SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
NAI Technologies, Inc.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------
(Name of Persons(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $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:(1)
------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
[x] 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:
-------------------------------------------------
<PAGE>
<PAGE>
2) Form, Schedule or Registration Statement No.:
-------------------------------------------------
3) Filing Party:
-------------------------------------------------
4) Date Filed:
-------------------------------------------------
-2-
<PAGE>
<PAGE>
Revised Preliminary Copy NAI TECHNOLOGIES, INC.
2405 Trade Centre Avenue
Longmont, Colorado 80503
(303) 776-5674
-------------------
NOTICE OF 1995 ANNUAL MEETING OF SHAREHOLDERS
to be held on February 1, 1996
-------------------
The 1995 Annual Meeting of Shareholders (the "Annual Meeting") of NAI
Technologies, Inc., a New York corporation (the "Company"), will be held on
Thursday, February 1, 1996 at 10 a.m., at the Raintree Conference Center located
at 1850 Industrial Circle, Longmont, Colorado 80503, for the following purposes:
1. to 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 December 15, 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
December 29, 1995
<PAGE>
<PAGE>
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.
-2-
<PAGE>
<PAGE>
NAI TECHNOLOGIES, INC.
2405 Trade Centre Avenue
Longmont, Colorado 80503
(303) 776-5674
-------------------
PROXY STATEMENT FOR 1995 ANNUAL MEETING OF SHAREHOLDERS
to be held on February 1, 1996
-------------------
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 1995 annual meeting of shareholders (the
"Annual Meeting") of the Company to be held at the Raintree Conference Center
located at 1850 Industrial Circle, Longmont, Colorado 80503, on Thursday,
February 1, 1996 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
December 29, 1995.
At the Annual Meeting, the Company's shareholders will (i) vote to
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 February 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 December 15, 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. Any shareholder may
revoke a proxy at any time before it is voted by: (i) delivering a written
notice to the
<PAGE>
<PAGE>
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
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 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 Issuance of Securities in 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 "Approval of Increase in
Number of Common Shares Authorized." 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."
Dissenters' Rights
Shareholders do not have dissenters' rights of appraisal with respect
to any of the matters to be acted upon at the Annual Meeting.
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.
-2-
<PAGE>
<PAGE>
Cost of Solicitation
The Company will bear the cost of soliciting proxies estimated at
approximately $60,000. 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 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.
Other
Although the Company intended to hold the Annual Meeting during 1995,
it was not able to do so. The Company's by-laws provide that the annual meeting
of the shareholders of the Company for the election of directors and for the
transaction of such other business as may properly come before the meeting shall
be held at a time and date selected by the Board of Directors. Under New York
corporate law, the failure to hold the annual meeting will not work as a
forfeiture or give cause for dissolution of the Company. Representatives of The
Nasdaq National Market, on which the Common Stock is traded, have advised the
Company that they will not object to the Company's failure to hold an annual
meeting during 1995. The Company anticipates that the 1996 annual meeting of
shareholders will be held subsequent to July 1, 1996 and before August 31, 1996.
APPROVAL OF ISSUANCE OF SECURITIES IN INVESTMENT TRANSACTION
General
The Company proposes to offer to selected qualified investors up to
8,000 units (the "Units"), each Unit consisting of $1,000 principal amount of
the Company's 12% Convertible Subordinated Promissory Notes due 2001 (the
"Notes") and a detachable warrant (the "Warrant" and, together with the Notes,
the "Securities") to purchase Common Stock at a purchase price of $1,000 per
Unit or up to an aggregate purchase price of $8,000,000 on a "best efforts --
6,000 Units or none" basis pursuant to arrangements hereinafter described (the
"Investment Transaction"). If 6,000 Units are sold within a period of 60 days
following the date of the commencement of the offering (which period may be
extended up to an additional 30 days at the election of the Company and the
placement agent), the remaining 2,000 Units will be offered for sale on a "best
efforts" basis until either all of the Units offered thereby are sold or the
offering period ends, whichever occurs first.
The Notes are convertible by the holders into shares of Common Stock at
a conversion price equal to $2.00 per share, subject to adjustment. The Notes
will mature on January 15, 2001 . The Notes will be unsecured obligations of the
Company subordinate in right of payment to all Senior Indebtedness (as
hereinafter defined) of the Company. At November 25, 1995, the amount of Senior
Indebtedness outstanding was $15,225,000. See "Approval of Issuance of
Securities in Investment Transaction--Description of the Securities--The
Notes."
Each Warrant entitles the holder thereof to purchase 250 shares of
Common Stock at any time and from time to time on or before January 15, 2001, at
an exercise price equal to $2.50 per share of Common Stock, subject to
adjustment. The Warrants will be immediately detachable and separately
transferable. See "Approval of Issuance of Securities in Investment
Transaction--Description of the Securities--The Warrants."
-3-
<PAGE>
<PAGE>
The conversion price of the Notes will be adjusted to $1.50 or $1.00,
respectively, and the exercise price of the Warrants will be adjusted to $2.00
or $1.50, respectively, if the earnings before interest, taxes, depreciation
and amortization ("EBITDA") of the Company fall below $6,000,000 or $4,750,000
in 1996. EBITDA will be calculated by combining the Company's earnings before
interest and taxes as reported in its consolidated statements of operations for
the relevant period and the Company's depreciation and amortization as reported
in its consolidated statements of cash flows for the same period. Should the
Company sell the stock or assets of a subsidiary in 1996, such amounts will be
reduced by certain agreed amounts, 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. 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. See "Approval of Issuance of
Securities Investment Transaction--Description of the Securities."
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"). THE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT
REGISTRATION OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
This proxy statement does not constitute an offer to sell or a solicitation of
an offer to buy the Securities by the Company or any other person.
On October 13, 1995, Charles S. 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. See "Approval
of Issuance of Securities in Investment Transaction--Background of Investment
Transaction--Capital and Credit Transactions." Mr. Holmes has committed to make
such additional investment which is a condition to closing of the Investment
Transaction. Mr. Holmes became a director of the Company in October 1995 and
will take an active role in the Company following the completion of the
Investment Transaction. Two other individuals acceptable to the Company and who
are designated by the Investors (including one designated by Mr. Holmes) will
also be appointed to the Company's Board of Directors following the resignation
of two then-current members of the Board of Directors. See "Election of
Directors."
Warrants to purchase between 600,000 and 800,000 shares of Common Stock
(based on the number of Units sold) at $2.50 per share will be issued to
Commonwealth Associates, which will act as the placement agent for the Company
in connection with the Investment Transaction ("Commonwealth"), in connection
with the private placement. Warrants to purchase an aggregate of 1,700,000
additional shares of Common Stock at $2.50 per share will be issued to Charles
S. Holmes, 1,200,000 of which are for past advisory services in connection with
the private placement and the engagement of Commonwealth and 500,000 of which
are as a result of the Holmes Transaction and the additional $1,000,000
investment. The Company did not previously have a relationship or affiliation
with either Mr. Holmes or Commonwealth or any affiliates of either. See
"Approval of Issuance of Securities in Investment Transaction--Commonwealth
Placement Agreement."
Completion of the Investment Transaction is 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 (including 1,000,000 shares to Mr. Holmes for
$2,000,000 of Notes) and, if all the Warrants (including the 2,000,000 advisory
warrants) are exercised, an aggregate of 4,000,000 additional shares of Common
Stock will be issued (including an aggregate of 1,700,000 shares to Mr. Holmes
consisting of warrants for 500,000 shares and advisory warrants for 1,200,000
shares).
-4-
<PAGE>
<PAGE>
Upon the happening of such events, the Company will have received gross proceeds
of $18,000,000 (approximately $16,860,000 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 "Approval of Issuance of Securities
in Investment Transaction--Dilution of Holders of Common Stock."
The Board of Directors has unanimously approved the Investment
Transaction and the issuance of the Securities in the Investment Transaction.
The issuance of the Securities in 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 of Common Shares Authorized") and to comply with
certain rules of The Nasdaq National Market ("Nasdaq"). Such Nasdaq rules
require that the Company seek shareholder approval prior to the sale or issuance
by the Company of Common Stock or securities like the Securities convertible
into or exercisable for Common Stock equal to 20% or more of the Common Stock or
20% or more of the voting power outstanding before the issuance for less than
the greater of the book or market value of the Common Stock by a majority of the
votes cast on the proposal in person or by proxy. As previously stated, the
consummation of the Investment Transaction will result in the sale of
approximately 49.6% of the shares of Common Stock on a fully-diluted basis and
based on shares currently outstanding for less than the book value per share of
Common Stock as at September 30, 1995 which was $1.56 (assuming that the
conversion price of the Notes and the exercise price of the Warrants are
adjusted as provided by the terms of such Securities which adjustment cannot
be predicted by the Company). On December 22, 1995, the closing price of the
Common Stock on Nasdaq was $2 per share. Section 6(i)(1)(b) of Schedule D of the
Nasdaq rules also 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
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.
The Company is seeking shareholder approval of the issuance by it of
the Securities, having the terms and conditions described in "Approval of
Issuance of Securities in Investment Transaction -- Description of Securities,"
which are convertible into or exercisable for approximately 8,000,000 shares of
its Common Stock, to investors in the Investment Transaction, in the manner
described herein, which will result in the potential issuance of more than 20%
of its Common Stock and may result in a change of control of the Company. The
Company is not seeking shareholder approval of any other aspect of the
Investment Transaction.
If the Company is unable to conclude 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 $1,000,000 principal
amount of Notes and receive Warrants to purchase an additional 1,300,000 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. See "Approval of Issuance of Securities in
Investment Transaction -- 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.
-5-
<PAGE>
<PAGE>
The following chart summarizes the principal terms of each transaction
between the Company, Mr. Holmes and Commonwealth:
<TABLE>
<CAPTION>
Transaction Date Parties Principal Components
----------- ---- ------- --------------------
<S> <C> <C> <C>
Purchase by Mr. Holmes of 10/13/95 Mr. Holmes and the Payment by Mr. Holmes of
$1,000,000 principal amount Company $1,000,000 to the Company for
of the Company's 12% the note; agreement by the
subordinated promissory note Company to pay Mr. Holmes
due January 15, 1996 and interest thereon at 12% per
commitment by Mr. Holmes annum; agreement by the
to purchase an additional Company to issue warrants to
$1,000,000 of Notes in the purchase an aggregate of
Investment Transaction 1,700,000 of Common
Stock at $2.50 per share (subject
to adjustment) to Mr.Holmes;
and commitment by Mr. Holmes
to purchase an additional
$1,000,000 of Notes, such
investment to be integrated with
the Investment Transaction.
Retention by the Company of 10/20/95 Commonwealth and Fee of 8% of the gross proceeds
Commonwealth Associates as the Company of the Investment Transaction plus
the placement agent for the accountable expenses; minimum
Investment Transaction termination fee of $250,000 if the
Investment Transaction is not
completed, plus accountable
expenses, such amount not to
exceed $400,000; agreement by
the Company to issue warrants
to purchase between 600,000 and
800,000 shares of Common Stock
(based on the amount of Notes
sold) at $2.50 per share (subject
to adjustment) to Commonwealth;
and grant by the Company to
Commonwealth of a right of first
refusal to act as the Company's
underwriter and placement agent
and to serve as the Company's
investment banker in certain
circumstances.
</TABLE>
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 February 15, 1996, and approximately $3,120,000 of
unpaid past due trade debt as of November 25, 1995. The Company has operated
during this period with a series of amendments and waivers from the Bank
Lenders, one of which was given on October 13, 1995 in connection with the
Holmes Transaction. If the Company is not able to restructure the
-6-
<PAGE>
<PAGE>
repayment schedule with the Bank Lenders, it will be unable to meet its payment
obligations at February 15, 1996.
In addition, the Company lost $11,600,000 in 1994 and an additional
$9,200,000 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. 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, June 30, 1996, September
30, 1996 and December 31, 1996, and equal quarterly installments of $750,000
beginning on March 31, 1997, with a payment of $7,975,000 due on January 15,
1999 (the "Revised Credit Agreement"). Commonwealth and Mr. Holmes have agreed
that such terms are acceptable to them. See "Approval of Issuance of Securities
in Investment Transaction--Background of Investment Transaction--Capital and
Credit Transactions."
If the Company is unable to conclude the Revised Credit Agreement and
the Investment Transaction, the Company and Mr. Holmes have agreed to implement
the Holmes Alternative. The Bank Lenders have reviewed the Holmes Alternative
and stated that they will consent to the Holmes Alternative and will amend the
Existing Credit Agreement to provide for an amortization of principal in equal
quarterly installments of $125,000 at March 31, 1996, June 30, 1996, September
30, 1996 and December 31, 1996 with the balance due on January 15, 1997. While
the Company reasonably believes that the Bank Lenders will enter into a written
agreement as described above [based on the receipt by the Company of a signed
letter of intent from the Bank Lenders which is subject to the absence of the
occurrence of an event of default under the Existing Credit Agreement, the
receipt of credit committee approval and the preparation, execution and delivery
of appropriate documents], no assurance can be given that the Bank Lenders 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 "Approval of Issuance of
Securities in Investment Transaction--Dilution of Holders of Common Stock."
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.
-7-
<PAGE>
<PAGE>
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, 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 ("Codar"), 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 $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 on 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.
-8-
<PAGE>
<PAGE>
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 125,000 shares of
Common Stock to each of the Bank Lenders 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 February 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. The prospective
purchaser has had further discussions with the Company, including as recently as
December 13, 1995, but has not made any firm offers to the Company.
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 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
-9-
<PAGE>
<PAGE>
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 a
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, the failure of the prospective purchaser to make a firm offer, 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. On November 6, 1995, the Bank Lenders agreed to certain
other amendments to the Existing Credit Agreement. Before or contemporaneously
with the initial closing of the Investment Transaction, the Company contemplates
entering into an amendment to the Existing Credit Agreement under which the Bank
Lenders will agree to amend and extend the payment provisions contained in the
Existing Credit Agreement, as well as reset certain financial covenants, on more
favorable terms for the Company. While the Company reasonably believes that the
Bank Lenders will enter into a written amendment as described below [based on
the receipt by the Company of a signed letter of intent from the Bank Lenders
which is subject to the absence of the occurrence of an event of default under
the Existing Credit Agreement, the receipt of credit committee approval and the
preparation, execution and delivery of appropriate documents], no assurance can
be given that the Bank Lenders will do so. As contemplated, the Revised Credit
Agreement would provide for principal payments of $500,000 on each of March 31,
1996, June 30, 1996, September 30, 1996 and December 31, 1996 and $750,000 on
the last day of each quarter thereafter, commencing on March 31, 1997 and ending
on September 30, 1998, together with accrued and unpaid interest through the
applicable payment date. The remaining outstanding principal amount of
$7,975,000 would be due and payable on January 15, 1999. Borrowings permitted
under the Revised Credit Agreement would be irrevocably reduced with each
quarterly principal payment. The interest rate, bank fees, collateral,
non-financial covenants and events of default are not expected to be modified by
the Revised Credit Agreement.
On October 13, 1995, Mr. Holmes loaned the Company $1,000,000 at 12%
interest, and received a placement fee of 3% of such principal amount. Such
amount is due January 15, 1996. It is expected that Mr. Holmes will loan an
additional $1,000,000 to the Company on similar terms in December 1995. These
investments will be integrated with the Investment Transaction and Mr. Holmes
will receive 2,000 Units in exchange therefor.
The Holmes Alternative
In the event that the Investment Transaction is abandoned or is not
consummated on or before February 15, 1996, Mr. Holmes will be entitled, on or
before February 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
$1,000,000 principal amount of the Company's Notes (the "Additional Note") and
(ii) warrants representing the right to purchase an additional 1,300,000 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
-10-
<PAGE>
<PAGE>
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. See "Approval of Issuance of Securities in
Investment Transaction--Commonwealth Placement Agreement."
Description of the Securities
The Securities will be issued pursuant to a Subscription Agreement,
dated as of January 15, 1996, between the Company and the Investors (the
"Subscription Agreement"). It is anticipated that each unit will consist of (i)
$1,000 principal amount of the Notes and (ii) a detachable Warrant representing
the right to acquire 250 shares of Common Stock and will be offered at a Unit
purchase price of $1,000. The Company has agreed to register the Notes, the
Warrants and the underlying Common Stock with the Securities and Exchange
Commission. See "Approval of Issuance of Securities in Investment
Transaction--Registration Rights."
The Notes. The Notes will mature on January 15, 2001 and will bear
interest from the date of issuance at the rate per annum of 12%. Interest on the
Notes will be payable quarterly in arrears on January 15, April 15, July 15 and
October 15 of each year commencing April 15, 1996. In the event of a Chapter 11
or Chapter 7 bankruptcy case in which the Company is the debtor, 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 after the third anniversary of the date of issuance,
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 up to the original amount (including the
Revised Credit Agreement). At November 25, 1995, the amount of Senior
Indebtedness outstanding was $15,225,000. There will be no sinking fund for the
Notes.
Conversion Rights. The Notes may be converted by the holders as to
their principal amount into Common Stock of the Company at any time 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
Company's EBITDA falls below $6,000,000 or $4,750,000 in 1996. EBITDA will be
calculated by combining the Company's earnings before interest and taxes as
reported in its consolidated statements of operations for the relevant period
and the Company's depreciation and amortization as reported in its consolidated
statements of cash flows for the same period. Should the Company sell the stock
or assets of any of its subsidiaries in 1996, such amounts will be reduced by
certain agreed amounts, 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 prior to
the giving of notice of conversion. Fractional shares will not be issued upon
conversion, but cash adjustment will be paid
-11-
<PAGE>
<PAGE>
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 Note 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 creation or
incurrence of any liens on the Company's property or assets, the making of any
investments, the payment of dividends on the Company's capital stock, the
disposition of certain assets, certain affiliated party transactions and the
merger or consolidation of the Company. 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.
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 Exercise Price of
the Warrants will be adjusted to $2.00 or $1.50, respectively, if the Company's
EBITDA falls below $6,000,000 or $4,750,000 in 1996. EBITDA will be calculated
by combining the Company's earnings before interest and taxes as reported in its
consolidated statements of operations for the relevant period and the Company's
depreciation and amortization as reported in its consolidated statements of cash
flows for the same period. Should the Company sell the stock or assets of any of
its subsidiaries in 1996, such amounts will be reduced by certain agreed
amounts, depending on the time of sale. The Exercise Price and the number of
shares of Common Stock to be received upon exercise 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 shares of
Common Stock to be received upon exercise, (iii) the payment of dividends or
other distributions in the form of the securities to be received upon exercise,
and (iv) the issuance of shares of Common Stock at less than the Exercise Price.
No adjustment of the Exercise Price is required to be made until cumulative
adjustments otherwise required to be made amount to 1% or more of the Exercise
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 January 15, 2001 (the
"Expiration Date") by delivery of an Exercise Notice duly completed and
tendering of the aggregate Exercise Price.
-12-
<PAGE>
<PAGE>
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 of the Notes and
the Warrants (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. 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 portion thereof) that such
failure continues, with such rate to reach 18% if such registration is not
completed nine months after the closing of the Investment Transaction, provided
that the interest rate borne by the Notes will not be increased if the
Registrable Securities are otherwise freely-tradeable 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.
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 connection with 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. Messrs. Barre, May
and Rosenthal have tendered their resignations to the Company but the Board of
Directors has yet to determine which two of the three resignations it will
accept. Such decision will be made when the Board is advised of the names and
backgrounds of the nominees for director proposed by the investor group. 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. 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 $5,020,000 to $6,860,000. 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 public and private
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. As a result, Commonwealth may be retained by the Company to implement
the Holmes Alternative. Commonwealth is entitled to receive Warrants to purchase
between 600,000 and 800,000 shares of Common Stock (based on the amount of Notes
sold) upon
-13-
<PAGE>
<PAGE>
terms and conditions identical to those of the Warrants as an advisory fee. If
the Investment Transaction does not proceed including as a result of the failure
of the Company's shareholders to vote in favor of Proposals 1 and 2, 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.
Interest of Persons in Investment Transaction
Mr. Charles S. Holmes, a director, is the principal purchaser in the
Holmes Transaction and will be the principal purchaser in 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 prepaid interest of
$30,000 on the notes issued to him in connection with the Holmes Transaction.
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:
<TABLE>
<CAPTION>
Assuming
Current Adjustment
Common Upon Conversion for Failure
Stock Equity Upon of the Notes and to Meet
(including Conversion Exercise of the EBITDA
options) of the Notes Warrants Thresholds
------------- ------------ ----------------- -----------
<S> <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>
-14-
<PAGE>
<PAGE>
Pro Forma Balance Sheet upon Occurrence of the Investment Transaction
The following is a brief summary of the pro forma effects of the
Investment Transaction and the Revised Credit Agreement, assuming the sale of a
minimum of $6,000,000 and a maximum of $8,000,000 of Notes and related Warrants,
on the Company's consolidated balance sheet at September 30, 1995 and certain
other financial data at December 31, 1994.
Pro Forma Effect of Investment Transaction as at September 30, 1995
<TABLE>
<CAPTION>
(in thousands) Adjustments (1) Pro Forma As Adjusted(1)
-------------------- ------------------------
Minimum Maximum Minimum Maximum
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Total Current Assets .... $28,067 $5,020 $6,860 $33,087 $34,927
Total Assets ............. 45,681 6,900 9,000 52,581 54,681
LIABILITIES
Total Current Liabilities . 30,823 (13,475) (13,475) 17,348 17,348
Total Long-Term Debt .....
Total Debt ............... 249 18,725 20,475 18,974 20,724
15,686 5,250 7,000 20,936 22,686
Book Value Per Share ....... $1.56 $.12 $.17 $1.78 $1.83
Stockholders' Equity ....... 11,643 1,650 2,000 13,293 13,643
Interest Expense ............ 1,197 653 870 1,850 2,067
Net Loss .................... (9,195) 935 1,191 (10,130) (10,386)
Earnings Per Share ........ ($1.25) ($.13) ($.16) ($1.38) ($1.41)
</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 advisory Warrants (having an assumed value of $.50 per Warrant
using the Black Scholes model and NASD valuation formulas) and the
implementation of the Revised Credit Agreement. The Company does not
believe that there will be a material change in the assumed value of the
Warrants.
-15-
<PAGE>
<PAGE>
Pro Forma Effect of Investment Transaction as at December 31, 1994
<TABLE>
<CAPTION>
(in thousands) Adjustments(1) Pro Forma As Adjusted(1)
--------------- ------------------------
Minimum Maximum Minimum Maximum
--------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Book Value Per Share.................................. $2.83 $.23 $.28 $3.06 $3.11
Interest Expense....................................... (1,477) 870 1,160 2,347 2,637
Net Loss............................................... (11,591) 1,246 1,588 (12,837) (13,179)
Earnings Per Share.................................... ($1.69) ($.18) ($.23) ($1.87) ($1.92)
</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 advisory Warrants (having an
assumed value of $.50 per Warrant using the Black Scholes model
and NASD valuation formulas) and the implementation of the
Revised Credit Agreement. The Company does not believe
that there will be a material change in the assumed value 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.
<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 December 22) 2 3/8 1 1/8
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 prohibits the payment
of cash dividends. A 4% stock dividend on the Common Stock was paid to
shareholders of record on February 25, 1994.
As of December 15, 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.
Directors' Votes
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
-16-
<PAGE>
<PAGE>
652,551 shares or 8.7% 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.
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 233,095 shares of Common Stock were
authorized but not issued or reserved for issuance. As of that date, a total of
7,459,437 shares of Common Stock were issued and outstanding and a total of
2,307,468 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 3,000,000 to 4,000,000 shares of
Common Stock (5,000,000 to 8,000,000 shares if certain conditions are not met),
and holders of the Warrants will acquire the right to purchase 1,500,000 to
2,000,000 shares of Common Stock (3,333,334 to 2,500,000 if certain conditions
are not met) upon exercise thereof.
The maturity date on the Existing Credit Agreement is February 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 8,878,000 to 10,578,000 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.
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.
-17-
<PAGE>
<PAGE>
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 issuance
of additional shares could dilute the voting power and equity of the holders of
outstanding Common Stock and may have the effect of discouraging attempts by a
person or group to take control of the Company.
The Company has authority to issue 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 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.
-18-
<PAGE>
<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 1996 annual meeting of
shareholders anticipated to be held subsequent to July 1, 1996 and before
August 31, 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.
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 Issuance of Securities in Investment
Transaction--Interest of Persons in Investment Transaction." In
addition, the Company has agreed, in connection with the
Investment Transaction, to use its best efforts to cause two
then-current members of the Board of Directors to resign and two other
individuals acceptable to the Company and who are designated by the Investors
(including one designated by Mr. Holmes) to be appointed to the Board of
Directors to fill such vacancies. Accordingly, two of the nominees being voted
on at the Annual Meeting will subsequently resign if the Investment Transaction
is completed. Messrs. Barre, May and Rosenthal have voluntarily tendered their
resignations to the Company, recognizing the Company's obligations in connection
with the Investment Transaction, but the Board of Directors has yet to determine
which two of the three resignations it will accept. Such decision will be made
when the Board is advised of the names and backgrounds of the nominees for
director proposed by the investor group. Such determination will be made based
on the backgrounds of the directors who have tendered their resignations as
compared with the backgrounds of the nominees with the goal of achieving a Board
of Directors with a wide diversity of applicable skills and experience for the
Company to draw on. It is expected that the nominees designated by the Investors
will be elected to the Board following the initial closing of the Investment
Transaction anticipated to occur on or prior to February 15, 1996. Accordingly,
two of the directors being voted on at the Annual Meeting will serve only until
such time. The remaining directors elected at the Annual Meeting and the two
directors designated by the Investors will serve until the 1996 annual meeting
of shareholders anticipated to be held subsequent to July 1, 1996 and before
August 31, 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 Company did not
offer to pay nor did the Company pay any remuneration for the resignations. See
"Approval of Issuance of Securities in Investment Transaction--Board
Representation."
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.
-19-
<PAGE>
<PAGE>
<TABLE>
Years Served
Name and Age as a Director Biographical Summary
- ------------ ------------ --------------------
<S> <C> <C>
Robert A. Carlson, 62 8 Mr. Carlson is Chairman and Chief
Executive Officer of the Company.
Until October 1995, he served as
President and Chief Executive
Officer of the Company and 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, 57 6 Mr. Barre is Chairman and Chief
Executive Officer of Servo
Corporation of America, a
communications and defect detection
company.
Charles S. Holmes, 50 2 months 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 company
specializing in the design,
manufacture and sale of industrial
process equipment, 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
which is the general partner of
various limited partnerships which
own approximately 5.6% of the
Company's Common Stock, and is on
the board of directors of Harris
Computer Systems Inc., a company
engaged in the manufacture of real
time computers, SK Technologies, a
company engaged in development and
marketing of point-of-sale software,
and CPSI Inc., a company engaged in
high performance computing.
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
</TABLE>
-20-
<PAGE>
<PAGE>
<TABLE>
Years Served
Name and Age as a Director Biographical Summary
- ------------ ------------ --------------------
<S> <C> <C>
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. He is also a director of
Global DirectMail Corp, a direct
mail marketer of brand name and
private label computer related
products, office products and
industrial products in North America
and Europe.
</TABLE>
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.
-21-
<PAGE>
<PAGE>
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 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.
-22-
<PAGE>
<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 $100,000 for each of the Company's
last three fiscal years (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------------------------- ---------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted Securities
Compen- Stock Underlying LTIP All Other
Name and Principal Fiscal sation Award(s) Options/ Payouts Compensation
Position Year Salary($) 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 contributions made
-23-
<PAGE>
<PAGE>
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 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 Company's
former Military Systems Group on May 1, 1995.
Employment Agreements
The Company entered into an Employment Agreement (the "Carlson
Employment Agreement") with Robert A. Carlson on October 16, 1995. 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 from the prior year's level. In addition to such salary and assuming
the Company attains certain 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 a pro rata
share of unused vacation for the full year plus a pro rata bonus under the
Company's Bonus Plan, if the Company in its sole discretion so determines. In
addition, the Company will pay Mr. Carlson 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, if
so cured, such reason will no longer constitute cause for removal.
The Company entered into an Employment Agreement (the "Schneider
Employment Agreement") with Richard A. Schneider on October 16, 1995. 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 from the prior year's level. In addition to such salary
and assuming the Company attains certain 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 a pro rata share of unused vacation for the full year plus a pro rata bonus
under the Company's Bonus Plan, if the Company in its sole discretion so
determines. In addition, the Company will pay Mr. Schneider 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, if so cured, 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
-24-
<PAGE>
<PAGE>
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.
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, if less, until Mr. Carlson's sixty-fifth birthday times
annual base salary for Mr. Carlson) and 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.
-25-
<PAGE>
<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 - 36,032 7% $6.25 10 years $141,627 $ 358,911
President and Chief 102,951(2) 21% $5.25 5 years $149,330 $ 329,979
Executive Officer
Richard A. Schneider - 39,393 8% $4.74 10 years $117,431 $ 297,587
Executive Vice President 54,996(2) 11% $5.25 5 years $ 79,772 $ 176,273
Treasurer and Secretary
Frank Tortorelli - 35,800 7% $5.25 10 years $118,201 $ 299,542
President, Military 39,336(2) 8% $5.25 5 years $ 57,057 $ 126,080
Systems Group(3)
</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 $2.50. The terms of such options called for such options to
become exercisable at a rate of 25% per year on the anniversary date
of the grant. All such options were to expire after the fifth
anniversary of the date of grant.
(3) All of Mr. Tortorelli's options were canceled by the Company 30 days
after Mr. Tortorelli resigned from the Company, or June 1, 1995, in
accordance with their terms.
-26-
<PAGE>
<PAGE>
The table below summarizes the exercise of stock options during
1994 by the Named Executives.
AGGREGATED OPTION/SAR EXERCISES IN 1994
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END(#) FY-END($)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
- ----------------------------------------- --------------- ----------------- --------------- ---------------
<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.
-27-
<PAGE>
<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.
-28-
<PAGE>
<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
29
<PAGE>
<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. When setting the
salary of the executive officers for 1994, the Compensation Committee reviewed
the American Electronics Association's 1992 Executive Compensation Survey of the
Electronics Industry (the "AEA Survey") which used data from over 515 companies
nationwide, including data for companies in the same general business and of a
similar size to the Company. Based on this review, the salaries of the Company's
executive officers was set in the 75th percentile of the salaries paid by the
companies in the AEA Survey. 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. For 1994, these
target bonus amounts ranged from 20 to 50 percent of the officer's base salary
which was also in the 75th percentile of the bonuses paid by the companies in
the AEA Survey. Bonuses are paid based upon actual results of operations for the
year against the pre-established targets. For 1994, such targets related to
earnings per share. None of the executive officers were awarded any of their
target bonus based on the Company's results compared to the earnings per share
targets previously established.
Mr. Carlson's compensation during 1994 was composed of $285,000 in
salary and no bonus. The Compensation Committee established his salary in the
75th percentile 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 related to earnings per share.
John M. May, Chairman
Robert D. Rosenthal
-30-
<PAGE>
<PAGE>
Compensation Committee Report on Option Repricing
In part because the Company's executive officers were not awarded any
of their target bonuses for 1994, the Compensation Committee recommended
that certain options granted to such executive officers be repriced so as to
serve as a more meaningful motivation for such executive officers and to align
such executive officer's interests more closely with those of the Company's
shareholders. The granting to such executive officers of options to purchase
an aggregate of 197,283 shares of Common Stock at an exercise price of $5.25 per
share was directly associated with the cancellation of a like amount of options
with exercise prices ranging from $10.82 to $6.25 per share.
John M. May, Chairman
Robert D. Rosenthal
31
<PAGE>
<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]
Fiscal Year (Ends Dec. 31st)
<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>
-32-
<PAGE>
<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 December 15, 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 Stock Company
Name and Address of Beneficial Owner 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 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.
-33-
<PAGE>
<PAGE>
Shares of Common Stock beneficially owned as of December 15, 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)
-------------------------------------
Percent of
Number of Shares of Company
Common Stock Common
Name Beneficially Owned(2) Stock(1)
- --------------------------------------------------------------------------- --------------------- ------------
<S> <C> <C>
Robert A. Carlson.......................................................... 100,467 1.30%
Stephen Barre.............................................................. 17,654 *
C. Shelton James(4)........................................................ 14,793 *
Charles S. Holmes(5)....................................................... 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 5.43%
</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 December 15, 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, 16,761.
(3) The percentages of Common Stock outstanding are based on 7,459,437
shares outstanding on December 15, 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 into 500,000 shares of Common Stock and
Warrants exercisable for 850,000 shares of Common Stock upon
consummation of the Investment Transaction.
-34-
<PAGE>
<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.
SHAREHOLDER 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 April 30, 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: December 29, 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.
-35-
<PAGE>
<PAGE>
Appendix 1
[RESTATED FORM 10-K TO BE INCLUDED IN DEFINITIVE FILING]
<PAGE>
<PAGE>
Appendix 2
[FORM 10-Q FOR SEPTEMBER 30 QUARTER TO BE INCLUDED IN DEFINITIVE FILING]
<PAGE>
<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>
<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 February, 1996, 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>
<PAGE>
APPENDIX 4
NAI TECHNOLOGIES, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 1, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert A. Carlson or John Helenek 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 Raintree Conference Center located
at 1850 Industrial Circle, Longmont, Colorado 80503, on Thursday, February 1,
1996 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 [ ]
<TABLE>
<S> <C> <C>
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>
<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>
<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: , 1996
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.
-2-
<PAGE>
