schedule 14D-1; and (3) Section 13(d) of the Exchange
Act and Rule 13d-101 thereunder by failing to disclose its arrangement and
understanding with Steichen relating to their joint effort to change the control
of the Company and by failing to make other mandated disclosures.
17
<PAGE>
The Company asks the court to order the Fant Group to file and circulate
corrected Schedules 13D and 14D-1 and corrected proxy materials, to enjoin the
Fant Group from communication with Company shareholders, from purchasing any
shares under the Offer, or from soliciting proxies until 45 days after those
filings, and to enjoin the Fant Group from making further misleading statements
relating to the Offer or the solicitation of proxies.
On March 27, 1998, the Fant Group filed a complaint, as subsequently
amended, against the Company and its directors in the federal district court for
the Northern District of Alabama. The complaint alleges violations of the
Exchange Act and the rules thereunder, tortious interference, breach of
fiduciary duty, defamation, libel, slander, wantonness, and conspiracy.
Specifically, the Fant Group contends that the Company's Schedule 14D-9
contained untrue statements of material fact and omitted to state material facts
necessary to make the statements made not misleading. The Fant Group seeks an
order requiring the Company and its directors to file curative disclosures and
to retract the allegedly misleading statements, money damages, and declarative
relief with respect to the Offer.
The Company and the Board believe that all of the allegations in the Fant
Group's complaint, as amended, are without merit.
OTHER MATTERS
The Board is not aware of any matters to be brought before the Special
Meeting other than as specifically set forth in the Notice of Special Meeting of
Shareholders, and, under Minnesota law, no business may be transacted at the
Special Meeting other than that which is stated in the notice of the meeting. If
any procedural matters are properly brought before the Special Meeting, the
proxies named in the enclosed WHITE proxy card will vote on those matters in
accordance with their judgment of the best interests of HEI.
The cost of solicitation of proxies for the Special Meeting in the form
enclosed herewith will be borne by the Company. It is currently estimated that
the aggregate amount to be spent by the Company in connection with the
solicitation of proxies, excluding the salaries and fees of directors, officers
and employees, will be approximately $ , of which approximately $
has been incurred to date. The Company has retained Innisfree M&A Incorporated
("Innisfree"), a proxy solicitation firm, to perform various proxy advisory and
solicitation services for the Company for a fee not to exceed $ plus
reimbursement of certain expenses. It is anticipated that approximately
employees of Innisfree and directors and officers of the Company may solicit
proxies by letter, telephone, telecopy, telegraph, facsimile, or in person
without additional compensation therefor. The Company will also provide certain
persons, firms, banks and corporations holding shares in their names or in the
names of nominees, which in either case are beneficially owned by others, proxy
materials for transmittal to such beneficial owners and will reimburse such
record owners for their expenses in doing so.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals by shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by HEI at its principal executive
offices no later than August 6, 1998.
CERTAIN INFORMATION CONCERNING PARTICIPANTS
The directors and certain executive officers of the Company are participants
in the solicitation of proxies on behalf of the Company's Board of Directors.
Certain information with respect to those participants is set forth in Exhibit A
hereto.
18
<PAGE>
EXHIBIT A
INFORMATION CONCERNING PARTICIPANTS
Under the SEC's regulations, each director and certain executive officers of
the Company, as well as certain other of its employees and advisers, may be
deemed to be "participants" in the Company's proxy solicitation. In addition to
the information set forth in the main body of the Proxy Statement, the following
information is required to be presented regarding those participants.
Except as disclosed in this Exhibit A or under "Shares and Principal
Shareholders" in the Proxy Statement, no participant owns any securities of the
Company or any subsidiary of the Company, beneficially or of record, or has
purchased or sold any of such securities within the past two years. Except as
disclosed in this Exhibit A or under "Shares and Principal Shareholders" in the
Proxy Statement, to the Company's knowledge, no participants or any of their
associates beneficially own, directly or indirectly, any securities of the
Company.
Other than as disclosed in this Exhibit A or in the Proxy Statement, to the
Company's knowledge, no participant has any substantial interest, direct or
indirect, by security holdings or otherwise, in any matter to be acted upon at
the Special Meeting.
Other than as disclosed in this Exhibit A or in the Proxy Statement, to the
Company's knowledge, no participant is, or has been within the past year, a
party to any contract, arrangement, or understanding with any person with
respect to any securities of the Company, including, but not limited to, joint
ventures, loan or option arrangements, puts or calls, guarantees against loss or
guarantees of profit, division of losses or profits, or the giving or
withholding of proxies.
Other than as set forth in this Exhibit A or in the Proxy Statement, to the
Company's knowledge, no participants, or any of their associates, has had or
will have a direct or indirect material interest in any transaction or series of
similar transactions since the beginning of the Company's last fiscal year or
any 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 exceeds $60,000.
Other than as set forth in this Exhibit A or in the Proxy Statement, to the
Company's knowledge, no participants, or any of their associates, has any
arrangements or understandings with any person with respect to any future
employment by the Company or its affiliates or with respect to any future
transactions to which the Company or any of its affiliates will or may be a
party.
Information regarding the ownership by each participant of the Company's
securities is set forth under "Shares and Principal Shareholders" in the Proxy
Statement.
The following table sets forth information concerning each participant's
purchases and sales of Company's Common Stock since June 9, 1996.
<TABLE>
<CAPTION>
NAME DATE NATURE OF TRANSACTION NUMBER OF SHARES
- ---------------------------------------------------------- --------- ----------------------- -----------------
<S> <C> <C> <C>
Robert L. Brueck.......................................... 8/31/96 Distribution to trust 2,000
beneficiary
Eugene W. Courtney........................................ 10/21/96 Sale 10,000
1/23/97 Exercise of stock 15,000
option
1/23/97 Sale 15,000
3/31/97 Purchase 3,112
3/31/98 Purchase 2,807
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
NAME DATE NATURE OF TRANSACTION NUMBER OF SHARES
- ---------------------------------------------------------- --------- ----------------------- -----------------
<S> <C> <C> <C>
William R. Franta......................................... 1/2/97 Exercise of stock 10,000
option
1/10/97 Sale 10,000
Jerald H. Mortenson....................................... 10/15/96 Exercise of stock 15,000
option
10/17/96 Sale 15,000
10/25/96 Exercise of stock 5,000
option
10/25/96 Sale 5,000
1/21/97 Exercise of stock 10,000
option
1/22/97 Sale 10,000
3/31/97 Purchase 2,197
3/31/98 Purchase 1,982
Frederick M. Zimmerman.................................... 4/10/97 Purchase 500
</TABLE>
Since June 9, 1997, the Board has granted the following nonqualified options
to the individuals named below:
<TABLE>
<CAPTION>
DATE OF NUMBER OF EXERCISE
NAME GRANT SHARES PRICE
- --------------------------------------------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C>
Eugene W. Courtney............................................................... 12/22/97 30,000 $ 4.03
1/22/98 90,000 4.925
Jerald H. Mortenson.............................................................. 12/22/97 20,000 4.03
1/22/98 60,000 4.925
Donald R. Reynolds............................................................... 3/30/98 52,500 6.7425
</TABLE>
The options granted on December 22, 1997, become exercisable one year after
the date of grant and expire ten years after the date of grant. The remaining
options become exercisable in three annual installments, commencing one year
after the date of grant, and expire ten years after the date of grant. The
exercise price for all options is 100% of the Fair Market Value as of the date
of grant, except that the exercise price for the options granted in December is
85% of Fair Market Value as of the date of grant.
A-2
<PAGE>
EXHIBIT B
INFORMATION REGARDING PERSONS NOMINATED BY THE FANT GROUP
The following information was provided by the Fant Group. The Company
assumes no responsibility for this information.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION OR EMPLOYMENT
- --------------------------------- --- ------------------------------------------------------------------------
<S> <C> <C>
Anthony J. Fant.................. 37 Director, President and Chief Executive Officer of Fant Industries. Mr.
Fant has been Director, President and Chief Executive Officer of Fant
Broadcasting Company (including, for these purposes, various
affiliated companies engaged primarily in television and radio
broadcasting) since 1986.
Edwin W. Finch, III.............. 52 Director and President of FHL Capital Corporation since 1984. FHL
Capital is an investment banking and business valuation firm
specializing in mergers and acquisitions. Mr. Finch served as
President of Pinson Valley Millworks, Inc., a distributor of millworks
products, from 1988 through 1996.
David W. Ortlieb................. 67 Independent management consultant since 1994. Director, President and
Chief Executive Officer of Immunomedics, Inc., a biopharmaceutical
company, from 1992 to 1994. Director, President and Chief Executive
Officer of Texas Biotechnology Corporation, a pharmaceutical products
company, from 1990 to 1992. Director, President and Chief Operating
Officer of American Optical Corporation, a diversified business
principally involved with optics and ophthalmics, from 1987 to 1989.
Director, President and Chief Executive Officer of Erbamont N.V., a
diversified health care company, from 1983 to 1985. Director of Abbott
Laboratories, a diversified health care and consumer products company,
from 1975 to 1983, serving as Corporate Executive Vice President and
President of Abbott International. Assistant to the Chairman and Chief
Executive Officer of American Home Products Company, a diversified
package goods company, in 1971. Director, Executive Vice President and
Chief Operating Officer of Tyco International, Ltd., a diversified
high technology company, from 1969 to 1970.
Steve E. Tondera, Jr............. 35 Director, Vice President, Treasurer, Secretary and Chief Financial
Officer of Fant Industries. Mr. Tondera has been Senior Vice President
and Chief Financial Officer of Fant Broadcasting Company (including,
for these purposes, various affiliated companies engaged primarily in
television and radio broadcasting) since 1994 and Director since 1995.
Prior to such time, Mr. Tondera was a principal of Humphryes &
Associates, P.C., a public accounting firm.
</TABLE>
B-1
<PAGE>
IMPORTANT
Make sure that you continue to be represented by an experienced, independent
Board. Your vote is important. No matter how many shares you own, we urge you to
support your Board by submitting a proxy AGAINST the Fant Group's proposal to
remove the current members of the Board, FOR the election of the Board's
nominees (if the current Board is removed), and AGAINST the Fant Group's
proposal to amend the Bylaws by taking three steps:
1. SIGNING the enclosed WHITE proxy card,
2. DATING the enclosed WHITE proxy card, and
3. MAILING the enclosed WHITE proxy card TODAY in the envelope provided
(no postage is required if mailed in the United States). Registered holders
may FAX BOTH SIDES of the enclosed WHITE proxy card TODAY to Innisfree M&A
Incorporated at the number provided below.
If any of your shares are held in the name of a brokerage firm, bank, bank
nominee or other institution, only it can vote such shares and only upon receipt
of your specific instructions. Accordingly, please return the WHITE proxy card
in the envelope provided or contact the person responsible for your account and
instruct that person to execute the WHITE proxy card representing your shares.
We urge you to confirm in writing your instructions to Innisfree M&A
Incorporated at the address provided below so that we will be aware of all
instructions given and can attempt to ensure that such instructions are
followed.
If you have any questions or require any additional information concerning
this proxy statement, please contact Innisfree M&A Incorporated at the address
set forth below.
INNISFREE M&A INCORPORATED
501 MADISON AVENUE
20TH FLOOR
NEW YORK, NEW YORK 10022
CALL TOLL-FREE (888) 750-5834
FAX: (212) 750-5799
<PAGE>
HEI, INC.
PROXY FOR SPECIAL SHAREHOLDERS MEETING , 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, revoking all prior proxies, hereby appoints Eugene W.
Courtney and Jerald H. Mortenson as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
below, all the shares of Common Stock of HEI, Inc., held of record by the
undersigned on , 1998, at the Special Meeting of Shareholders to be
held at m., on , , 1998 and any adjournment thereof. THE
BOARD RECOMMENDS A VOTE AGAINST PROPOSALS (1) AND (3), AND, IF PROPOSAL (1) IS
APPROVED, FOR THE BOARD'S NOMINEES UNDER PROPOSAL (2).
The Board of Directors recommends a vote AGAINST Proposal No. 1
(1) REMOVAL OF INCUMBENT DIRECTORS. Removal of Robert L. Brueck, William R.
Franta and Frederick M. Zimmerman.
/ / FOR / / AGAINST / / ABSTAIN / / FOR REMOVAL ONLY OF DIRECTORS
LISTED BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the Board's nominees
(2) ELECTION OF DIRECTORS (only if Proposal No. 1 is approved). Election of
Robert L. Brueck, William R. Franta and Frederick M. Zimmerman.
/ / FOR all nominees / / WITHHOLD AUTHORITY for all nominees
To withhold authority to vote for any individual nominee, but not all, mark
"FOR" above and write the name(s) of the persons for whom you wish to
withhold authority below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<PAGE>
The Board of Directors recommends a vote AGAINST Proposal No. 3
(3) APPROVAL of an amendment to the Company's Bylaws to opt out of the Minnesota
Control Share Acquisition Statute.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED AGAINST PROPOSALS (1) AND (3), AND, IF PROPOSAL (1) IS APPROVED,
FOR THE BOARD'S NOMINEES UNDER PROPOSAL (2).
DATED _____________________________
SIGNED:____________________________
SIGNED:____________________________
PLEASE SIGN ABOVE EXACTLY AS NAME APPEARS HEREON. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS, ETC. SHOULD SO INDICATE WHEN SIGNING. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE NAME BY THE PRESIDENT OR OTHER AUTHORIZED OFFICER.
IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AN AUTHORIZED PERSON.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE. REGISTERED HOLDERS MAY FAX BOTH SIDES OF THIS PROXY TO: INNISFREE M &
A INCORPORATED AT (212) 750-5799.
IF YOU NEED ASSISTANCE WITH THIS PROXY CARD, PLEASE CALL INNISFREE M & A
INCORPORATED TOLL FREE AT (888) 750-5834.
