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HEI, Inc.
(Name of Registrant as Specified In Its Charter)
FANT INDUSTRIES INC.
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To the Shareholders of HEI, Inc.:
HEI NEEDS LEADERS WHO CAN MAKE GOOD THINGS HAPPEN.
For the last five years, HEI's Board of Directors has told you the same
thing over and over again in their annual letter to shareholders... that HEI
has great growth prospects and the Board is focused on growth. Indeed, they've
said it again in their recent letters to you. The reality is... that over the
last five years, HEI's earnings have declined at an average annual rate of
22.6% per year (based on the Company's trailing 12-month earnings). Meanwhile,
the average annual earnings growth rate in the industry (+21.2%) has
significantly outperformed that of the S&P 500 (+13.4%). And, HEI's earnings
are expected to decline again this year, while continued earnings growth is
expected for the industry.
For the last five years, the Board has told you over and over again that
they need to broaden the Company's customer base and about how strong their
customer relationships are. The reality is... that this Board has left the
Company with a dangerously narrow customer base year after year. For each of
the past five years, at least 64% of the Company's net sales have come from
only two or three customers. And in the face of this highly concentrated
customer base, the Company has failed to generate repeat business from its
largest customers. In 1997, the Company lost all business from a customer that
accounted for 55% of fiscal 1997 net sales. And this is not a one time
occurrence. In fiscal 1996, the Company lost two customers accounting for 30%
and 27%, respectively, of fiscal 1995 net sales.
LET'S PUT AN END TO THE ERA OF UNFULFILLED PROMISES BY THE BOARD AND
UNFULFILLED POTENTIAL FOR HEI!
HEI'S BOARD AND TOP MANAGEMENT KEEP GETTING REWARDED EVEN THOUGH YOU DON'T.
Even in the face of poor operating results and poor stock price
performance, the Directors have kept on paying themselves big stock options
year in and year out. In the last five years, the Board has taken 240,000
options - almost 6% of all of the Company's shares - and senior executives
have kept on taking increased cash bonuses and stock options each year. And if
that wasn't enough...
=============================================================================
CAN YOU BELIEVE THIS?
DURING THE FOUR MONTHS FROM DECEMBER 1997 TO MARCH
1998, HEI'S BOARD GAVE ITS TOP THREE EXECUTIVES MORE THAN
250,000 STOCK OPTIONS, ANOTHER 6% OF THE COMPANY'S SHARES
- AN ASTONISHING REWARD FOLLOWING A YEAR IN WHICH THE
STOCK PRICE DROPPED OVER 50%!
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Under the Fant Group's proposed plan, you will NEVER Suffer this kind of
dilution again. You will never suffer this kind of insult again! With the new
board in charge, no director stock options will be exercisable unless and
until HEI's stock price reaches $25 per share. This is how an incentive plan
should work. Under Fant's plan, HEI directors will be rewarded if, and only
if, HEI shareholders are rewarded first.
HEI'S DIRECTORS ARE AFRAID TO PUT THEIR OWN MONEY AT RISK.
The incumbent directors collectively hold only about 2% of the Company's
shares. They have been unwilling to make a personal financial commitment.
During the last two years these directors have consistently sold their stock
within days after exercising the options they were given under their special
stock compensation plan. What does this say about their expectations for the
Company's future, despite what they have been telling you? Maybe they are
afraid of losing another big customer.
Among the current directors, Mr. Zimmerman, a director since 1995, owns
only 900 shares, and Mr. Brueck, also a director since 1995, owns only 2,000
shares. Mr. Franta, a director since 1985 - 12 years - owns only 5,211 shares.
Insult upon insult!
In stark contrast, the Fant Group has already invested over $4.3 million
in cash - paying full price - to acquire about 18% of the Company's shares.
Fant is ready to invest more and, to do so, is offering you the cash premium
of an $8.00 per share tender offer.
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The Fant Group has confidence in HEI's future under new leadership. The
proof is in its cash commitment and its commitment to a highly incentive-based
director compensation plan. HEI can no longer afford a timid bunch that makes
and breaks the same promises year after year. Exercise your right to demand
new leadership now!
To participate in the revitalization of HEI, please sign and return the
GREEN proxy card today. If you have questions or need assistance in voting
your shares, please call Beacon Hill Partners at (800) 253-3814.
FANT INDUSTRIES INC.
June 30, 1998
To the Shareholders of HEI, Inc.
HEI's Directors say that they've earned your support.
[Bar graph with title "Five - Year Annual Earnings Growth Rate (%)." Three
bars indicating the five-year annual growth rate % for the Electronics (Misc.
Components) Industry of +21.2%, the S&P 500 of 13.4%, and HEI, Inc. of -22.6%.
The source for the industry figure is stated - Bloomberg LP, based on the
average of those companies in industry group reporting five year earnings. It
is stated that the HEI, Inc. figure is based on the trailing 12-months ended
May 31, 1998 compared to the same period ended May 31, 1993.
[Area graph with title "HEI Stock Price Since January 1997" showing the HEI
month-end stock prices from 1/1/97 through 5/31/98.]
Have they really earned your support?
Your vote is important! Return the GREEN proxy card today. If you have
questions or need assistance voting your shares, please contact Beacon Hill
Partners at (800) 253-3814.
FANT INDUSTRIES INC.
