<PAGE>
NORTECH SYSTEMS INCORPORATED
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 1996
------------------------
To the Shareholders of Nortech Systems Incorporated:
The Annual Meeting of Shareholders of Nortech Systems Incorporated (the
"Company") will be held at the Minneapolis Hilton Hotel, 1001 Marquette Avenue,
Minneapolis, Minnesota, on May 23, 1996, at 4:00 p.m., for the following
purposes:
1. To consider and act upon the Board of Directors' recommendation to fix
the number of directors of the Company at three;
2. To elect a Board of Directors to serve for a one-year term and until
their successors are elected and qualify;
3. To act upon a proposal to increase the number of shares of the Company
available under the Company's 1992 Stock Option Plan;
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on April 19, 1996, will
be entitled to notice of and to vote at the meeting or any adjournment thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU EXPECT
TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU
MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
Your attention is called to the accompanying Proxy Statement.
By Order of the Board of Directors
Quentin E. Finkelson
SECRETARY
April 24, 1996
<PAGE>
NORTECH SYSTEMS INCORPORATED
------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS, MAY 23, 1996
------------------------
This Proxy Statement is furnished to shareholders of NORTECH SYSTEMS
INCORPORATED, a Minnesota corporation (the "Company"), in connection with the
solicitation on behalf of the Company's Board of Directors of proxies for use at
the annual meeting of shareholders to be held on May 23, 1996, and at any
adjournment thereof, for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders.
The address of the principal executive office of the Company is 641 East
Lake Street, Suite 234, Wayzata, Minnesota 55391. This Proxy Statement and form
of Proxy are being mailed to shareholders of the Company on April 25, 1996.
SOLICITATION AND REVOCATION OF PROXIES
The costs and expenses of solicitation of proxies will be paid by the
Company. In addition to the use of the mails, proxies may be solicited by
directors, officers and regular employees of the Company personally or by
telegraph, telephone or letter with extra compensation. The Company will
reimburse brokers and other custodians, nominees or fiduciaries for their
expenses in forwarding proxy material to principals and obtaining their proxies.
Proxies in the form enclosed are solicited on behalf of the Board of
Directors. Any shareholder giving a proxy in such form may revoke it at any time
before it is exercised. Such proxies, if received in time for voting and not
revoked, will be voted at the annual meeting in accordance with the
specification indicated thereon.
VOTING RIGHTS
Only shareholders of record of the Company's 2,450,863 shares of Common
Stock outstanding as of the close of business on April 19, 1996, will be
entitled to execute proxies or to vote. Each share of Common Stock is entitled
to one vote. A majority of the outstanding shares must be represented at the
meeting, in person or by proxy, to transact business.
ELECTION OF DIRECTORS
The bylaws of the Company provide for a Board of Directors consisting of one
or more members, and further provide that the shareholders at each annual
meeting shall determine the number of directors. The Company's Board of
Directors recommends that the number of directors be set at three and it is
intended that the proxies accompanying this statement will be voted at the 1996
meeting to establish a Board of Directors consisting of three members. The Board
of Directors currently consists of three members, Quentin E. Finkelson, Myron
Kunin and Richard W. Perkins. Proxies solicited by the Board of Directors will,
unless otherwise directed, be voted for the election of the following three
nominees:
QUENTIN E. FINKELSON
MYRON KUNIN
RICHARD W. PERKINS
1
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Following is information regarding the nominees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---------------------- --- ---------------------------------------------------
<S> <C> <C>
Quentin E. Finkelson 63 President and Chief Executive Officer, Secretary
and Chairman of the Board of Directors
Myron Kunin 67 Director
Richard W. Perkins 65 Director
</TABLE>
Mr. Finkelson has been President and Chief Executive Officer, Secretary and
Chairman of the Board of Directors of the Company since November 30, 1990. Prior
thereto, Mr. Finkelson was President, Secretary and Treasurer of DSC Nortech,
Inc., the Company's predecessor, since October 1, 1988, and a director of that
company since September 2, 1988.
Mr. Kunin has served as Chairman of the Board of Directors and Chief
Executive Officer of Regis Corporation since 1983. He is also a director of The
Cerplex Group, Inc.
Mr. Perkins is President, Chief Executive Officer and a director of Perkins
Capital Management, Inc., Wayzata, Minnesota, where he has held those positions
since January, 1985. Prior thereto, he was Senior Vice President of Piper
Jaffray, Inc., Minneapolis, Minnesota. He is also a director of Bio-Vascular,
Inc., Children's Broadcasting Corporation, Lifecore Biomedical, Inc., Garment
Graphics, Inc., CNS, Inc., Discus Acquisition Corporation, Eagle Pacific
Industries, Inc., and Quantech Ltd.
DIRECTORS MEETINGS
There were two meetings of the Board of Directors during the last fiscal
year. All directors attended meetings of the Board and committees of the Board
on which such director served.
The Company does not have a standing nominating committee of the Board. The
Compensation and Audit Committees consist of Messrs. Kunin and Perkins.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of the independent outside directors
whose names appear following this report. The Committee considers a variety of
issues in establishing compensation policies for executive officers, with the
primary basis for compensation being the financial performance of the Company.
Compensation for executive officers includes three elements: base salaries,
bonuses, and options to acquire Common Stock. Salaries are based on factors such
as the individual's level of responsibility and the amount of salary paid to
executives with similar responsibilities in comparable companies. Stock options
are designed to increase the incentive for an executive's interest in the
Company's long term success as measured by the market value of its stock.
The chief executive officer's compensation for 1995 was based on the
policies described above, with particular emphasis upon the Company's excellent
financial performance. Further, it was determined that the compensation of the
chief executive officer was comparable to compensation of chief executive
officers of comparable companies. The compensation of the other executive
officers was set at the level necessary to attract and retain executives
performing the functions being performed by such executives.
Base salaries for executive officers are determined by evaluating the
responsibilities of the position held and the experience and performance of the
individual. Reference is also made to the competitive marketplace for executive
talent. Bonuses are granted on the basis of evaluating the executive's
performance and the overall financial performance of the Company.
Myron Kunin
Richard W. Perkins
MEMBERS OF THE COMPENSATION COMMITTEE
2
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SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ended December 31, 1995,
1994 and 1993, the cash compensation paid by the Company, as well as certain
other compensation paid or accrued for those years, to the Company's
president/chief executive officer, the only executive officer whose total annual
compensation exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
SALARY -------------
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) OPTIONS (#)
- - --------------------------------------- --------- --------- --------------- -------------
<S> <C> <C> <C> <C>
Quentin E. Finkelson 1995 122,453 0 50,000
PRESIDENT/CHIEF EXECUTIVE OFFICER 1994 113,412 0 10,000
SECRETARY, AND DIRECTOR 1993 110,035 0 15,000
</TABLE>
STOCK OPTION GRANTS
The following table provides information on stock options granted in 1995 to
the Named Executive Officer pursuant to the Company's 1992 Stock Option Plan.
OPTION SHARES GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- - --------------------------------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF STOCK
OPTIONS/SARS PRICE APPRECIATION
GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($)(1) 10% ($)(1)
(A) (B) (C) (D) (E) (F) (G)
- - ------------------------- ------------- ----------------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Quentin E. Finkelson 50,000 52.6% 5.25 12/1/05 165,086 418,346
</TABLE>
- - ------------------------
(1) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
STOCK OPTION EXERCISES AND OPTION VALUES
The following table contains information concerning stock options exercised
during 1995 and stock options unexercised at the end of 1995 with respect to the
Named Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL AT FISCAL
YEAR-END (#) YEAR-END ($)
SHARES ---------------- -------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
(A) (B) (C) (D) (E)(1)
- - ------------------------- ----------------- ----------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Quentin E. Finkelson -- -- 25,000/50,000 139,375/137,500
</TABLE>
- - ------------------------
(1) Market value of underlying securities at year-end minus the exercise price.
3
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APPROVAL OF INCREASE IN AVAILABLE SHARES
UNDER THE COMPANY'S 1992 STOCK OPTION PLAN
PURPOSE OF PLAN
The purpose of the Company's 1992 Stock Option Plan (the "Plan") is to
motivate key personnel to produce a superior return to the Shareholders of the
Company by offering such persons an opportunity to realize stock appreciation,
by facilitating stock ownership, and by rewarding them for achieving a high
level of corporate performance. The Plan is also intended to facilitate
recruiting and retaining key personnel of outstanding ability.
ADMINISTRATION
The Plan is administered by a committee (the "Committee") of two directors
who are not eligible to participate in the Plan and who are "disinterested
persons" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934. The Committee has the exclusive power to grant options under the Plan and
to determine when and to whom options will be granted, and the form, amount and
other terms and conditions of each grant, subject to the provisions of the Plan.
The Committee has the authority to interpret the Plan and any grant or agreement
made under the Plan. The committee may delegate its responsibilities under the
Plan to parties who are not "disinterested persons" within the meaning of Rule
16b-3 for purposes of determining and administering grants solely to employees
who are not then subject to the reporting requirements of Section 16 of the
Exchange Act.
ELIGIBILITY AND NUMBER OF SHARES
All employees of the Company and its affiliates are eligible to receive
grants under the Plan at the discretion of the Committee. The total number of
shares of Company common stock available for distribution under the Plan is
increased from 100,000 by the Company's Board of Directors on December 1, 1995,
subject to Shareholder approval, and subject to adjustment for future stock
splits, stock dividends and similar changes in the capitalization of the
Company. Options have been granted (subject to shareholders' approval of the
proposal to increase the number of available shares) for 137,000 shares. The
Committee believes that to further the purpose of the Plan as the Company
continues to grow, the authorized number of available shares should be increased
to 250,000, approximately 10% of the Company's outstanding shares.
TYPES OF GRANTS
The Committee has discretion to determine whether an option grant shall be
an incentive stock option or a non-qualified option. Subject to certain
restrictions applicable to incentive stock options, options will be exercisable
by the recipients at such times as are determined by the Committee, but in no
event may the term of a non-qualified option be longer than 15 years after the
date of grant (ten years with respect to an incentive option and five years with
respect to an incentive option granted to an employee holding 10% or more of the
Company's stock). Both incentive and non-qualified stock options may be granted
to recipients at such exercise prices as the Committee may determine, except
that the exercise price of an incentive stock option shall not be less than 100%
of the fair market value of the stock on the date of grant of such option (110%
in the case of a grant to a 10% or greater Shareholder).
The purchase price payable upon exercise of options may be paid in cash, by
reducing the number of shares delivered to the holder or by delivering stock
already owned by the holder (where the fair market value of the shares withheld
or delivered on the date of exercise is equal to the option price of the stock
being purchased), or in a combination of cash and such stock, unless otherwise
provided in the related agreement.
TRANSFERABILITY
During the lifetime of an employee to whom an option has been granted, only
such employee, or such employee's legal representative, may exercise an option.
No options may be sold, assigned, transferred, exchanged, or otherwise
encumbered except to a successor in the event of an option holder's death.
4
<PAGE>
AMENDMENT OF TERMINATION
The Board of Directors may amend or discontinue the Plan but no amendment or
termination shall be made that would impair the rights of any holder or any
option granted before such amendment or termination.
FEDERAL TAX CONSIDERATIONS
The Company has been advised by its counsel that grants made under the Plan
generally will result in the following tax events for United States citizens
under current United States federal income tax laws.
INCENTIVE STOCK OPTIONS
A recipient will realize no taxable income, and the Company will not be
entitled to any related deduction, at the time an incentive stock option is
granted under the Plan. If certain statutory employment and holding period
conditions are satisfied before the recipient disposes of shares acquired
pursuant to the exercise of such an option, then no taxable income will result
in the exercise of such option and the Company will not be entitled to any
deduction in connection with such exercise. Such disposition of the shares after
expiration of the statutory holding periods, any gain or loss realized by
recipient will be a capital gain or loss. The Company will not be entitled to a
deduction with respect to a disposition of the shares by a recipient after the
expiration of the statutory holding periods.
Except in the event of death, if shares acquired by a recipient upon the
exercise of an incentive stock option are disposed of by such recipient before
the expiration of the statutory holding periods (a "disqualifying disposition"),
such recipient will be considered to have realized, as compensation taxable as
ordinary income in the year of disposition, an amount, not exceeding the gain
realized on such disposition, equal to the difference between the exercise price
and the fair market value of the shares on the date of exercise of the option.
The Company will be entitled to a deduction at the same time and in the same
amount as the recipient is deemed to have realized ordinary income. Any gain
realized on the disposition in excess of the amount treated as compensation or
any loss realized on the disposition will constitute capital gain or loss,
respectively. If the recipient pays the option price with shares that were
originally acquired pursuant to the exercise of an incentive stock option and
the statutory holding periods for such shares have not been met, the recipient
will be treated as having made a disqualifying disposition of such shares, and
the tax consequences of such disqualifying disposition will be as described
above.
The foregoing discussion applies only for regular tax purposes. For
alternative minimum tax purposes an incentive stock option will be treated as if
it were a non-qualified stock option, the tax consequences of which are
discussed below.
NON-QUALIFIED STOCK OPTIONS
A recipient will realize no taxable income, and the Company will not be
entitled to any related deduction, at the time a non-qualified stock option is
granted under the Plan. At the time of exercise of a non-qualified stock option,
the recipient will realize ordinary income, and the Company will be entitled to
a deduction, equal to the excess of the fair market value of the stock on the
date of exercise over the option price. Upon disposition of the shares, any
additional gain or loss realized by the recipient will be taxed as a capital
gain or loss.
5
<PAGE>
COMPARATIVE STOCK PRICE PERFORMANCE
The graph below compares total shareholder return on the Company's Common
Stock for the last five fiscal years with the total return on Waters
Instruments, Inc. (a peer issuer) and the NASDAQ Composite Index for the same
periods. The graph assumes $100 invested on December 31, 1990.
NORTECH SYSTEMS INC.
COMPARATIVE STOCK PRICE PERFORMANCE
[CHART]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Nortech................................. 100 1,200 1,500 3,600 2,700 6,350
Waters Instruments...................... 100 95 95 74 57 174
NASDAQ Composite........................ 100 157 181 208 202 280
</TABLE>
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 1, 1996, the ownership of Common
Stock of the Company by each shareholder who is known by the Company to own
beneficially more than 5% of the outstanding shares of the Company, by each
director and by all executive officers and directors as a group. The parties
listed in the table have the voting and investment powers with respect to the
shares indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED OF CLASS
- - ------------------------------------------------------------------------ ----------------- ------------
<S> <C> <C>
Myron Kunin............................................................. 958,357 38.4%
7201 Metro Boulevard
Edina, MN 55439
Quentin E. Finkelson.................................................... 137,040(1) 5.5%
Richard W. Perkins...................................................... 12,000 *
All executive officers and directors as a group
(six persons).......................................................... 1,129,897(2) 45.3%
</TABLE>
- - ------------------------
(1) Includes 25,000 shares subject to presently exercisable options granted to
Mr. Finkelson pursuant to the Company's stock option plan.
(2) Includes 42,500 shares subject to presently exercisable options.
* Less than one percent.
The Company will mail its annual report for the year 1995 on or about April
25, 1996, to all shareholders of the Company of record on April 19, 1996.
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Larson, Allen, Weishair & Co., LLP, as
independent accountants of the Company for 1996. Larson, Allen, Weishair & Co.,
LLP, has performed this function for the Company since 1991. Members of the firm
will be available at the annual meeting of shareholders to answer questions and
to make a statement if they desire to do so.
QUORUM AND VOTE REQUIRED
The presence in person or by proxy of the holders of a majority of the
voting power of the shares of common stock issued, outstanding and entitled to
vote at a meeting for the transaction of business is required to constitute a
quorum. The election of each director will be decided by plurality votes. As a
result, any shares not voted for director (whether by withholding authority,
broker non-vote or otherwise) have no impact on the election of directors except
to the extent the failure to vote for an individual results in another
individual receiving a larger number of votes.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder for the annual shareholders' meeting in May,
1997, must be received by the secretary of the Company at 641 East Lake Street,
Suite 234, Wayzata, Minnesota 55391, not later than the close of business on
December 20, 1996.
Proposals received by that date will be included in the 1997 proxy statement
if the proposals are proper for consideration at an annual meeting and are
required for inclusion in the proxy statement by, and conform to, the rules of
the Securities and Exchange Commission.
7
<PAGE>
OTHER BUSINESS
The management does not know of any business other than the hereinbefore set
forth that may be presented for action at the annual meeting of shareholders. If
any other matters are properly presented at the meeting for action, the persons
named in the accompanying proxy will vote upon them in accordance with their
best judgment.
By Order of the Board of Directors
Quentin E. Finkelson
SECRETARY
Minneapolis, Minnesota
April 24, 1996
8
<PAGE>
NORTECH SYSTEMS INCORPORATED
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 23, 1996
The undersigned hereby appoints Quentin E. Finkelson, Myron Kunin and Richard W.
Perkins and any of them, proxies for the undersigned, with full power of
substitution, to represent the undersigned and to vote all of the shares of the
Common Stock of Nortech Systems Incorporated (the "Company") which the
undersigned is entitled to vote at the annual meeting of shareholders of the
Company to be held on May 23, 1996, and at any and all adjournments thereof.
1. To act upon a proposal to fix number of directors at three:
/ / For / / Against / / Abstain
2. Election of directors
NOMINEES: Quentin E. Finkelson, Myron Kunin, Richard W. Perkins
/ / FOR all nominees above; except / / WITHHOLD AUTHORITY to
vote withheld from individual nominees vote for all nominees listed
above, (if any).
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.
3. To act upon a proposal to increase the number of Company shares available
under the Company's 1992 Stock Option Plan.
4. In their discretion, on such matters as may properly come before the
meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and will be voted as
directed herein. If no direction is given, this proxy will be voted FOR all the
nominees listed in paragraph 2.
(CONTINUED, AND TO BE COMPLETED AND SIGNED ON THE REVERSE SIDE)
<PAGE>
Dated: ________________________ , 1996
______________________________________
(Signature of Shareholders)
______________________________________
(Signature of Shareholders)
Where stock is registered jointly in
the name of two or more persons ALL
should sign. Signature(s) should
correspond exactly with the name(s) as
shown above. Please sign and date and
return promptly in the enclosed
envelope. No postage need be affixed
if mailed in the United States.
