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<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
NAI TECHNOLOGIES, 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] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
.................................................................
2) Aggregate number of securities to which transaction
applies:
.................................................................
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it was
determined):
.................................................................
4) Proposed maximum aggregate value of transaction:
.................................................................
5) Total fee paid:
.................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
1) Amount Previously Paid:
.................................................................
2) Form, Schedule or Registration Statement No.:
.................................................................
3) Filing Party:
.................................................................
4) Date Filed:
.................................................................
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Preliminary Copy
NAI TECHNOLOGIES, INC.
2405 Trade Centre Avenue
Longmont, Colorado 80503
(303) 776-0472
-------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on December 14, 1995
-------------------
The Annual Meeting of Shareholders (the 'Annual Meeting') of NAI
Technologies, Inc., a New York corporation (the 'Company'), will be held on
December 14, 1995 at 10 a.m., at the Long Island headquarters of Chemical Bank,
located at 395 North Service Road, Melville, New York 11747, for the following
purposes:
1. to ratify and approve the issuance by the Company of certain debt
securities and warrants convertible or exercisable into or for approximately
8,000,000 shares of the Company's Common Stock to investors in a proposed
private placement which will result in the potential issuance of more than 20%
of the Company's Common Stock and may result in a change of control of the
Company;
2. to vote on an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
10,000,000 to 25,000,000;
3. to elect seven members of the Board of Directors;
4. to vote to ratify and approve the selection of KPMG Peat Marwick as
the Company's independent auditors for the year ending December 31, 1995; and
5. to consider and act upon such other matters as may properly come
before the Annual Meeting.
All shareholders are cordially invited to attend. Only shareholders of
record at the close of business on November 1, 1995 will be entitled to vote at
the Annual Meeting or any adjournment thereof.
By Order of the Board of Directors,
Richard A. Schneider,
Secretary
November 3, 1995
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WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE READ THE
ACCOMPANYING PROXY STATEMENT AND COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED
WITHIN THE UNITED STATES OF AMERICA. THE PROXY IS REVOCABLE BY YOU AT ANY TIME
PRIOR TO ITS USE. IF YOU RECEIVE MORE THAN ONE PROXY BECAUSE YOUR SHARES ARE
REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE SIGNED AND
RETURNED TO ASSURE THAT ALL YOUR SHARES WILL BE VOTED AT THE ANNUAL MEETING.
- - - --------------------------------------------------------------------------------
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NAI TECHNOLOGIES, INC.
2405 Trade Centre Avenue
Longmont, Colorado 80503
(303) 776-0472
-------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
to be held on December 14, 1995
-------------------
INTRODUCTION
General
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of NAI Technologies, Inc., a New York corporation (the
'Company'), of proxies for use at the annual meeting of shareholders (the
'Annual Meeting') of the Company to be held at the Long Island headquarters of
Chemical Bank, located at 395 North Service Road, Melville, New York 11747, on
Thursday, December 14, 1995 at 10 a.m., local time, and at any adjournment
thereof. This Proxy Statement was first mailed to shareholders of the Company on
or about November 3, 1995.
At the Annual Meeting, the Company's shareholders will (i) vote to
ratify and approve the issuance by the Company of certain debt securities and
warrants convertible or exercisable into or for approximately 8,000,000 shares
of the Company's Common Stock to investors in a proposed private placement (the
'Investment Transaction') which will result in the potential issuance of more
than 20% of the Company's Common Stock and may result in a change of control of
the Company, (ii) vote on an amendment to the Certificate of Incorporation to
increase the number of authorized shares of common stock, par value $.10 per
share, of the Company ('Common Stock') from 10,000,000 to 25,000,000, (iii)
elect seven members of the Board of Directors, and (iv) vote to ratify and
approve the selection of KPMG Peat Marwick as the Company's independent auditors
for the fiscal year ending December 31, 1995. The shareholders may also conduct
such other further business as may properly come before the Annual Meeting or
any adjournment thereof.
The Board of Directors believes that the approval of the Investment
Transaction and the related authorization of an additional 15,000,000 shares of
Common Stock is necessary to enable the Company to restructure its debt which
otherwise matures, with a payment of $15,225,000, plus interest accrued, being
due and payable, on January 15, 1996 and otherwise to remain financially viable
and to avoid seeking bankruptcy protection.
Record Date; Proxies
The Board of Directors of the Company has fixed the close of business
on November 1, 1995 as the record date (the 'Record Date') for determining
holders of Common Stock entitled to notice of and to vote at the Annual Meeting.
Only holders of record of the Common Stock at the close of business on such date
will be entitled to vote at the Annual Meeting or at any adjournment thereof. At
such date, there were issued and outstanding [7,459,437] shares of Common Stock,
each of which is entitled to one vote on each matter presented at the Annual
Meeting.
Each shareholder of the Company is requested to complete, sign, date
and return the enclosed proxy without delay in order to ensure that the shares
owned by such shareholder are voted at the Annual Meeting.
<PAGE>
Any shareholder may revoke a proxy at any time before it is voted by: (i)
delivering a written notice to the Secretary of the Company, at the address of
the Company set forth above, stating that the proxy is revoked; (ii) executing a
subsequent proxy and delivering it to the Secretary of the Company; or (iii)
attending the Annual Meeting and voting in person. Each properly executed proxy
returned will be voted as directed. In addition, if no directions are given or
indicated, the persons named in the accompanying proxy intend to vote proxies
FOR the election of the nominees for director described herein unless authority
to vote for directors is withheld. In the event that any nominee at the time of
election shall be unable or unwilling to serve or is otherwise unavailable for
election (which contingency is not now contemplated or foreseen), and in
consequence other nominees shall be nominated, the persons named in the proxy
shall have the discretion and authority to vote or to refrain from voting in
accordance with their judgment on such other nominations. In addition, unless
otherwise specified in the proxy, proxies will be voted IN FAVOR OF the proposal
to ratify and approve the Investment Transaction, IN FAVOR OF the proposal to
amend the Company's Certificate of Incorporation to increase the authorized
shares of Common Stock from 10,000,000 to 25,000,000, and IN FAVOR OF
ratification and approval of the selection of KPMG Peat Marwick as the Company's
independent auditors for the year ending December 31, 1995.
Required Vote
The holders of a majority of the outstanding shares of Common Stock on
the Record Date are necessary to constitute a quorum at the Annual Meeting. The
affirmative vote of the holders of a majority of the shares of Common Stock
present at the Annual Meeting and voting is required to ratify and approve the
Investment Transaction. Accordingly, votes 'withheld' will not count against the
ratification of the Investment Transaction. Brokers do not have discretionary
authority to vote on the proposal to approve the Investment Transaction. See
'Approval of Investment Transaction.' The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock is required to approve the
proposal to amend the Company's Certificate of Incorporation to increase the
authorized shares of Common Stock. Accordingly, votes 'withheld' will count
against the proposal to amend the Certificate of Incorporation. Brokers do not
have discretionary authority to vote on the proposal to amend the Certificate of
Incorporation. See 'Proposal to Amend the Company's Certificate of Incorporation
to Increase the Authorized Shares of Common Stock.' The affirmative vote of the
holders of a plurality of the shares of Common Stock is required to elect
directors. Accordingly, votes 'withheld' from director-nominee(s) will not count
against the election of such nominee(s). Brokers have discretionary authority to
vote on the election of directors. See 'Election of Directors.' The affirmative
vote of the holders of a majority of the shares of Common Stock present at the
Annual Meeting and voting is required to ratify and approve the selection of
auditors. Accordingly, votes 'withheld' will not count against the ratification
of the selection of such auditors. Brokers have discretionary authority to vote
on the ratification of the selection of auditors. See 'Ratification of the
Selection of Independent Auditors.'
Other Action At Annual Meeting
The Company does not know of any other matters to be presented at the
Annual Meeting. If any additional matters should be properly presented, proxies
will be voted in accordance with the judgment of the proxy holders.
Cost of Solicitation
The Company will bear the cost of soliciting proxies estimated at
$[50,000]. The Company has retained D.F. King & Co., Inc., a professional proxy
solicitation firm, to assist in the solicitation of proxies in connection with
the Annual Meeting for which it will receive an estimated fee of approximately
$[15,000] plus reasonable out-of-pocket expenses. Directors, officers and
employees of the Company may also solicit proxies personally or by telephone,
telegram or mail. Such directors, officers and employees will not be
additionally compensated for such solicitation but may be reimbursed for
reasonable out-of-pocket expenses incurred in
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connection therewith. Arrangements will also be made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of proxy material
to the beneficial owners of the Common Stock held of record by such persons and
the Company will, upon request, reimburse such custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred in connection
therewith.
APPROVAL OF INVESTMENT TRANSACTION
The Company has retained Commonwealth Associates ('Commonwealth') to
act on the Company's behalf exclusively to raise on a best efforts basis a gross
amount of $6,000,000 to $8,000,000 through the private placement ('Investment
Transaction') of the Company's 12% Convertible Subordinated Notes (the 'Notes')
which are convertible into shares of Common Stock at the rate of $2.00 per share
of Common Stock (subject to adjustment) and detachable warrants (the 'Warrants'
and, together with the Notes, the 'Securities') to purchase 1,500,000 to
2,000,000 shares of Common Stock, in accordance with the amount of Notes sold,
at $2.50 per share (subject to adjustment). The conversion price of the Notes
and the exercise price of the Warrants will be adjusted to $1.50 or $1.00,
respectively, if the adjusted earnings before interest and taxes of the Company
fall below $4,500,000 or $3,000,000 in 1996. Should the Company sell its Lynwood
division in 1996, such amounts will be reduced by up to $1,160,000 in 1996,
depending on the time of sale. The conversion price of the Notes and the
exercise price of the Warrants may be reduced if such reduction is in the
opinion of the company necessary to effectuate the sale of the Securities. The
conversion price and the number of shares of Common Stock to be received upon
conversion and the exercise price and the number of shares to received upon
exercise are subject to adjustment upon the occurrence of certain events.
Warrants to purchase an aggregate of 2,000,000 additional shares of Common Stock
at $2.50 per share will be issued to Charles S. Holmes and Commonwealth for past
advisory services. See 'Commonwealth Placement Agreement.' The Investment
Transaction will be with a limited number of accredited investors ('Investors')
pursuant to the exemption from registration afforded by Regulation D under the
Securities Act of 1933, as amended (the 'Securities Act'). One investor, Mr.
Holmes, will take an active role in the Company following the completion of the
Investment Transaction and two other individuals acceptable to the Company and
who are designated by the Investors (including one designated by Mr. Holmes)
will be elected to the Company's Board of Directors. See 'Election of
Directors.' On October 13, 1995, Mr. Holmes loaned the Company $1,000,000 at 12%
interest (the 'Holmes Transaction') which will be integrated with an additional
investment of $1,000,000 in the Investment Transaction. Mr. Holmes has committed
to make such investment which is a condition to closing of the Investment
Transaction. In the Holmes Transaction, Mr. Holmes is entitled to receive a
Warrant to purchase 850,000 shares of Common Stock at $2.50 per share (which is
a portion of the Warrants to be received by Mr. Holmes for past advisory
services). See 'Background of Investment Transaction -- Capital and Credit
Transactions.' Completion of the Investment Transaction, however, is first
subject to the restructuring of and amendment of certain other terms under the
Company's Amended and Restated Credit Agreement, dated as of April 12, 1995, and
as amended to date (the 'Existing Credit Agreement'), with two bank lenders (the
'Bank Lenders'), and the completion of a due diligence review by Commonwealth.
If all of the Notes are sold and converted, an aggregate of 4,000,000 shares of
Common Stock will be issued and, if all the Warrants are exercised, an aggregate
of 4,000,000 additional shares of Common Stock will be issued. Upon the
happening of such events, the Company will have received gross proceeds of
$18,000,000 (approximately $17,000,000 net) in exchange for the sale of
approximately 49.6% of the shares of Common Stock on a fully-diluted basis and
based on shares currently outstanding. See 'Dilution of Holders of Common
Stock.'
The Company may force conversion of the Notes if, during any period
prior to maturity, the closing price of the Common Stock exceeds $6.00 per share
for 30 consecutive trading days.
The Board of Directors has unanimously approved the Investment
Transaction. The Investment Transaction is subject to the approval of the
shareholders of the Company because insufficient shares are authorized for
issuance under the Company's Certificate of Incorporation (see 'Approval of
Increase in Number
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<PAGE>
of Common Shares Authorized') and to comply with certain rules of The Nasdaq
Stock Market. Section 6(i)(1)(b) of Schedule D of the Nasdaq rules requires
that, prior to issuing shares of a listed class such as the Common Stock that
would result in the 'change of control,' the Company must obtain approval of the
proposed issuance by a majority of the votes cast at the Annual Meeting. The
consummation of the Investment Transaction may result in a change of control of
the Company.
Background of Investment Transaction
The Company has experienced substantial financial difficulty in 1994
and 1995 and has a current liability under the Existing Credit Agreement of
$15,225,000, which is due January 15, 1996. The Company has operated during this
period with a series of amendments and waivers from the Bank Lenders, the most
recent of which was given on October 13, 1995 in connection with the Holmes
Transaction. If the Company is not able to restructure the repayment schedule
with the Bank Lenders, it will be unable to meet its payment obligations at
January 15, 1996.
In addition, the Company lost $11,600,000 in 1994 and an additional
$2,300,000 in the nine months ended September 30, 1995. The Company's net book
value has declined from $4.52 per share at January 1, 1994 to $1.56 per share at
September 30, 1995.
The Company has negotiated the Investment Transaction with
Commonwealth, which has undertaken to privately sell between $6,000,000 and
$8,000,000 in Notes to Investors, including Mr. Holmes. The completion thereof
is subject to the Company's ability to work out satisfactory terms for
amendments to the Existing Credit Agreement with the Bank Lenders. The Bank
Lenders have reviewed the Investment Transaction and have stated that, subject
to satisfactory review prior to the closing of the Investment Transaction, they
will consent to the Investment Transaction and will amend the Existing Credit
Agreement to provide for an amortization of principal in equal installments of
$500,000 at March 31, 1996 and June 30, 1996, equal installments of $750,000,
beginning on September 30, 1996, with a payment of $__________ due on January
15, 1999 (the 'Revised Credit Agreement'). Commonwealth and Mr. Holmes have
agreed that such terms are acceptable to them.
If the Company is unable to conclude the Revised Credit Agreement and
the Investment Transaction, the Company and Mr. Holmes have agreed that the
Company would retain an investment banker to sell certain assets or the stock of
one or more subsidiaries, and that Mr. Holmes would have the option to purchase
an additional $2,000,000 principal amount of Notes and receive Warrants to
purchase an additional 2,150,000 shares of Common Stock (the 'Holmes
Alternative'). If he made such new investment, the Company would use its best
efforts to promptly cause the resignation of two then-current members of the
Board of Directors of the Company and to cause the vacancies resulting thereby
to be filled by individuals designated by Mr. Holmes and acceptable to the
Company. The Bank Lenders have not approved the Holmes Alternative and there can
be no assurance that they will do so or renegotiate the Existing Credit
Agreement in a manner to permit the Company to continue to operate upon the
implementation of the Holmes Alternative.
If the Company is unable to consummate either the Investment
Transaction or the Holmes Alternative and to amend the Existing Credit
Agreement, it may be forced to seek bankruptcy protection. All of the assets of
the Company and its United States subsidiaries are pledged as collateral to the
Bank Lenders. Completion of the transactions above will not ensure the Company's
survival. Continuation of the Company as a going concern is also dependent upon
the return of the Company to profitable operations.
The completion of these transactions will result in substantial
dilution of the shareholdings of all shareholders. See 'Dilution of Holders of
Common Stock.'
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Summary of Business Activities. In 1990, management adopted a long
range strategy to enhance the growth of the Company both by internal and
external means. Management sought to grow the Company's U.S. military business
by increasing its internal sales and engineering resources while simultaneously
reducing the Company's dependence on the military budget by increasing its
commercial and foreign customer base. Between 1990 and 1993, the Company
acquired five businesses, primarily for cash and notes in the aggregate amount
of approximately $25,300,000, and the assumption of certain liabilities.
The Company acquired the Systems Division, based in Columbia, Maryland,
in November 1990 for approximately $6,000,000 in cash. The Systems Division
specializes in the integration of various manufacturers' computer software and
hardware to address specific customer needs.
In May 1992, the Company acquired a line of ruggedized computers and
peripheral products marketed under the name KMS for approximately $1,700,000 in
cash and assumed liabilities of approximately $400,000. Additional costs
pursuant to the transaction resulted in a total acquisition cost of
approximately $2,500,000. The purchase price was paid from the Company's cash
balances. KMS operations were moved to Hauppauge, New York following the
acquisition.
In August 1992, the Company acquired assets and assumed certain
liabilities and obligations related to the production of telecommunications test
equipment and transmission enhancement products in Laconia, New Hampshire for
approximately $6,000,000 in cash and assumed liabilities of approximately
$1,000,000. Additional costs incurred pursuant to the transaction resulted in a
total acquisition cost of approximately $8,000,000. The acquisition cost was
funded by existing cash balances and $5,000,000 of additional borrowings under
the Company's long-term credit agreement with the Bank Lenders.
In January 1993, the Company acquired Lynwood Scientific Developments
Limited ('Lynwood'), a U.K. company located in Farnham, England, for
approximately $4,000,000 in cash, 330,497 shares (adjusted for stock dividends
and stock splits) of Common Stock and warrants to purchase 39,000 shares of
Common Stock at a price of $8.89 per share. The Common Stock was valued at
approximately $1,100,000. The cash portion of the purchase price was paid from
existing cash balances. Lynwood produces intelligent terminals, terminal
emulators, TEMPEST computer products and high performance work stations for
commercial and government markets.
In October 1993, the Company acquired Codar Technology, Inc., located
in Longmont, Colorado, for approximately $6,500,000 consisting of cash and notes
payable. Additional costs incurred pursuant to the transaction resulted in a
final total acquisition cost of approximately $7,600,000. The Company increased
its term loan borrowings by $7,500,000 in conjunction with the acquisition.
Codar produces ruggedized computers and equipment and provides systems
integration and design services.
Following the Codar acquisition in 1993, the Company structured its
operations into two business segments: the Electronic Systems segment and the
Telecommunications segment. The Electronic Systems segment included the Military
Systems Group (the Military Products Division, based in Hauppauge, New York and
the Codar Division, based in Longmont, Colorado), the Systems Division (based in
Columbia, Maryland) and the Lynwood Division (based in Farnham, United Kingdom).
The Telecommunications segment consists of the Wilcom Division (based in
Laconia, New Hampshire).
In April 1994, the Company announced that as part of its transition
from the design and manufacture of computer peripherals toward both producing
and integrating computer systems it would close its Hauppauge, New York based
Military Products Division and transfer the division's operations to its Codar
facility in Longmont, Colorado. As a direct result of the above, during the
first quarter of 1994, the Company recorded a
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$9,500,000 charge, of which $7,300,000 was classified as a restructuring charge
and $2,200,000 was charged to cost of sales. The transfer of operations to
Colorado was substantially completed by the fourth quarter of 1994.
The transition of the Military Systems Group to Colorado placed strains
on the existing management and information systems at Codar which resulted in
delayed shipments and significant cost overruns in long-term contracts,
substantial losses on operations and significant cash flow issues. During the
second half of 1994, the Codar subsidiary reported sales at a level
substantially below earlier expectations.
In 1995, the Company reorganized Codar's management. During the second
quarter of 1995, which was the first full quarter under the new management team,
the Company recorded mixed results. Revenue was $7,500,000, the highest in
Codar's history. Operating losses during the quarter were $3,000,000, primarily
due to cost-overruns on long-term contracts which were recognized during the
quarter and inventory write-downs on slow moving or obsolete inventory. During
the third quarter ended September 30, 1995, Codar had $6,400,000 in sales and
reported a loss of $1,800,000. See the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995 set forth in its entirety in Appendix 2
hereto.
Capital and Credit Transactions. Until May 1994, the Company's
borrowings were under unsecured credit lines and term loans. During 1992 and
1993, the Company borrowed no funds under these facilities, but borrowed
$12,500,000 under term loans in connection with the acquisitions of Wilcom and
Codar. In May 1994, the Company restructured its credit facilities to create
secured lines of credit with its two principal lending institutions amounting to
$6,000,000 and term loans of $9,175,000.
On April 7, 1995, the Company entered into the Existing Credit
Agreement. Under the terms of the Existing Credit Agreement, the then-existing
term debt and lines of credit were converted into a revolving credit arrangement
in exchange for a cash payment of $100,000 and the issuance of 250,000 shares of
Common Stock which the Company agreed to register with the Securities and
Exchange Commission. The $100,000 cash payment, the issuance of the shares of
Common Stock and other costs associated with the refinancing resulted in a
charge against the Company's earnings of approximately $900,000 which is being
amortized over the last three quarters of 1995. The Existing Credit Agreement
required quarterly payments of $875,000, commencing in September 1995, which the
Company was not able to make. The Existing Credit Agreement expires on January
15, 1996 at which time the remaining principal balance of $15,225,000 is due.
Unless the Investment Transaction and restructuring take place, the Company will
be unable to meet this obligation when it becomes due.
In October 1994, the Company retained an investment banker to pursue
strategic alternatives, including the sale of common or preferred stock,
issuance of convertible debt, a business combination, the sale of all or a
portion of the Company and establishment of a borrowing arrangement with new
lending institutions. Separately, in November 1994, the Company sold 363,636
shares of Common Stock at $2.75 per share to an affiliate of Fundamental
Management Corp. ('Fundamental'). C. Shelton James, a director of the Company,
is the President and a director of Fundamental. In May 1995, the Company reached
the letter of intent stage with a prospective purchaser to acquire the Company
for publicly-traded stock of the acquiring company, which, based upon the price
of the stock of the acquiring company, valued the Common Stock at approximately
$3.45 per share. Subsequent to the completion of the prospective purchaser's due
diligence, in July 1995, the prospective purchaser informed the Company that it
would not proceed with the transaction on the terms previously announced. The
Company continued to pursue other financing alternatives.
In March 1995, the Company received a proposal for Charles S. Holmes to
invest up to $8,000,000 in the Company in the form of convertible preferred
stock with voting rights with the Common Stock coupled with warrants to purchase
additional shares of Common Stock. Such proposal would have given Mr. Holmes an
approximate 45% interest in the Company on a fully-diluted basis together with
the right to designate three
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directors of the Company. The Company provided Mr. Holmes with certain
information concerning the financial position of the Company and its projects
and discussed Mr. Holmes investment proposal with him.
On August 4, 1995, Mr. Holmes introduced management of the Company to
representatives of Commonwealth who proposed to raise up to $8,000,000. After
discussions between management of the Company, Mr. Holmes and representatives of
Commonwealth, a draft letter from Commonwealth proposing the Investment
Transaction was presented to the Board of Directors at its meeting on October 3,
1995. Management was authorized to negotiate final terms with Mr. Holmes of the
Holmes Transaction providing for an investment of $1,000,000 and to execute a
letter of intent with Commonwealth with respect to the Investment Transaction
which was executed by the Company on October 20, 1995.
The Board of Directors considered several different options including
any potential disposition or merger of the Company, the possible sale of certain
assets or the stock of one or more subsidiaries, the Holmes Transaction and the
Investment Transaction. In approving the Holmes Transaction and the Investment
Transaction, the Board considered the interests of all shareholders of the
Company, the dilutive effects upon the current shareholders of the Company of
various alternatives, the inability of the Company's investment bankers to find
alternatives, and the obligations to the Bank Lenders which the Company would
not be able to meet.
On October 13, 1995, the Banks agreed to waive certain financial
covenant defaults and to permit the Company and Mr. Holmes to proceed with the
Holmes Transaction. The Banks also indicated their willingness to amend the
Existing Credit Agreement consistent with the terms of the Revised Credit
Agreement, subject to the simultaneous completion of the Investment Transaction
and subject to completion of satisfactory documentation.
The Holmes Alternative
In the event that the Investment Transaction is abandoned or is not
consummated on or before December 31, 1995, Mr. Holmes will be entitled, on or
before January 15, 1996 or such later date as may be mutually agreed between the
parties, to purchase, upon written notice to the Company, (i) an additional
$2,000,000 principal amount of the Company's Notes (the 'Additional Note') and
(ii) warrants representing the right to purchase an additional 2,150,000 shares
of Common Stock (the 'Additional Warrant' and, together with the Additional
Note, the 'Additional Securities'), in each case, upon substantially the same
terms and conditions as the respective Securities purchased by Mr. Holmes in the
Holmes Transaction. In the event that Mr. Holmes, or a designee of Mr. Holmes,
purchases all of the Additional Securities, the Company will, upon written
notice from Mr. Holmes, (i) promptly retain the services of an investment bank,
mutually selected by the Company and Mr. Holmes, to advise the Company on the
sale of certain assets or the stock of one or more subsidiaries and offer such
assets or stock for sale through such investment bank and (ii) use its best
efforts to promptly cause the resignation of two then-current members of the
Board of Directors of the Company and to cause the vacancies resulting thereby
to be filled by individuals designated by Mr. Holmes.
Description of the Securities
The Securities will be issued pursuant to a Subscription Agreement,
dated as of December __, 1996, between the Company and the Investors (the
'Subscription Agreement'). It is anticipated that each unit will consist of (i)
$____ principal amount of the Notes and (ii) a detachable Warrant representing
(subject to the limitation set forth below under 'Shareholder Approval') the
right to acquire _____ shares of Common Stock and will be offered at a Unit
purchase price of $____.
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The Notes. The Notes will mature on December __, 2000 and will bear
interest from the date of issuance at the rate per annum of 12%. Interest on the
Notes will be payable semi-annually in arrears on December __ and June __ of
each year commencing June __, 1996. In the event of a Chapter 11 or Chapter 7
bankruptcy case involving the Company, the Notes will bear interest from the
date of commencement of the case at a default rate per annum equal to the lesser
of 18% or the highest such rate allowable by law. The Notes will be subject to
prepayment, in whole and not in part, at the option of the Company, at any time,
without premium or penalty.
Subordination. The indebtedness evidenced by the Notes, including any
interest thereon, is subordinate and subject in right of payment to the prior
payment when due in full of all Senior Indebtedness. Senior Indebtedness is
defined in the Note to include, unless the terms respecting the particular
indebtedness or obligation otherwise provide, the principal of, premium, if any,
and any interest on, all liabilities of the Company, direct or contingent,
joint, several or independent, now or hereafter existing, due or to become due,
whether created directly or acquired by assignment or otherwise, under or in
respect of the Existing Credit Agreement and all extensions, renewals and
refunding of any of the foregoing.
Conversion Rights. The Notes may be converted by the holders as to
their principal amount into Common Stock of the Company at any time, commencing
one year after the closing and prior to maturity, at a conversion price equal to
$2.00 per share, subject to adjustment. The conversion price of the Notes will
be adjusted to $1.50 or $1.00, respectively, if the adjusted earnings before
interest and taxes of the Company fall below $4,500,000 or $3,000,000 in 1996.
Should the Company sell its Lynwood division in 1996, such amounts will be
reduced by up to $1,160,000 in 1996, depending on the time of sale. The
conversion price and the number of shares of Common Stock to be received upon
conversion are subject to adjustment upon the occurrence of any of the following
events: (i) the recapitalization of the Company or reclassification of the
securities to be received upon conversion or any merger or consolidation of the
Company into or with a corporation or other business entity, or the sale or
transfer of all or substantially all of the Company's assets or any successor
corporation's assets to any other corporation or business entity, (ii) the
subdivision or combination of the shares of Common Stock to be received upon
conversion, (iii) the payment of dividends or other distributions in the form of
the securities to be received upon conversion, and (iv) the issuance of shares
of Common Stock at less than the conversion price. No adjustment of the
conversion price is required to be made until cumulative adjustments otherwise
required to be made amount to 1% or more of the conversion price last adjusted.
The Company may force conversion of the Notes if, during any period prior to
maturity, the closing price of the Common Stock exceeds $6.00 per share for 30
consecutive trading days. Fractional shares will not be issued upon conversion,
but cash adjustment will be paid in lieu thereof. Interest will accrue on the
Notes through the date of conversion. No payment or adjustment will be made for
dividends on securities issued upon conversion.
Restrictive Covenants of the Company. The Subscription Agreement will
contain certain negative covenants prohibiting, among other things, the negative
pledge of the Company's assets not otherwise encumbered by its senior lenders.
The foregoing covenants, while advantageous to the holders of the Notes, could
impede the ability of the Company to enter into certain transactions that might
be advantageous to the Company.
Events of Default. 'Events of Default' under the Notes include failure
to pay principal or interest, the failure to pay other indebtedness for borrowed
money in excess of $500,000 when due, or the acceleration of such indebtedness,
the failure to pay any judgment in excess of $500,000 when due or stayed, and
voluntary or involuntary bankruptcy of the Company as well as the failure to
file a registration statement with the Securities and Exchange Commission within
the later of 90 days after the date of the closing of the Investment Transaction
or March 31, 1996 and the failure of such registration statement to become
effective within 60 days thereafter and to remain effective for up to three
years. See 'Registration Rights' below. In the event the registration
-8-
<PAGE>
statement is not filed or declared effective and does not remain effective for
such required time periods, the interest rate borne by the Notes will be
increased by 1% per annum for each 90-day period (or portion thereof) that such
failure continues, provided that the aggregate increase in such interest rate
will in no event exceed 5% and the interest rate borne by the Notes will not be
increased if the Investors are able to sell the Registrable Securities pursuant
to Rule 144 or otherwise. Rule 144 provides a safe harbor for sales of
restricted securities more than two years after the date of acquisition of such
securities if such sales comply with the volume and manner of sale limitations
contained in the rule. Upon the effectiveness or reeffectiveness of the
registration statement, the interest rate borne by the Notes will be reduced to
the original interest rate of the Notes.
If an Event of Default occurs and is continuing, then and in every such
case the holders of the Notes may declare the Notes then outstanding to be
immediately due and payable by a notice in writing to the Company, whereupon the
same will be immediately due and payable. A payment default will result in an
increased issuance to Investors of Warrants to purchase an amount of shares of
Common Stock and until the Notes are fully repaid, the right of the Investors to
elect a majority of the Company's Board of Directors. In the event of a Chapter
11 or Chapter 7 bankruptcy case involving the Company, the Notes will bear
interest from the date of commencement of the case at a default rate per annum
equal to the lesser of 18% or the highest such rate allowable by law.
The Warrants. The Warrants will represent the right to acquire
specified numbers of shares of Common Stock at an exercise price equal to $2.50
per share, subject to adjustment (the 'Exercise Price'). The conversion price of
the Notes will be adjusted to $1.50 or $1.00, respectively, if the adjusted
earnings before interest and taxes of the Company fall below $4,500,000 or
$3,000,000 in 1996. The conversion price and the number of shares of Common
Stock to be received upon conversion are subject to adjustment upon the
occurrence of any of the following events: (i) the recapitalization of the
Company or reclassification of the securities to be received upon conversion or
any merger or consolidation of the Company into or with a corporation or other
business entity, or the sale or transfer of all or substantially all of the
Company's assets or any successor corporation's assets to any other corporation
or business entity, (ii) the subdivision or combination of share of Common Stock
to be received upon conversion, (iii) the payment of dividends or other
distributions in the form of the securities to be received upon conversion, and
(iv) the issuance of shares of Common Stock at less than the exercise price. No
adjustment of the conversion price is required to be made until cumulative
adjustments otherwise required to be made amount to 1% or more of the conversion
price last adjusted. Warrants will be exercisable, at any time and from time to
time, on or before 5:30 p.m., local time, on or before December __, 2001 (the
'Expiration Date') by delivery of an Exercise Notice duly completed and
tendering of the aggregate Exercise Price.
The number of shares and price of shares are subject to the same
dilution protection as the holders of Notes receive for shares issued upon
conversion.
Registration Rights
The Company has agreed to file a registration statement with the
Securities and Exchange Commission with respect to the Notes, the Warrants and
the shares of Common Stock issuable upon conversion or exercise thereof
(collectively, the 'Registrable Securities') within the later of 90 days after
the date of the closing of the Investment Transaction or March 31, 1996 and to
use its best efforts to cause such registration statement to become effective
within 60 days thereafter and to keep such registration statement effective for
up to three years thereafter. The failure to register the Registrable Securities
under the Securities Act and to cause the registration statement related thereto
to become effective and to remain effective within such required time periods
will constitute an Event of Default under the Note. See 'Events of Default'
above. In addition, in the event the registration statement is not filed or
declared effective and does not remain effective for such required time periods,
the interest rate borne by the Notes will be increased by 1% per annum for each
90-day period (or
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<PAGE>
portion thereof) that such failure continues, provided that the aggregate
increase in such interest rate will in no event exceed 5% and the interest rate
borne by the Notes will not be increased if the Investors are able to sell all
of the Registrable Securities pursuant to Rule 144 or otherwise. Upon the
effectiveness or reeffectiveness of the registration statement, the interest
rate borne by the Notes will be reduced to the original interest rate of the
Notes.
The Company has also agreed to include the Registerable Securities in
any registration statement filed with the Securities and Exchange Commission
with respect to any future public offerings initiated by the Company or any
other selling shareholders (the 'Piggy-Back Rights') and holders of a majority
in interest of Registerable Securities will have the right, which right may be
exercised no more than twice, to demand, at any time prior to December 31, 2005,
that the Company file a registration statement with the Securities and Exchange
Commission with respect to the Registrable Securities (the 'Demand Rights'). The
Company will bear all fees and expenses incurred in the preparation and filing
of a registration statement relating to the exercise of all Piggy-Back Rights
and the first exercise of the Demand Rights.
Board Representation
In connection with the Holmes Transaction, Charles S. Holmes was
elected as a director of the Company. In the Investment Transaction, the Company
has agreed to use its best efforts to cause the resignation of two current
members of the Board of Directors and cause to be elected as directors two
individuals acceptable to the Company and who are designated by the investors
(including one designated solely by Mr. Holmes). No persons have yet been
designated to serve in such capacity. See 'Election of Directors.'
Commonwealth Placement Agreement
Commonwealth, as placement agent, will receive a fee equal to 8% of the
gross proceeds of the Investment Transaction together with the reimbursement of
accountable expenses. In addition, the Placement Agent will receive warrants to
purchase an aggregate of 600,000 to 800,000 shares of Common Stock (based on the
amount of Notes sold) upon terms and conditions identical to those of the
Warrants. After deducting the fees and expenses payable to the Placement Agent
and miscellaneous expenses payable by the Company in connection with the
Investment Transaction, the net proceeds to the Company are estimated to be
approximately $5,000,000 to 7,000,000. Until December 31, 2000, Commonwealth has
been granted a right of first refusal to act as the Company's underwriter and
placement agent with respect to future private and public financings and serve
as the Company's investment banker with respect to any potential acquisition,
merger, divestiture, strategic planning or other activity, but only if the terms
offered by Commonwealth are then comparable to those being offered by other
investment banking firms to similarly situated companies. Mr. Holmes is entitled
to receive Warrants to purchase a total of 1,200,000 shares of Common Stock as
an advisory fee, and Commonwealth is entitled to receive Warrants to purchase
between 600,000 and 800,000 shares of Common Stock as an advisory fee. If the
Investment Transaction does not proceed, other than as a result of a breach by
Commonwealth of its obligations, the Company is obligated to pay Commonwealth a
minimum fee of $250,000, plus accountable expenses, such amount not to exceed
$400,000.
Dilution of Holders of Common Stock
The following is a brief summary of the dilutive effects of the
Investment Transaction, assuming the sale and conversion of a minimum of
$6,000,000 and a maximum of $8,000,000 of the Notes at $2.00 per share of Common
Stock and assuming exercise of all of the related Warrants at $2.50 per share of
Common Stock:
-10-
<PAGE>
<TABLE>
<CAPTION>
Current Assuming
Common Upon Conversion exercise of
Stock Equity Upon of the Notes and the anti-
(including Conversion Exercise of the dilution
options) of the Notes Warrants adjustment
------------- ------------ ----------------- ----------
<S> <C> <C> <C> <C> <C>
Interests of current holders of
Common Stock................... Minimum 100% 67.1% 50.4% 40.4%
Maximum 100% 50.4% 40.4% 40.4%
</TABLE>
Pro Forma Balance Sheet upon Occurrence of the Investment Transaction
The following is a brief summary of the pro forma effects on the
Company's consolidated balance sheet at September 30, 1995 of the Investment
Transaction and the Revised Credit Agreement, the effects of which are shown in
the second column assuming the sale of a minimum of $6,000,000 and a maximum of
$8,000,000 of Notes, and of the conversion of all of the Notes and exercise of
all of the related Warrants thereon, the effects of which are shown in the third
column. If the Company is unable, with the assistance of Commonwealth, to sell a
minimum of $6,000,000 of Notes, the Company intends to refund to all Investors
all amounts invested in the Securities.
Pro Forma Effect of Investment Transaction as at September 30, 1995
<TABLE>
<CAPTION>
(in thousands) Pro Forma Pro Forma
Current as Adjusted 1 as Adjusted 2
------- -------------- --------------
Minimum/Maximum Minimum/Maximum
<S> <C> <C> <C>
Assets
Total Current Assets...................... $28,067 $33,235/$35,107 $37,977/$44,867
Total Assets.............................. 45,681 51,681/ 53,681 55,591 /62,481
Liabilities
Total Current Liabilities................. 30,823 17,348/ 17,348 17,348 /17,348
Total Long-Term Debt...................... 249 18,899/ 20,724 13,724 /13,724
Total Debt................................ 15,686 20,861/ 22,686 15,686 /15,686
Stockholders' Equity...................... 11,643 12,468/ 12,643 20,469 /28,443
</TABLE>
- - - --------------------
1 Adjusted for the closing of the Investment Transaction assuming the sale of a
minimum of $6,000,000 and a maximum of $8,000,000 of Notes and related
Warrants and the implementation of the Revised Credit Arrangements.
2 Adjusted for the closing of the Investment Transaction assuming the sale of a
minimum of $6,000,000 and a maximum of $8,000,000 of Notes and related
Warrants, the implementation of the Revised Credit Arrangements, the
conversion of all Notes, the exercise of all Warrants (including advisory
Warrants) and the maximum adjustment of the exercise price of the Warrants.
Market for the Common Stock and Related Stockholder Matters
The Common Stock trades in The Nasdaq Stock Market under the symbol
NATL. The table below sets forth for the periods indicated the high and low sale
prices for the Common Stock as adjusted for stock dividends and stock splits as
compiled from published sources.
-11-
<PAGE>
<TABLE>
<CAPTION>
Period High Low
------ ---- ----
<S> <C> <C> <C>
1995 First Quarter $ 3 $ 1 7/8
Second Quarter 3 1/2 2 1/8
Third Quarter 3 1/4 1 1/4
Fourth Quarter (through October 11) 2 3/8 1 7/8
1994 First Quarter 7 5 3/16
Second Quarter 5 7/8 3 5/8
Third Quarter 4 7/8 2 7/8
Fourth Quarter 4 1/8 2 3/16
1993 First Quarter 10 13/16 8 3/16
</TABLE>
There have been no cash dividends declared or paid on the Common Stock
during the past two years. The Existing Credit Agreement restricts cash
dividends to the lesser of 20% of prior year net earnings or $2,000,000. A 4%
stock dividend on the Common Stock was paid to shareholders of record on
February 25, 1994.
As of November 1, 1995, the approximate number of record holders of the
Common Stock as determined from the records of the transfer agent, American
Stock Transfer and Trust Company, was 700. Street names are included
collectively as a single holder of record. Management estimates that the Company
has approximately 2,000 additional shareholders holding stock in street names.
Interest of Persons in Investment Transaction
Mr. Charles S. Holmes, a director, is the principal purchaser in the
Holmes Transaction and the Holmes Alternative. He was elected as a member of the
Board of Directors at the time of the consummation of the Holmes Transaction. He
received interest of $30,000 on the Notes issued in connection with the Holmes
Transaction.
See 'Employment Agreements' as to employment agreements which have been
entered with Robert A. Carlson, the President, Chief Executive Officer and
director of the Company, and Richard A. Schneider, the Executive Vice President,
Treasurer, Chief Financial Officer, Secretary and director of the Company, in
connection with the Holmes Transaction.
Approval of the Investment Transaction
Each of the Directors of the Company have agreed to vote or cause to be
voted shares of Common Stock which they own or control or to use their best
efforts to cause the shares of Common Stock (aggregating ______ shares or __% of
the shares of Common Stock outstanding) to be voted in favor of the Investment
Transaction.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE 'FOR' THE
PROPOSAL TO APPROVE THE INVESTMENT TRANSACTION.
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<PAGE>
APPROVAL OF INCREASE IN NUMBER OF COMMON SHARES AUTHORIZED
The Board of Directors is submitting for shareholder approval a
proposal to amend the Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 10,000,000 to 25,000,000. The full text
of such amendment is set forth in its entirety in Appendix 3 hereto. The
principal reason for recommending the amendment of the Certificate of
Incorporation increasing the authorized shares of Common Stock is to accommodate
the potential conversion to Common Stock of up to $8,000,000 of Notes and
exercise of certain related Warrants to be issued as part of the Investment
Transaction. Presently, the total number of authorized but unissued shares is
inadequate to satisfy the possible conversion of the Notes to and exercise of
the Warrants for Common Stock as required by the Investment Transaction.
As of the Record Date, a total of [175,702] shares of Common Stock were
authorized but not issued. As of that date, a total of [7,459,437] shares of
Common Stock were issued and outstanding and a total of [2,364,861] shares of
Common Stock were reserved or otherwise committed for possible issuance by the
Company to the holders of various warrants and to employees pursuant to various
benefit plans of the Company.
The Notes will be convertible into approximately 3,000,000 to 4,000,000
shares of Common Stock (6,000,000 to 8,000,000 shares if certain conditions are
not met), and holders of the Warrants will acquire the right to purchase
approximately 2,000,000 shares of Common Stock upon exercise thereof.
The maturity date on the Existing Credit Agreement is January 15, 1996, with a
remaining outstanding principal amount of $15,225,000. Under the Company's
present financial condition, the available resources of the Company would be
insufficient to meet this obligation. Amendment of the Existing Credit
Agreement, which includes as an unconditional prerequisite the private placement
of $6,000,000 of Subordinated Indebtedness, will extend the maturity of the
amounts outstanding under the Existing Credit Agreement to January 15, 1999. The
proposal to increase the Company's authorized Common Stock is thus intended to
insure that the Company has sufficient Common Stock to meet the foregoing
obligations and to provide approximately ____________ additional authorized
shares that could be issued in connection with exercises of stock options,
possible future stock splits, stock dividends and mergers and acquisitions and
to raise additional capital, which could include public offerings or private
placements of Common Stock.
The issuance of additional shares of Common Stock may dilute the value
of the Common Stock currently held by shareholders of the Company. While the
Board of Directors believes it important that the Company have the flexibility
that would be provided by having available additional authorized Common Stock,
the Company does not now have any commitments, arrangements or understandings
which would require the issuance of such additional shares of Common Stock other
than the shares reserved for issuance pursuant to the Investment Transaction.
The availability of additional authorized shares of Common Stock would simply
permit the Board of Directors to respond in a timely manner to future
opportunities and business needs of the Company as they may arise and would
avoid the possible necessity and expense of a special meeting of shareholders to
increase the authorized Common Stock.
If the authorized shares of Common Stock are increased as proposed, the
authorized shares of Common Stock would be available for issuance from time to
time upon such terms and for such purposes as the Board of Directors may deem
advisable without further action by the shareholders of the Company except as
may be required by law or the rules of any stock exchange on which the Common
Stock may be listed at a time or under circumstances as may decrease or increase
the book value per share of Common Stock presently issued and outstanding,
depending upon whether the consideration paid for such newly issued shares is
less or more than the book value per share prior to such issuance.
The Company has authority to issue two million (2,000,000) shares of
Preferred Stock, par value $.10 per share. The Preferred Stock may be issued in
series. The Board of Directors of the Company is expressly
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<PAGE>
authorized to establish and designate series of Preferred Stock and to fix from
time to time before issuance the number, designation, relative rights,
preferences and limitations (including, without limitation, participating,
voting, optional or other special rights) of the shares of any series of
Preferred Stock. Except to the extent, if any, that holders of issued and
outstanding shares of Preferred Stock are entitled to vote, the entire voting
power for the election of directors and for all other purposes shall be vested
exclusively in the holders of Common Stock, who shall be entitled to one vote
for each share of Common Stock held of record by them.
If the proposal to amend the Certificate of Incorporation is not
approved, the Board of Directors intends to issue a class of Preferred Stock of
the Company with full voting rights in the same class as Common Stock and
cumulative preferred dividend rights although no party has committed to buy or
place these securities.
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock is required to approve the proposal to amend the
Company's Certificate of Incorporation to increase the authorized shares of
Common Stock from 10,000,000 to 25,000,000. Holders of Common Stock are entitled
to one vote per share. There are no cumulative voting rights and no preemptive
rights.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE 'FOR' THE
PROPOSAL TO APPROVE THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK.
-14-
<PAGE>
ELECTION OF DIRECTORS
Nominees for Director
The Certificate of Incorporation of the Company currently provides for
a Board of Directors consisting of no less than three (3) nor more than seven
(7) directors with the number of directors within those limits fixed by the
Board of Directors from time to time. The Board of Directors has fixed the
number of directors at seven (7). Paragraph 7 of the Certificate of
Incorporation further provides that such number may be increased to nine (9) who
shall be divided into three classes serving three-year terms upon the occurrence
of certain events including the beneficial ownership by a single entity of
twelve percent (12%) or more of the outstanding shares of Common Stock entitled
to vote in the election of directors.
Accordingly, at the Annual Meeting, shareholders will elect seven (7)
members of the Board of Directors to serve until the annual meeting of
shareholders to be held in 1996 and until their respective successors are
elected and qualify or until their resignation, removal, disqualification or
death as provided in the Certificate of Incorporation and by-laws of the
Company.
The nominees for director, together with certain information furnished
to the Company by each nominee, are set forth below. The nominees are all
current members of the Company's Board of Directors.
Mr. Charles S. Holmes is a party to an agreement with the Company with
respect to his nomination to the Board of Directors. See 'Approval of Investment
Transaction -- Interest of Person in Investment Transaction.' In addition,
following completion of the Investment Transaction, two members of the Board of
Directors will resign and two other individuals acceptable to the Company and
who are designated by the Investors (including one designated by Mr. Holmes)
will be elected to the Board of Directors to fill such vacancies. See 'Approval
of Investment Transaction.'
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<PAGE>
<TABLE>
<CAPTION>
Years Served
Name and Age as a Director Biographical Summary
- - - ------------ ------------- --------------------
<S> <C> <C>
Robert A. Carlson, 62 8 Mr. Carlson is President and Chief Executive Officer of the
Company. Until December 1989, he was President and
Chief Operating Officer of the Company.
Richard A. Schneider, 42 3 Mr. Schneider is Executive Vice President, Treasurer, Chief
Financial Officer and Secretary of the Company. He was
elected a director of the Company on February 11, 1993.
From October 1988 until December 1992, he served as Vice
President - Finance and Treasurer of the Company. He was
elected Secretary of the Company in January 1990.
Stephen A. Barre, 56 6 Mr. Barre is Chairman and Chief Executive Officer of
Servo Corporation of America, a communications and defect
detection company.
Charles S. Holmes, 50 1 month Mr. Holmes has served as Principal and is the sole
stockholder of Asset Management Associates of New York,
Inc. ('Asset Management'), a New York-based firm
specializing in acquisitions of manufacturing businesses.
Mr. Holmes founded and was partner in Asset Management
Associates, a predecessor partnership of Asset Management,
from 1978 to 1991. Mr. Holmes has been Vice Chairman
of the Board of Directors of Chart Industries Inc., a
Delaware company, since its formation in June 1992.
C. Shelton James, 55 6 Mr. James is Chairman of the Board and Chief Executive
Officer of Elcotel Inc., a public communications company.
He also is President and a director of Fundamental
Management Corporation, an investment management
company, and is on the board of directors of Harris
Computer Systems Inc., SK Technologies and CPSI Inc.
John M. May, 67 16 Mr. May is an independent consultant. From 1975 to 1987,
he was Vice President and Director of Tower, Perrin, Inc.,
a management consulting firm. He is also a director of
Olsten Corporation, a provider of temporary employee and
health care services.
Robert D. Rosenthal, 45 10 Mr. Rosenthal is President, Chief Executive Officer and a
Director of First Long Island Investors, Inc., a diversified
investment and financial services company. He also is Co-
Chairman and Co-Chief Executive Officer of the New York
Islanders, a franchise in the National Hockey League.
</TABLE>
-16-
<PAGE>
Other Information as to Directors
On October 3, 1995, Walter Lipkin's resignation as director of the
Company was accepted effective October 13, 1995. The Board of Directors then
elected Charles S. Holmes to the Board of Directors to fill the vacancy created
by the resignation of Mr. Lipkin.
The Board of Directors has standing Audit, Compensation and Nominating
committees. During 1994, the Audit Committee members were Messrs. Lipkin,
Rosenthal and James. The Audit Committee held two meetings during 1994. The
Audit Committee recommends to the Board of Directors the independent auditors to
be selected for the Company and reviews the following matters with the
independent auditors: scope and results of the independent audits; corporate
accounting; internal accounting control procedures; adequacy and appropriateness
of financial reporting to shareholders and others; and such other related
matters as the Audit Committee considers to be appropriate. The Audit Committee
also recommends to the Board of Directors any changes in the independent
auditing and accounting practices it determines to be appropriate.
During 1994, the Compensation Committee members were Messrs. Lipkin,
Rosenthal and May. The Compensation Committee held two meetings during 1994. The
Compensation Committee recommends to the Board of Directors the compensation of
the Company's officers, directors and certain other employees and any bonuses
for officers. The Compensation Committee also determines the key employees and
directors to whom, and the time or times at which, grants of options under the
Company's stock option plans shall be made and the number of shares of Common
Stock to be purchasable upon exercise of options granted under the stock option
plans, and to interpret the stock option plans and to prescribe, amend and
rescind rules and regulations relating thereto, and to make all other
determinations deemed necessary or advisable for the administration of the stock
option plans. The Compensation Committee also has authority to select who is
eligible for the stock option secured loan program.
During 1994, the Nominating Committee members were Messrs. Barre, May
and Lipkin. The Nominating Committee held one meeting during 1994. The duties of
the Nominating Committee include evaluating and recommending candidates for
election to the Board of Directors. The Nominating Committee will consider
nominees recommended by shareholders. Such nominations should be submitted in
writing to the Secretary of the Company at the address noted above.
The Board of Directors met six times during 1994 at regular and special
meetings in person or by conference telephone. All incumbent members of the
Board of Directors attended more than 75 percent of the total number of meetings
of the Board of Directors and all committees of which they were a member during
1994.
The Company indemnifies its executive officers and directors to the
extent permitted by applicable law against liabilities incurred as a result of
their service to the Company. The Company has two directors and officers
liability insurance policies underwritten by the Aetna Casualty and Surety
Company and by Fidelity & Casualty Company of New York in the aggregate amount
of $5,000,000 renewable annually. The aggregate premium in 1994 was $150,000. No
amounts have been claimed under the policies.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), requires officers, directors and beneficial owners of more than
10% of the Common Stock to file reports of ownership and changes in their
ownership of the equity securities of the Company with the Securities and
Exchange Commission. Based solely on a review of the reports and representations
furnished to the Company during the last fiscal year by such persons, the
Company believes that each of these persons is in compliance with all applicable
filing requirements. Under Section 16(b) of the Exchange Act, such persons also
are required to disgorge to the Company any profit realized by any purchase and
sale, or any sale and purchase, of equity securities of the Company within any
period of less than six months. Pursuant thereto, Mr. Schneider was
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<PAGE>
required to disgorge profits totalling $5,980 based on the sale of 1,000 shares
and the purchase of 1,000 shares of the Common Stock one day short of the
required six month waiting period in fiscal 1994.
The enclosed proxy provides a means for shareholders to vote for the
election of all of the directors listed above, to withhold authority to vote for
one or more of such directors, or to withhold authority to vote for all of such
directors. Unless a shareholder who withholds authority votes for the election
of one or more other persons at the meeting or votes by means of another proxy,
the withholding of authority will have no effect upon the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE 'FOR' THE
ELECTION OF THE NOMINEES FOR DIRECTOR SET FORTH ABOVE.
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<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
The current executive officers of the Company are as follows:
Robert A. Carlson, 62, is the President and Chief Executive Officer of
the Company. From December 1987 until December 1989, he was President and Chief
Operating Officer of the Company.
Richard A. Schneider, 42, is the Executive Vice President, Treasurer,
Chief Financial Officer and Secretary of the Company. From October 1988 until
December 1992, he served as Vice President - Finance and Treasurer of the
Company. He was elected Secretary of the Company in January 1990.
Executive Compensation
The following table sets forth all plan and non-plan compensation
awarded to, earned by or paid to the Company's Chief Executive Officer and each
of the executive officers of the Company other than the Chief Executive Officer
whose total annual salary and bonus exceeded $100,000 for each of the Company's
last three fiscal years (collectively, the 'Named Executives').
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted Securities
Compen- Stock Underlying LTIP All Other
Name and Principal Fiscal sation Award(s) Options/ Payouts Compensation
Position Year Salary ($) Bonus ($) ($)(1) ($) SARs (#) ($) ($)
- - - ---------------------- ---- ---------- --------- ------- --- -------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert A. Carlson - 1994 $275,000 -- -- -- 138,983(5) -- $66,324(2)
President and Chief 1993 260,000 $ 68,790 -- -- 64,347 -- 69,652(2)
Executive Officer 1992 226,000 113,300 -- -- 122,919 -- 64,539(2)
Richard A. Schneider - 1994 149,000 -- -- -- 94,389(5)
Executive Vice 1993 138,000 27,380 -- -- 23,442 -- 12,426(3)
President, Treasurer 1992 118,000 36,970 -- -- 30,147 -- 13,993(3)
and Secretary -- 14,622(3)
Frank Tortorelli - 1994 144,895 -- -- -- 75,136(5) -- 5,298(4)
President, Military 1993 n/a -- -- -- -- -- --
Systems Group(6) 1992 n/a -- -- -- -- -- --
- - - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The aggregate amount of all perquisites and other personal benefits paid to
any Named Executive is not greater than either $50,000 or 10% of the total of
the annual salary and bonus reported for such Named Executive.
(2) Includes $51,266, $59,122 and $59,022 of life insurance premiums paid on
term life and split dollar policies by the Company on behalf of Mr. Carlson in
each of the years 1992, 1993 and 1994, respectively, as well as $8,273, 7,909
and $7,302 of matching contributions made by the Company under the 401(k)
deferred compensation plan and $5,000, $2,621 and $0 of matching
-19-
<PAGE>
contributions made by the Company under the profit sharing portion of such plan
for the benefit of Mr. Carlson for each of the years 1992, 1993 and 1994,
respectively.
(3) Includes $6,781, $7,637 and $7,603 of life insurance premiums paid on term
life and split dollar policies by the Company on behalf of Mr. Schneider in each
of the years 1992, 1993 and 1994, respectively, as well as $4,341, $4,166 and
$4,823 of matching contributions made by the Company under the 401(k) deferred
compensation plan and $3,500, $2,190 and $0 of matching contributions made by
the Company under the profit sharing portion of such plan for the benefit of Mr.
Schneider for each of the years 1992, 1993 and 1994, respectively.
(4) Includes $818 of life insurance premiums paid on a term life policy by the
Company on behalf of Mr. Tortorelli in 1994, as well as $4,480 of matching
contributions made by the Company under the 401(k) deferred compensation plan
and $0 of contributions made by the Company under the profit sharing portion of
such plan for the benefit of Mr. Tortorelli for 1994.
(5) Options to acquire shares of the Common Stock that were granted in fiscal
year 1994. At the same time, options for Mr. Carlson (102,951), Mr. Schneider
(54,996) and Mr. Tortorelli (39,336) were canceled.
(6) Mr. Tortorelli resigned from his position as President of the Military
Systems Group on May 1, 1995.
Employment Agreements
The Company entered into an Employment Agreement (the 'Schneider
Employment Agreement') with Richard A. Schneider. Pursuant to the Schneider
Employment Agreement, the term of Mr. Schneider's employment commenced on
October 16, 1995 and will continue until October 16, 1997. Mr. Schneider will be
paid salary at a rate of $135,000 per annum which represents a 25% reduction in
salary. In addition to such salary and subject to attaining annual targets, the
Company will pay to Mr. Schneider an annual bonus equal to 87% of his salary. In
addition, Mr. Schneider will be eligible to participate in all employee benefit
programs, will be entitled to three weeks vacation, will continue to participate
in the Company's retirement program, will be provided with use of a Company car,
and will be granted options to purchase 125,000 shares of Common Stock at a per
share exercise price of $2.50 (such options to replace 100,000 previously issued
options which were canceled). In addition, if the Company decides to terminate
Mr. Schneider's employment without cause, the Company has agreed to provide Mr.
Schneider with 20 days written notice, and provide him with a severance payment
of either his salary for the remainder of the term under the agreement or one
year's salary, whichever is greater. If the Company decides to terminate Mr.
Schneider's employment for cause, the Company has agreed to provide 20 days
written notice, and reason for the termination. Mr. Schneider will have those 20
days to effect a cure to the Company's satisfaction, and such reason will no
longer constitute cause for removal. In addition and pursuant to the Schneider
Employment Agreement, the Company will loan to Mr. Schneider the equivalent of
the difference between his net salary and the net salary he was receiving
immediately prior to the execution of the Schneider Employment Agreement
($550.00 per week). This loan will be repayable out of any bonus paid to Mr.
Schneider on account of work performed during the prior year; provided, however,
that upon a resignation for Good Reason (as defined) or termination without
cause, the full amount outstanding under such loans will be discharged in full.
The Company entered into an Employment Agreement (the 'Carlson
Employment Agreement') with Robert A. Carlson. Pursuant to the Carlson
Employment Agreement, the term of Mr. Carlson's employment commenced on October
16, 1995 and will continue until November 30, 1997. Mr. Carlson will be paid
salary at a rate of $214,500 per annum which represents a 25% reduction in
salary. In addition to such salary and subject to attaining annual targets, the
Company will pay to Mr. Carlson an annual bonus equal to 100% of his salary. In
addition, Mr. Carlson will be eligible to participate in all employee benefit
programs, will be entitled to four weeks vacation, will continue to participate
in the Company's retirement program, will be provided with use of a Company car,
and will be granted options to purchase 250,000 shares of Common Stock at a per
share exercise price of $2.50 (such options to replace 225,000 previously issued
options which were canceled). In addition, if the Company decides to terminate
Mr. Carlson's employment without cause, the Company has agreed to provide Mr.
Carlson with 20 days written notice, and provide him with a severance payment of
either his salary for the remainder of the term under the agreement or one
year's salary, whichever is greater. If the Company decides to terminate Mr.
Carlson's employment for cause, the Company will provide 20 days written notice,
and reason for the termination. Mr. Carlson will have those 20 days to effect a
cure to the Company's satisfaction, and such reason will no longer constitute
cause for removal.
-20-
<PAGE>
Termination of Employment and Change in Control Agreements
The Company entered into Executive Termination Agreements with Messrs.
Carlson, Schneider, Tortorelli and four other employees, which provide for
severance benefits in the event employment terminates within one year following
a change in control of the Company unless termination is on account of death, or
for cause. The agreements are renewable annually at the option of the Company.
The agreements provide severance benefits which include an amount equal to two
times annual base salary for Messrs. Carlson and Schneider (the number of years
or portions thereof until Mr. Carlson's sixty-fifth birthday times annual base
salary for Mr. Carlson; one times annual base salary for the three other
employees). Mr. Carlson's and Mr. Schneider's Executive Termination Agreements
have been superseded by their employment agreements and Mr. Tortorelli's and one
other employee's Executive Termination Agreements terminated when they resigned
from the Company. The Executive Termination Agreements for the three other
employees will not be triggered by the Investment Transaction unless their
employment terminates within one year following the closing date unless the
termination is on account of death or for cause.
-21-
<PAGE>
Stock Options
The table below summarizes the options granted to the Named Executives
in 1994 and their potential realizable values. All these options were
subsequently canceled.
OPTION/SAR GRANTS IN 1994
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term 1
- - - ----------------------------------------------------------------------------------------- ---------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- - - ------------------------------ ------------ -------------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Carlson -
President and Chief 36,032 7% $6.25 10 years $141,627 $358,911
Executive Officer 102,951 2 21% $5.25 5 years $149,330 $329,979
Richard A. Schneider -
Executive Vice President 39,393 8% $4.74 10 years $117,431 $297,587
Treasurer and Secretary 54,996 2 11% $5.25 5 years $ 79,772 $176,273
Frank Tortorelli -
President, Military 35,800 7% $5.25 10 years $118,201 $299,542
Systems Group 3 39,336 2 8% $5.25 5 years $ 57,057 $126,080
</TABLE>
- - - --------
1 Option price compounded annually at 5% and 10% over the ten year term
minus the exercise price times the number of shares subject to the
option.
2 Such options were granted on May 26, 1994 in connection with the
cancellation of options granted for the same number of shares at
earlier dates. Such options were subsequently canceled and new options
were granted to Messrs. Carlson and Schneider on October 16, 1995 for
250,000 and 125,000 shares, respectively, at a per share exercise price
of $2.50. The terms of such options called for such options to become
exercisable at a rate of 25% per year on the anniversary date of the
grant. All such options were to expire after the fifth anniversary of
the date of grant.
3 All of Mr. Tortorelli's options were canceled by the Company 30 days
after Mr. Tortorelli resigned from the Company, or June 1, 1995, in
accordance with their terms.
-22-
<PAGE>
The table below summarizes the exercise of stock options during 1994
by the Named Executives.
AGGREGATED OPTION/SAR EXERCISES IN 1994
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable1
- - - ------------------------- --------------- ------------------ -------------------- -------------
<S> <C> <C> <C> <C>
Robert A. Carlson -
President and
Chief Executive
Officer 10,140 $34,223 47,579/166,906 $336/$0
Richard A. Schneider -
Executive Vice
President,
Treasurer and Secretary -0- $0 7,768/87,559 $86/$0
Frank Tortorelli -
President, Military
Systems Group -0- $0 4,056/58,392 $0/$0
</TABLE>
- - - --------
1 Market price at December 31, 1994 minus exercise price times the
number of shares underlying the unexercised options.
-23-
<PAGE>
The table below sets forth certain information with respect to the
cancellation and grant described in footnote (2) to the Option/SAR Grants table
above.
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
Length of Original
Number of Market Price of Exercise Price New Option Term
Options Stock at Time of at Time of Exercise Remaining at Date of
Name Date Canceled Cancellation Cancellation Price Cancellation
- - - ------------------------ ----- --------- ------------- ------------ --------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Carlson - 01/01/93 13,715 $4.50 $8.17 $5.25 8 years, 7 months
President and 02/23/93 38,060 $4.50 $8.97 $5.25 8 years, 8 months
Chief Executive 11/29/93 15,144 $4.50 $10.82 $5.25 9 years, 6 months
Officer 01/01/94 26,000 $4.50 $6.25 $5.25 9 years, 7 months
01/02/94 10,032 $4.50 $6.25 $5.25 9 years, 7 months
Richard A. Schneider - 12/10/92 16,224 $4.50 $6.40 $5.25 8 years, 6 months
Executive Vice 01/01/93 4,474 $4.50 $8.17 $5.25 8 years, 7 months
President, 05/03/93 14,483 $4.50 $9.06 $5.25 9 years
Treasurer and Secretary 11/29/93 5,422 $4.50 $10.82 $5.25 9 years, 6 months
01/01/94 10,400 $4.50 $6.25 $5.25 9 years, 7 months
01/02/94 3,993 $4.50 $6.25 $5.25 9 years, 7 months
Frank Tortorelli - 12/10/92 16,224 $4.50 $6.40 $5.25 8 years, 6 months
President, Codar 01/01/93 2,312 $4.50 $8.17 $5.25 8 years, 7 months
Technology Inc. 01/01/94 20,800 $4.50 $6.25 $5.25 9 years, 7 months
</TABLE>
The new options were for a term of five years with a vesting provision
of 25% per year beginning on the one year anniversary of the grant. All the new
options were subsequently canceled and new options were granted on October 16,
1995 to Messrs. Carlson and Schneider for 250,000 and 125,000 shares,
respectively, at a per share exercise price of $2.50.
-24-
<PAGE>
Supplemental Retirement Plan
The Company has a non-qualified Supplemental Retirement Plan pursuant
to which the Company may pay from general revenues to two currently eligible
employees the difference between (i) 2.5% (5.0% for the President/CEO) of the
average of the employees' highest consecutive five year earnings per year of
service to a maximum of 50% and (ii) those benefits payable under the Pension
Plan, social security and from any other prior employers' defined benefit
pension plan.
Typical retirement benefits as in effect on December 31, 1994 are shown
in the table below:
ESTIMATED ANNUAL NORMAL RETIREMENT PENSION AND
SUPPLEMENTAL BENEFITS FOR VARIOUS COMBINATIONS OF
SPECIFIED COMPENSATION AND YEARS OF CREDITED SERVICE
<TABLE>
<CAPTION>
Years of Credited Service at Retirement
---------------------------------------
Remuneration 10 15 20 25 30 35
------------ ------ ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 4,610 $ 6,915 $ 9,220 $ 8,125 $ 13,830 $ 13,830
75,000 7,485 11,228 14,970 14,888 22,455 22,455
100,000 10,360 15,540 20,720 22,075 31,080 31,080
125,000 13,235 19,853 26,470 29,263 39,705 39,705
150,000 16,110 24,165 32,220 36,450 48,330 48,330
175,000 18,985 28,478 37,970 43,638 56,955 56,955
200,000 21,860 32,790 43,720 50,825 65,580 65,580
225,000 24,735 37,103 49,470 58,013 74,205 74,205
250,000 25,982 38,972 51,963 59,122 77,945 77,945
300,000 25,982 38,972 51,963 59,122 77,945 77,945
400,000 25,982 38,972 51,963 59,122 77,945 77,945
</TABLE>
The benefits shown in the table above have been computed on an
actuarial basis and are not subject to any deduction for social security or
other offset amounts. The compensation covered by the Pension Plan includes the
amounts shown in columns (c), (d) and (e) of the Summary Compensation Table.
It is estimated that Messrs. Carlson and Schneider, who have ten and
six years of credited service, respectively, will receive each year at normal
retirement age the following total aggregate annual amounts under the Pension
Plan and the non-qualified Supplemental Retirement Plan: $160,213 and $66,818,
respectively.
Director Compensation
During 1994, each director who was not also an officer of the Company
was paid an annual retainer of $9,000 plus a uniform fee of $1,000 for each
Board and committee meeting attended in person. During 1995, each director who
is not also an officer of the Company will be paid an annual retainer of $9,000
plus a uniform fee of $1,000 for each Board and committee meeting attended in
person. During 1994, directors who were also officers of the Company received
no remuneration for attendance at Board and committee meetings. No such
compensation is contemplated to be paid during 1995 either.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1994, the members of the
Compensation Committee were John M. May (Chairman), Walter Lipkin and Robert D.
Rosenthal. During fiscal year 1994 and formerly, none of such persons was an
officer of the Company or any of its subsidiaries or had any relationship with
the Company other than serving as a director of the Company, except that Mr.
Lipkin served as a Vice President or Senior Vice President and Treasurer of the
Company from 1954 through 1989. In addition, during the fiscal
-25-
<PAGE>
year ended December 31, 1994, no executive officer of the Company served as a
director or a member of the compensation committee of another entity, one of
whose executive officers served as a director or on the Compensation Committee
of the Company. Mr. Lipkin has resigned, as a director
Compensation Committee Report on Executive Compensation
The Compensation Committee recommends to the Board of Directors the
compensation of the Company's officers, directors and certain other employees
and any bonuses for officers. The Compensation Committee's recommendations for
compensation during 1994 were accepted by the Board of Directors.
The salary of the executive officers is reviewed annually by the
Compensation Committee with reference to a survey of the compensation levels of
the executive officers of companies in the electronics industry of a comparable
size and of selected public companies which the Compensation Committee believes
are competitors of, or similarly situated to, the Company. Based on this review,
the salary of each officer is set within the ranges developed. Salaries of the
Company's executive officers are in the middle of the range of salaries paid by
the other companies examined. Bonus targets are separately established at the
beginning of each year with reference to the Company's performance against
preset criteria principally relating to corporate profit and growth, in each
case as established by the Compensation Committee. Target bonus amounts which
may be earned are established as a percentage of base salary by the Compensation
Committee by reference to the previously described survey. Bonuses are paid
based upon actual results of operations for the year against the pre-established
targets.
Mr. Carlson's compensation during 1994 was composed of $285,000 in
salary and no bonus. The Compensation Committee established his salary in the
middle of the range of compensation of chief executive officers of selected
companies, as previously described. Mr. Carlson was not awarded any of his
target bonus based on the Company's results compared to the criteria established
at the beginning of the year. However, the Compensation Committee recommended
that certain options granted to Mr. Carlson be repriced so as to serve as a more
meaningful motivation for Mr. Carlson and to align Mr. Carlson's interests more
closely with those of the Company's shareholders.
John M. May, Chairman
Robert D. Rosenthal
-26-
<PAGE>
Performance Graph
The following graph compares the yearly percentage change in the
cumulative total shareholder return on the Common Stock for each of the
Company's last five fiscal years with the cumulative total return (assuming
reinvestment of dividends) of (i) The Nasdaq Stock Market index (U.S. companies)
and (ii) the Nasdaq non-financial stocks index.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Company $100 $152 $238 $424 $324 $140
Nasdaq SMI 100 85 136 159 181 177
Nasdaq NFI 100 88 142 155 178 170
</TABLE>
-27-
<PAGE>
Principal and Management Shareholdings
The following table sets forth information concerning persons or groups
who are known by the Company to be the beneficial owners of more than 5% of the
Common Stock as of November 1, 1995. The information in the table below is based
upon information furnished to the Company by such persons and statements filed
with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Number of Shares of Percent of
Common Company
Name and Address of Beneficial Owner Stock Beneficially Owned 1 Common Stock
- - - --------------------------------------------- ------------------------- ------------
<S> <C> <C>
Lindner Fund Inc.
7711 Carondelet Avenue
Box 16900
St. Louis, MO 63105 2 . . . . . . . . . . . . . . 405,600 5.43%
Fundamental Management Corporation
201 South Biscayne Boulevard
Suite 1450
Miami, FL 33131 3 . . . . . . . . . . . . . . . . 415,429 5.57%
C.L. King & Associates
Nine Elk Street
Albany, NY 12207 4. . . . . . . . . . . . . . . . 451,451 6.05%
Pioneering Management Corporation
60 State Street
Boston, MA 02114 5. . . . . . . . . . . . . . . . 451,500 6.05%
</TABLE>
- - - --------
1 To the knowledge of the Company, beneficial owners named in the above
table have sole voting power with respect to the shares listed opposite
their names.
2 These shares are reportedly owned by Lindner Fund Inc., an investment
company registered under the Investment Company Act of 1940, of which
Ryback Management Corporation is the investment company adviser
registered under Section 203 of the Investment Advisers Act of 1940.
3 These shares are reportedly owned by various limited partnerships of
which Fundamental Management Corporation is the general partner.
4 These shares are reportedly owned by a passive investor. C.L. King &
Associates is the registered broker dealer for such investor and is
registered under Section 15 of the Securities and Exchange Act of 1934,
as amended.
5 These shares are reportedly owned by a passive investor. Pioneer
Management Corporation is the investment company adviser of such
investor and is registered under Section 203 of the Investment Advisers
Act of 1940.
-28-
<PAGE>
Shares of Common Stock beneficially owned as of November 1, 1995 by
each director, nominee for director and executive officer of the Company and by
all directors and executive officers of the Company as a group are set forth in
the following table. This table is based upon information furnished to the
Company by such persons and statements filed with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
Beneficial Ownership of Shares 1
------------------------------------------
Number of Shares of Percent of
Common Stock Company
Name Beneficially Owned 2 Common Stock 3
- - - ------------------------------------------ ------------------ -----------------
<S> <C> <C>
Robert A. Carlson ....................... 100,467 1.30%
Stephen Barre ........................... 17,654 *
C. Shelton James4 ....................... 14,793 *
Charles S. Holmes5....................... 0 *
John M. May............................. 47,489 *
Robert D. Rosenthal ..................... 69,700 *
Richard A. Schneider .................... 16,812 *
All directors and officers
as a group (7 persons) ................ 266,915 *
</TABLE>
- - - --------
* Less than 1%
1 Directors and executive officers have sole voting power and sole
investment power with respect to the shares listed opposite their
names.
2 Excludes options exercisable within 60 days of November 1, 1995 for
such persons as follows: Mr. Carlson, 0; Mr. Barre, 3,120; Mr. James,
7,401; Mr. Holmes, 0; Mr. May, 3,120; Mr. Rosenthal, 3,120; Mr.
Schneider, 0; and all directors and officers as a group, 104,125.
3 The percentages of Common Stock outstanding are based on 7,459,437
shares outstanding on November 1, 1995.
4 Excludes 385,636 of Common Stock owned by various limited partnerships
of which Fundamental Management Corporation, an investment company of
which Mr. James is President and a director, as to which shares Mr.
James shares voting and dispositive power.
5 Excludes Notes convertible within 60 days of November 1, 1995 into
500,000 shares of Common Stock and Warrants exercisable within 60 days
of November 1, 1995 for 850,000 shares of Common Stock.
-29-
<PAGE>
RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick, Jericho, New
York, as the Company's independent auditors for the year ending December 31,
1995. In accordance with the by-laws of the Company, the Board of Directors is
submitting its selection of KPMG Peat Marwick to the shareholders for
ratification and approval. If the selection is not ratified and approved, the
Board of Directors will reconsider its choice. KPMG Peat Marwick, an
international firm of certified public accountants, has been retained as
auditors by the Company each year since 1981. A representative of KPMG Peat
Marwick is expected to be present at the Annual Meeting to make a statement,
should the representative desire to do so, and to answer appropriate questions
from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE 'FOR'
RATIFICATION AND APPROVAL OF THE SELECTION OF KPMG PEAT MARWICK AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31, 1995.
-30-
<PAGE>
SHAREHOLDERS PROPOSALS FOR 1996 ANNUAL MEETING
Shareholder proposals for inclusion in the proxy materials and
consideration at the 1996 Annual Meeting of Shareholders, if any, must be
received by the Company on or before ________ __, 1996 in order to be included
in the proxy material of the Company for that meeting.
By Order of the Board of Directors,
Richard A. Schneider,
Secretary
Dated: November 3, 1995
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 filed with the Securities and Exchange Commission may be
obtained without charge (except for exhibits to such annual report, which will
be furnished upon payment of the Company's reasonable expenses in furnishing
such exhibits) by any such person solicited hereunder by writing to: Richard A.
Schneider, Secretary, NAI Technologies, Inc., 2405 Trade Centre Avenue,
Longmont, Colorado 80503. A copy of such report, without exhibits, is also
attached hereto as Appendix 1.
-31-
<PAGE>
Appendix 1
[RESTATED FORM 10-K TO BE SUPPLIED WITH DEFINITIVE FILING]
<PAGE>
Appendix 2
[FORM 10-Q FOR SEPTEMBER 30 QUARTER TO BE SUPPLIED WITH DEFINITIVE FILING]
<PAGE>
Appendix 3
CERTIFICATE OF AMENDMENT
of the
CERTIFICATE OF INCORPORATION
of
NAI Technologies, Inc.
(a New York corporation)
(Under Section 805 of the Business
Corporation Law of the State of New York)
--------------------
The undersigned, desiring to amend a certificate of incorporation under
the provisions of the Business Corporation Law of the State of New York
(hereinafter referred to as the 'BCL'), hereby certifies as follows:
FIRST. The name of the corporation is NAI Technologies, Inc.
(hereinafter referred to as the 'Corporation'). The name under which the
Corporation was originally formed is North Atlantic Industries, Inc.
SECOND. The original Certificate of Incorporation of the Corporation
was filed by the New York Department of State on July 15, 1954. The Restated
Certificate of Incorporation of the Corporation was filed with the New York
Department of State on August [13], 1991.
THIRD. Paragraph '3' of the Restated Certificate of Incorporation of
the Corporation, which sets forth the aggregate number and designations of
shares of stock which the Corporation shall have the authority to issue, is
hereby eliminated in its entirety and the following language is substituted in
lieu thereof which has the effect of increasing from ten million (10,000,000) to
twenty-five million (25,000,000) the number of shares of Common Stock the
Corporation shall have authority to issue:
'3. The aggregate number of shares of stock which the Corporation shall
have the authority to issue is twenty-seven million (27,000,000)
shares, of which twenty-five million (25,000,000) shares shall be
designated Common Stock, each such share having a par value of $.10,
and of which two million (2,000,000) shares shall be designated
Preferred Stock, each such share having a par value of $.10.'
FOURTH. Paragraph '4' of the Restated Certificate of Incorporation of
the Corporation, which sets forth the terms and conditions under which the
Corporation may issue its Preferred Stock, is hereby restated in its entirety
without making any amendment to or change in the provisions thereof:
'4. The Preferred Stock may be issued in series. The Board of Directors
of the Corporation is hereby expressly authorized to establish and
designate series of Preferred Stock and to fix from time to time before
issuance the number, designation, relative rights, preferences and
limitations (including, without limitation, participating, voting,
optional or other special rights) of the shares of any series of
Preferred Stock. Except to the extent, if any, that holders of issued
and outstanding shares of Preferred Stock are entitled to vote, the
entire voting power for the election of directors and for all other
purposes shall be vested exclusively in the holders of Common Stock,
who shall be entitled to one vote for each share of Common Stock held
by them of record.'
FIFTH: The aforesaid amendment to Paragraph 3 of the Restated
Certificate of Incorporation of the Corporation have been authorized (1) by the
[unanimous] vote of the Board of Directors of the Corporation
<PAGE>
taken at a meeting of said Board of Directors and (2) by the vote of the holders
of a majority of all outstanding shares of the Corporation entitled to vote
thereon taken at a meeting of said shareholders, respectively, all in accordance
with Section 803(a) of the BCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed and subscribed in its
name this ___ day of December, 1995, and the statements contained herein are
affirmed as true under the penalties of perjury.
NAI TECHNOLOGIES, INC.
By____________________________
Robert A. Carlson
President
By____________________________
Richard A. Schneider
Secretary
<PAGE>
APPENDIX 4
NAI TECHNOLOGIES, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 14, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert A. Carlson or [Lenthel Stanton]
and each of them, proxies of the undersigned, with full power of substitution,
to vote all Common Stock of NAI Technologies, Inc., a New York corporation (the
'Company'), the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Company to be held at the Long Island headquarters of
Chemical Bank, located at 395 North Service Road, Melville, New York 11747, on
Thursday, December 14, 1995 at 10:00 a.m. (local time), or any adjournment
thereof, with all the powers the undersigned would have if personally present on
the following matters:
1. PROPOSAL TO RATIFY AND APPROVE THE ISSUANCE BY THE COMPANY OF CERTAIN
DEBT SECURITIES AND WARRANTS CONVERTIBLE OR EXERCISABLE INTO OR FOR
APPROXIMATELY 8,000,000 SHARES OF THE COMPANY'S COMMON STOCK TO
INVESTORS IN A PROPOSED PRIVATE PLACEMENT WHICH WILL RESULT IN THE
POTENTIAL ISSUANCE OF MORE THAN 20% OF THE COMPANY'S COMMON STOCK AND
MAY RESULT IN A CHANGE OF CONTROL OF THE COMPANY.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK FROM
10,000,000 TO 25,000,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. ELECTION OF THE FOLLOWING NOMINEES FOR DIRECTOR: Robert A. Carlson,
Richard A. Schneider,
Stephen A. Barre, C.
Shelton James,
Charles S. Holmes,
John M. May and
Robert D. Rosenthal
<TABLE>
<S> <C> <C>
FOR all Nominees [ ] WITHHOLD AUTHORITY INSTRUCTIONS: to withhold authority
to vote for all Nominees [ ] to vote for any individual Nominee,
write that Nominee's name in the space
provided below.
--------------------------------------
</TABLE>
4. PROPOSAL TO RATIFY AND APPROVE THE SELECTION OF KPMG PEAT MARWICK AS
THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31,
1995.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. IN THEIR DISCRETION, THE ABOVE-NAMED PROXIES ARE AUTHORIZED TO VOTE IN
ACCORDANCE WITH THEIR OWN JUDGMENT UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE
VOTED 'FOR' THE ELECTION OF ALL NOMINEES FOR DIRECTOR AND 'FOR' ITEMS 1, 2 AND 4
AND THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO ANY MATTERS REFERRED
TO IN ITEM 5.
The undersigned hereby
acknowledges receipt of a copy
of the accompanying Notice of
Annual Meeting of Shareholders
and Proxy Statement and hereby
revokes any Proxy or Proxies
heretofore given. You may
strike out the persons named as
proxies and designate a person
of your choice, and may send
this Proxy directly to such
person.
DATED: , 1995
Please complete, date and sign
exactly as your name appears
hereon. When signing as
attorney, administrator,
executor, guardian, trustee or
corporate official, please add
your title. If shares are held
jointly, each holder should
sign.
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