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<PAGE>
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
[ ] 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)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $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:
___________________________________________________________________
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
____________________________________________________
2) Form, Schedule or Registration Statement No.:
____________________________________________________
3) Filing Party:
____________________________________________________
4) Date Filed:
____________________________________________________
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<PAGE>
NAI TECHNOLOGIES, INC.
2405 Trade Centre Avenue
Longmont, Colorado 80503
(303) 776-5674
----------
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
to be held on August 7, 1996
----------
The 1996 Annual Meeting of Shareholders (the "Annual Meeting") of NAI
Technologies, Inc., a New York corporation (the "Company"), will be held on
Wednesday, August 7, 1996 at 10 a.m., at the Chase Manhattan Bank Building, 270
Park Avenue, New York, New York 10022, for the following purposes:
1. to approve and adopt an amendment to the Company's Restated
Certificate of Incorporation to create a classified Board of Directors
containing two classes, one class having four members and one class having three
members, beginning with the 1997 Annual Meeting of Shareholders, which replaces
the provisions of the Restated Certificate of Incorporation which provides for a
classified Board of Directors containing three classes under certain
circumstances, as described in the accompanying Proxy Statement;
2. to elect seven members of the Board of Directors;
3. to ratify and approve the adoption of the Company's 1996 Stock
Option Plan;
4. to ratify and approve the adoption of amendments to the 1993 Stock
Option Plan for Directors increasing the number of options granted to directors
upon election or reelection from 1,560 to 5,000 and making certain other
changes, as described in the accompanying Proxy Statement;
5. to vote to ratify and approve the selection of KPMG Peat Marwick as
the Company's independent auditors for the fiscal year ending December 31, 1996;
and
6. 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 June 27, 1996 will be entitled to vote at the
Annual Meeting or any adjournment thereof.
By Order of the Board of Directors,
Richard A. Schneider,
Secretary
July 1, 1996
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE READ THE
ACCOMPANYING PROXY STATEMENT AND COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED
WITHIN THE UNITED STATES OF AMERICA. THE PROXY IS REVOCABLE BY YOU AT ANY TIME
PRIOR TO ITS USE. IF YOU RECEIVE MORE THAN ONE PROXY BECAUSE YOUR SHARES ARE
REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE SIGNED AND
RETURNED TO ASSURE THAT ALL YOUR SHARES WILL BE VOTED AT THE ANNUAL MEETING.
- --------------------------------------------------------------------------------
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<PAGE>
NAI TECHNOLOGIES, INC.
2405 Trade Centre Avenue
Longmont, Colorado 80503
(303) 776-5674
----------
PROXY STATEMENT FOR 1996 ANNUAL MEETING OF SHAREHOLDERS
to be held on August 7, 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 1996 annual meeting of shareholders (the
"Annual Meeting") of the Company to be held at the Chase Manhattan Bank
Building, 270 Park Avenue, New York, New York 10022, on Wednesday, August 7,
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 July 1,
1996.
At the Annual Meeting, the Company's shareholders will (i) approve and
adopt an amendment to the Company's Restated Certificate of Incorporation
creating a classified Board of Directors containing two classes, one class
having four members and one class having three members, beginning with the 1997
Annual Meeting of Shareholders, which replaces the provisions of the Restated
Certificate of Incorporation which provides for a classified Board of Directors
containing three classes under certain circumstances, as described herein; (ii)
elect seven members of the Board of Directors, (iii) ratify and approve the
adoption of the Company's 1996 Stock Option Plan, (iv) ratify and approve the
adoption of amendments to the 1993 Stock Option Plan for Directors increasing
the number of options granted to directors upon election or reelection from
1,560 to 5,000 and making certain other changes, as described herein, and (v)
ratify and approve the selection of KPMG Peat Marwick as the Company's
independent auditors for the fiscal year ending December 31, 1996. The
shareholders may also conduct such other further business as may properly come
before the Annual Meeting or any adjournment thereof.
Record Date; Proxies
The Board of Directors of the Company has fixed the close of business
on June 27, 1996 as the record date (the "Record Date") for determining holders
of common stock, par value $.10 per share (the "Common Stock"), of the Company
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 8,459,437 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 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
<PAGE>
<PAGE>
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 approve
and adopt an amendment to the Company's Restated Certificate of Incorporation to
create a classified Board of Directors containing two classes, one class having
four members and one class having three members, beginning with the 1997 Annual
Meeting of Shareholders, which replaces the provisions of the Restated
Certificate of Incorporation which provides for a classified Board of Directors
containing three classes under certain circumstances as described herein, IN
FAVOR OF the ratification and approval of the adoption of the Company's 1996
Stock Option Plan, IN FAVOR OF the ratification and approval of the adoption of
the amendments to the 1993 Stock Option Plan for Directors increasing the number
of options granted to directors upon election or reelection from 1,560 to 5,000
and making certain other changes as described herein, and IN FAVOR OF the
ratification and approval of the selection of KPMG Peat Marwick as the Company's
independent auditors for the fiscal year ending December 31, 1996.
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
outstanding and entitled to vote at the Annual Meeting is required to approve
the proposal to approve and adopt an amendment to the Company's Restated
Certificate of Incorporation to create a classified Board of Directors
containing two classes, one class having four members and one class having three
members, beginning with the 1997 Annual Meeting of Shareholders, which replaces
the provisions of the Restated Certificate of Incorporation which provides for a
classified Board of Directors containing three classes under certain
circumstances, as described herein. Accordingly, votes "withheld" will count
against the proposal to amend the Restated Certificate of Incorporation. Brokers
do not have discretionary authority to vote on the proposal to amend the
Restated Certificate of Incorporation. See "Approval of Amendment of Restated
Certificate of Incorporation." 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 outstanding and entitled
to vote at the Annual Meeting is required to approve the proposal ratify and
approve the adoption of the 1996 Stock Option Plan. Accordingly, votes
"withheld" will count against the proposal to ratify and approve the adoption of
the 1996 Stock Option Pan. Brokers have discretionary authority to vote on the
proposal to ratify and approve the adoption of the 1996 Stock Option Plan. See
"Approval of the 1996 Stock Option Plan." 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 adoption of the amendments to the
1993 Stock Option Plan for Directors. Accordingly, votes "withheld" will not
count against the approval to amend the 1993 Stock Option Plan for Directors.
Brokers have discretionary authority to vote on the proposal to ratify and
approve the amendments of the 1993 Stock Option Plan for Directors. See
"Approval of Amendments to the 1993 Stock Option Plan for Directors." The
affirmative vote of the holders of a majority of the shares of Common Stock
present at the Annual Meeting and voting is required to ratify and approve the
selection of auditors. Accordingly, votes "withheld" will not count against the
ratification of the selection of such auditors. Brokers have discretionary
authority to vote on the ratification of the selection of auditors. See
"Ratification of the Selection of Independent Auditors."
Other Action At Annual Meeting
The Company does not know of any other matters to be presented at the
Annual Meeting. If any additional matters should be properly presented, proxies
will be voted in accordance with the judgment of the proxy holders.
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Cost of Solicitation
The Company will bear the cost of soliciting proxies estimated at
approximately $15,000. 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 $7,500 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.
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<PAGE>
APPROVAL OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors is submitting for shareholder approval a
proposal to amend paragraph 7 of the Company's Restated Certificate of
Incorporation to create a classified Board of Directors containing two classes,
one class having four members and one class having three members, each of whom,
after an interim arrangement, will serve for two years with one class being
elected each year (the "Classified Board Amendment"). This replaces the
provisions of the Restated Certificate of Incorporation which provide for a
classified Board of Directors upon the occurrence of certain events. The full
text of the Classified Board Amendment is set forth in its entirety in Appendix
1 hereto.
The Board of Directors recommends that the shareholders approve the
Classified Board Amendment to promote stability and continuity of the Board of
Directors.
General
In 1984, the shareholders of the Company approved amendments to the
Company's Certificate of Incorporation which may be deemed to impair the ability
of a third party to take over the Company in a contested transaction. These
provisions, contained in Paragraph 7 ("Present Paragraph 7") and paragraph 14
("Paragraph 14") of the Restated Certificate of Incorporation, as currently in
effect and as set forth in Appendix 2 hereto, address two matters. Present
Paragraph 7, adopted in 1984 and amended in 1991, provides that at such time as
the "continuing directors" (as such term is defined in Present Paragraph 7)
determines that an "other entity" (as such term is defined in Present Paragraph
7) beneficially owns 12% or more of the outstanding shares of Common Stock the
Board of Directors is to be increased to nine directors and is to be classified
by the continuing directors into three classes of directors, with terms of three
years, expiring annually. Present Paragraph 7 also provides that a person is not
eligible for election as a director unless he or she is nominated by a
shareholder by notice to the Company's Secretary not less than 30 days prior to
a meeting, that a special meeting of the shareholders may be called only by the
President or Board of Directors of the Company, and that the Board of Directors
shall determine its duties and governance, except to the extent prohibited by
law. Amendments to Present Paragraph 7 require approval of the holders of 80% of
the outstanding shares, unless such amendments are unanimously recommended for
approval to the shareholders by the continuing directors. A continuing director
is defined as a person who was a member of the Board of Directors elected by the
shareholders prior to the time that an other entity acquired 12% or more of the
Common Stock or a person recommended to succeed any continuing director by a
majority of continuing directors. Each of the present directors of the Company
is a continuing director. An other entity does not include any one, or any group
of more than one, continuing director.
Paragraph 14, which is not proposed to be amended or eliminated,
provides for safeguards for the Company's shareholders in connection with
certain business combinations which are not approved by the affirmative vote
of the holders of 80% of all shares of stock of the Company entitled to vote in
the election of directors, and to make such affirmative vote requirement
applicable both to other specified shareholder action which might be
inconsistent with or lead to impairment of such safeguards and to any
alteration, amendment, change or repeal to Paragraph 14. This provision is
directed to a situation in which another corporation or other entity may in the
future acquire more than 10% of the Company's outstanding shares entitled to
vote in the election of directors and may wish to (i) bring about a business
combination involving the Company, (ii) dissolve the Company, or (iii) amend the
Restated Certificate of Incorporation so as to change the entitlement of the
holders of shares of its Common Stock to vote in elections of directors.
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Retention of Paragraph 14 of the Restated Certificate of Incorporation
will continue to have an anti-takeover effect which the Company believes serves
to protect the best interests of the shareholders of the Company. Management
believes that the requirement of an affirmative vote of 80% of all the shares of
Common Stock of the Company for business combinations not approved by continuing
directors contained in Paragraph 14, will continue to serve the shareholders of
the Company adequately in reducing the unbalanced bargaining power that an other
entity may possess by becoming the holder of more than 10% of the Common Stock
of the Company.
The foregoing summaries of Present Paragraph 7 and of Paragraph 14 are
qualified in their entirety by reference to the full text of Present Paragraph 7
and Paragraph 14 which are set forth in Appendixes 2 and 3, respectively.
Proposed Amendment
The Classified Board Amendment will divide the directors into two
approximately equal classes, one consisting of four directors and one of three
directors. The directors of each class will serve two-year terms and the term of
one class will expire each year.
To implement the classified Board of Directors, the Classified Board
Amendment would permit Class I and Class II directors initially to be elected at
the Annual Meeting for a term of two years and one year, respectively. See
"Election of Directors." If the Classified Board Amendment is adopted, Class I
directors elected at the Annual Meeting will hold office until the 1998 annual
meeting of shareholders and Class II directors elected at the Annual Meeting
will hold office until the 1997 annual meeting of shareholders and, in each
case, until their successors are duly elected and qualified or until earlier
death, resignation or removal. At each annual meeting of shareholders commencing
with the 1997 annual meeting, directors elected to succeed those in the class
whose terms then expire will be elected for two-year terms so that the term of
one class of directors will expire each year.
Should a vacancy in either Class I or Class II occur, the Board of
Directors shall have the power fill the vacancy by a vote of a majority of the
Board of Directors then in office. The newly appointed director shall serve the
full term remaining under the class in which the vacancy resulted.
Nominees
For information regarding the nominees for election to the Board of
Directors at the Annual Meeting, see "Election of Directors." The class of
directors in which each director will initially serve if the Classified Board
Amendment is approved is as follows: Class I - Messrs. Carlson, Holmes and
James; and Class II -- Messrs. Barre, Hennessy, McCarthy and Schneider.
Purpose for Amendment
The Board of Directors believes that dividing the directors into two
classes will be advantageous to the Company and its shareholders by providing
that directors will serve two-year terms rather than one-year terms, increasing
the likelihood of continuity and stability in the policies formulated by the
Board of Directors. While management has not experienced any problems with
continuity in the past, it wishes to ensure that this experience will continue
and believes that the classified election of directors will promote continuity
because only approximately one-half of the directors will be subject to election
each year.
If the Classified Board Amendment is not approved by the shareholders,
Present Paragraph 7 will remain in effect which may result in future
classification of the Board of Directors. Such classification is an
anti-takeover measure that prevents a hostile takeover entity or group that has
acquired a majority of a
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company's voting stock from achieving majority control of a board until the
second annual meeting after such majority position is reached. The over-all
effect of Present Paragraph 7 is to render more difficult the assumption of
control of the Company by a principal shareholder of the Company other than
continuing directors and thus make more difficult or discourage the
accomplishment of unfriendly business combinations involving the Company and the
removal of incumbent management even if such events would be beneficial to
shareholders generally.
Disadvantages to the Amendment
The presence of the classified Board of Directors will make it more
difficult for shareholders to change the composition of the Board of Directors
even if shareholders believe such a change would be desirable. Also, because of
the additional time required to change control of the Board of Directors, the
Classified Board Amendment may tend to perpetuate incumbent management. Since
the Classified Board Amendment will increase the amount of time required for a
takeover bidder to obtain control of the Company without the cooperation of the
Board, even if the takeover bidder were to acquire a majority of the Company's
outstanding stock, it may tend to discourage certain tender offers, perhaps
including some tender offers which shareholders might feel would be in their
best interests. The Classified Board Amendment could also discourage open market
purchases by a potential takeover bidder. Such purchases could temporarily
increase the market price of the Company's Common Stock, enabling shareholders
to sell their shares at a price higher than that which would otherwise prevail.
In addition, the Classified Board Amendment could decrease the market price of
the Common Stock by making the stock less attractive to persons who invest in
securities in anticipation of an increase in price if a takeover attempt
develops. It should be noted, however, that two present directors, or affiliates
of such persons, Charles S. Holmes and C. Shelton James, or their affiliates,
beneficially own 28.70% and 12.49%, respectively, of the shares of Common Stock
presently outstanding. See "Principal and Management Shareholdings."
Vote Required
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 Restated Certificate of Incorporation to create a classified Board of
Directors containing two classes, one class having four members and one class
having three members, beginning with the 1997 annual meeting of shareholders,
which replaces the provisions of the Restated Certificate of Incorporation which
provides for a classified Board of Directors containing three classes under
certain circumstances, as described herein. 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 RESTATED CERTIFICATE OF
INCORPORATION PROVIDING FOR A CLASSIFIED BOARD OF DIRECTORS.
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ELECTION OF DIRECTORS
General
The Restated 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). The Restated Certificate of Incorporation
further provides that such number may be increased upon the occurrence of
certain events. The Board of Directors has submitted for approval by the
shareholders an amendment to the Restated Certificate of Incorporation providing
for a classified Board of Directors containing Class I and Class II directors.
The respective class which each director will serve, subject to election by the
shareholders of those directors and subject to the approval of the Classified
Board Amendment, is illustrated below. See "Approval of Amendment of Restated
Certificate of Incorporation."
The shareholders will elect all seven directors to serve until the
annual meeting of shareholders to be held in 1997 or, if the Classified Board
Amendment is approved, until the second annual meeting of shareholders following
such approval in the case of Class I directors and until the next annual meeting
of shareholders following such approval in the case of Class II directors 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. See "Approval of Amendment of
Restated Certificate of Incorporation."
Agreement with Respect to Nomination of Directors
In connection with the investment in the private placement of the
Company's 12% Convertible Subordinated Promissory Notes due 2001 and warrants to
purchase shares of Common Stock of the Company (the "Private Placement"), by
each of Charles S. Holmes and Active Investors II, LTD., of which C. Shelton
James is the President and a director, the Company agreed to use its best
efforts to cause the resignation of two then-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 Mr. Holmes and Active Investors. Dennis
McCarthy was designated to serve in such capacity by Mr. Holmes, while Edward L.
Hennessy, Jr. was designated to serve in such capacity by Active Investors, and
each became a director of the Company on March 6, 1996. See "Certain
Relationships and Related Transactions."
Nominees for Director
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. If the Classified Board
Amendment is approved, the nominees set forth below will be placed in two
classes as indicated below.
<TABLE>
<CAPTION>
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
Class I 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.
</TABLE>
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<TABLE>
<S> <C> <C>
Richard A. Schneider, 43 3 Mr. Schneider is Executive Vice President, Treasurer, Chief
Class II Financial Officer and Secretary of the Company. He was
elected a director of the Company on February 11, 1993.
From October 1988 until December 1992, he served as Vice
President - Finance and Treasurer of the Company. He was
elected Secretary of the Company in January 1990.
Stephen A. Barre, 56 6 Mr. Barre is Chairman and Chief Executive Officer of
Class II Servo Corporation of America, a communications and defect
detection company.
Edward L. Hennessy, Jr., 68 5 months Mr. Hennessy is the retired Chairman and Chief Executive
Class II Officer of Allied Signal, Inc. a worldwide technology
company. He is also a director of The Bank of New York,
a New York state commercial banking company, Lockheed
Martin Corp., a designer, manufacturer, integrator and
operator of systems and products in leading edge
technologies, National Association of Manufacturers, and
Fundamental Management Corporation. Mr. Hennessy, a
designee of Fundamental Management Corporation, was
appointed a Director of the Company in March 1996.
Charles S. Holmes, 54 10 months Mr. Holmes has served as Principal and is the sole
Class I 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. Mr. Holmes owns approximately 11.8% of the
Company's Common Stock.
C. Shelton James, 55 6 Mr. James is Chairman of the Board and Chief Executive
Class I 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 5.0% 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.
Dennis McCarthy, 49 5 months Mr. McCarthy has been employed by Asset Management
Class II Associates of New York, Inc., a New York-based firm
specializing in acquisitions of manufacturing businesses,
</TABLE>
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<TABLE>
<S> <C> <C>
since 1988. Mr. McCarthy, a designee of Mr. Holmes, was
appointed a Director of the Company in March 1996.
</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. On December 13, 1995, Robert D. Rosenthal's
resignation as a director of the Company was accepted and on February 13, 1996
John M. May's resignation as a director of the Company was accepted. The
resignation of Messrs. Rosenthal and May became effective on February 15, 1996.
On March 6, 1996, the Board of Directors then elected Edward L. Hennessy and
James McCarthy to the Board of Directors to fill the Vacancies created by the
resignation of Messrs. Rosenthal and May. See "Certain Relationships and Related
Transactions."
The Board of Directors has standing Audit, Compensation, Executive and
Nominating committees. During 1995, the Audit Committee members were Messrs.
Lipkin, Rosenthal and James. The Audit Committee held two meetings during 1995.
For 1996, the Audit Committee members are Messrs. James (Chairman), Barre,
McCarthy and Schneider. 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 1995, the Compensation Committee members were Messrs. Lipkin,
Rosenthal and May. The Compensation Committee held one meeting during 1995. For
1996, the Compensation Committee members are Messrs. Holmes (Chairman), Barre
and Hennessy. 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 1996, the Board of Directors formed an Executive Committee whose
initial members are Messrs. Carlson (Chairman), Holmes and James. The duties of
the Executive Committee include recommending actions to the Board of Directors
and acting on behalf of the Board on certain matters when the Board is not in
session.
During 1995, the Nominating Committee members were Messrs. Barre, May
and Lipkin. The Nominating Committee held one meeting during 1995. The
Nominating Committee was disbanded in 1996. The duties of the Nominating
Committee include evaluating and recommending candidates for election to the
Board of Directors. The Board of Directors 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 12 times during 1995 at regular and special
meetings in person or by conference telephone. All incumbent members of the
Board of Directors who were directors in 1995 attended more than 75 percent of
the total number of meetings of the Board of Directors and all committees of
which they were members during 1995.
-9-
<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 1995 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.
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.
-10-
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive Officers
The current executive officers of the Company are as follows:
Robert A. Carlson, 62, is Chairman and Chief Executive Officer of the
Company. Until October 1995, he served as President and CEO of the Company and
until December 1989, he was President and Chief Operating Officer of the
Company.
Richard A. Schneider, 43, is the 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.
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 - 1995 $263,000 -- -- -- 250,000(4) -- $59,071(2)
Chairman and Chief 1994 275,000 -- -- -- 138,983(5) -- 66,324(2)
Executive Officer 1993 260,000 $ 68,790 -- -- 64,347 -- 69,652(2)
Richard A. Schneider - 1995 152,000 8,500 -- -- 125,000(4) -- 7,630(3)
Executive Vice 1994 149,000 -- -- -- 94,389(5) -- 12,426(3)
President, Treasurer, 1993 138,000 27,380 -- -- 23,442 -- 13,993(3)
Chief Financial Officer
and Secretary
</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 $59,122, $59,022 and $59,071 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 1993, 1994 and 1995, respectively, as well as $7,909, $7,302
and $0 of matching contributions made by the Company under the 401(k) deferred
compensation plan and $2,621, $0 and $0 of contributions made by the Company
under the profit sharing portion of such plan for the benefit of Mr. Carlson for
each of the years 1993, 1994 and 1995, respectively.
-11-
<PAGE>
<PAGE>
(3) Includes $7,637, $7,603 and $7,630 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 1993, 1994 and 1995, respectively, as well as $4,166, $4,823 and $0
of matching contributions made by the Company under the 401(k) deferred
compensation plan and $2,190, $0 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 1993, 1994 and 1995, respectively.
(4) 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) and Mr. Schneider
(54,996) were canceled.
(5) Options to acquire shares of the Common Stock that were granted in fiscal
year 1995. At the same time, options for Mr. Carlson (214,485) and Mr. Schneider
(95,327) were canceled.
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 was granted options to
purchase 250,000 shares of Common Stock at a per share exercise price of $2.50
(such options to replace approximately 214,000 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
was granted options to purchase 125,000 shares of Common Stock at a per share
exercise price of $2.50 (such options to replace approximately 95,000 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
Agreement ($550.00 per week). This loan will be repayable out of any bonus paid
to Mr. Schneider on account of work performed during the prior year; provided,
however, that upon a resignation for Good Reason (as defined) or termination
without cause, the full amount outstanding under such loans will be discharged
in full.
-12-
<PAGE>
<PAGE>
Termination of Employment and Change in Control Agreements
The Company entered into Executive Termination Agreements with Messrs.
Carlson, Schneider and five other employees, which provide for severance
benefits in the event employment terminates within one year following a change
in control of the Company unless termination is on account of death, or for
cause. The agreements are renewable annually at the option of the Company. The
agreements provide severance benefits which include an amount equal to two times
annual base salary for Messrs. Carlson and Schneider (the number of years or
portions thereof, if less, until Mr. Carlson's sixty-fifth birthday times annual
base salary for Mr. Carlson) and one times annual base salary for the three
other employees. Mr. Carlson's and Mr. Schneider's Executive Termination
Agreements have been superseded by their employment agreements and two other
employee's Executive Termination Agreements terminated when they resigned from
the Company. Such agreements were not renewed for 1996.
-13-
<PAGE>
<PAGE>
Stock Options
The table below summarizes the options granted to the Named Executives
in 1995 and their potential realizable values.
OPTION/SAR GRANTS IN 1995
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term(1)
- ----------------------------------------------------------------------------------------- ---------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------------ -------------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Carlson -
President and Chief 250,000(2) 49% $2.50 6 years -0- $176,631
Executive Officer
Richard A. Schneider -
Executive Vice President 125,000(2) 24% $2.50 6 years -0- $ 88,316
Treasurer and Secretary
</TABLE>
- --------
(1) Option price compounded annually at 5% and 10% over the six year term minus
the exercise price times the number of shares subject to the option.
(2) Such options were granted on October 16, 1995 in connection with the
cancellation of options granted for approximately the same number of shares
at earlier dates. The terms of such options call for such options to become
exercisable at a rate of 50% per year on the first two anniversary dates of
the grant. All such options are to expire after the sixth anniversary of the
date of grant.
-14-
<PAGE>
<PAGE>
No options were exercised during 1995 by the Named Executives.
The table below sets forth certain information with respect to the
cancellations and grants 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
11/29/90 15,606 $1.81 $2.67 $2.50 1 month
01/02/92 14,348 $1.81 $4.59 $2.50 6 years, 2 months
02/18/92 21,847 $1.81 $5.41 $2.50 1 year, 4 months
02/18/92 26,046 $1.81 $5.41 $2.50 6 years, 4 months
11/01/92 33,687 $1.81 $5.70 $2.50 7 years
05/26/94 102,951 $1.81 $5.25 $2.50 3 years, 8 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
11/29/90 3,987 $1.81 $2.67 $2.50 1 month
01/02/92 4,693 $1.81 $4.59 $2.50 6 years, 2 months
11/01/92 6,651 $1.81 $5.70 $2.50 7 years
05/26/94 54,996 $1.81 $5.25 $2.50 3 years, 8 months
07/20/94 25,000 $1.81 $3.875 $2.50 8 years, 9 months
</TABLE>
The options granted on May 26, 1994 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 such 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.
-15-
<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 Chairman/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, 1995 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 1995, 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, directors who were
also officers of the Company received no remuneration for attendance at Board
and committee meetings. The Board of Directors has voted to increase the annual
retainer to $15,000 and to increase the uniform fee to $2,500 for each Board and
committee meeting attended in person.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1995, the members of the
Compensation Committee were John M. May (Chairman), Walter Lipkin and Robert D.
Rosenthal. During fiscal year 1995 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 years ended
December 31, 1995, no executive officer of the Company served as a director or a
member of the
-16-
<PAGE>
<PAGE>
compensation committee of another entity, one of whose executive officers served
as a director or on the Compensation Committee of the Company. Messrs. Lipkin,
May and Rosenthal have resigned as directors of the Company.
Compensation Committee Report on Option Repricing for Fiscal 1995
In part because the Company's executive officers were not awarded any
of their target bonuses for 1995, 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.
Charles S. Holmes, Chairman
Stephen A. Barre
Edward L. Hennessy, Jr.
Compensation Committee Report on Executive Compensation for Fiscal 1995
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 1995 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 1995, 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 1995, 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 1995, 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. However, Mr. Schneider was awarded a bonus of
$8,500 for his outstanding effort in connection with the negotiation, execution
and delivery of the Amended and Restated Credit Agreement, dated as of April 12,
1995, as amended to date, with the Company's two bank lenders.
Mr. Carlson's compensation during 1995 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, but later in the year reduced his salary by
25%. 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.
Charles S. Holmes, Chairman
Stephen A. Barre
Edward L. Hennessy, Jr.
-17-
<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 five fiscal years ending December 31, 1995 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.
Comparison of Five-Year Cumulative Total Return
Among NAI Technologies, NASDAQ Stock Market
Index and NASDAQ Non-Financial Index
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Company $100 $155 $279 $213 $ 91 $ 51
- ----------------------------------------------------------------------------------------------
Nasdaq SMI 100 161 187 215 210 296
- ----------------------------------------------------------------------------------------------
Nasdaq NFI 100 161 176 203 195 268
- ----------------------------------------------------------------------------------------------
</TABLE>
-18-
<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 June 28, 1996. 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 (the "Commission").
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percent of
Name and Address of Beneficial Owner Beneficially Owned(1) Common Stock
- ------------------------------------ --------------------- -------------
<S> <C> <C>
Charles S. Holmes
P.O. Box 2850
Southampton, NY 11969(2) 3,000,000 28.70%
Pioneering Management Corporation
60 State Street
Boston, MA 02114(3) 696,500 8.23%
Fundamental Management Corporation
4000 Hollywood Boulevard
Suite 610N
Hollywood, FL 33021(4) 1,150,636 12.49%
</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) Mr. Holmes is a director of the Company. These shares are comprised of
2,000,000 shares underlying certain Warrants exercisable at $2.50 per share
and 1,000,000 shares of Common Stock owned by Mr. Holmes. The ownership
percentage is calculated as if such Warrants had been exercised as of June
28, 1996.
3) These shares are reportedly owned by a passive investor. Pioneering
Management Corporation is the investment company advisor of such investor
and is registered under Section 203 of the Investment Advisers Act of 1940.
4) These shares are reportedly owned by various limited partnerships, of which
Fundamental Management Corporation is the general partner. C. Shelton
James, a director of the Company, is the President and a director of
Fundamental Management Corporation. These shares are composed of 400,636
shares of Common Stock, 250,000 shares underlying certain Warrants
exercisable at $2.50 per share and 500,000 shares underlying $1,000,000 of
Notes convertible into shares at $2.00 per share. Excludes 14,793 shares of
Common Stock owned by Mr. James as to which shares Fundamental Management
Corporation disclaims beneficial ownership. The ownership percentage is
calculated as if such Warrants and Notes had been converted as of June 28,
1996.
-19-
<PAGE>
<PAGE>
Shares of Common Stock beneficially owned as of June 28, 1996 by each
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 Commission.
Beneficial Ownership of Shares(1)
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percent of
Name Beneficially Owned(2) Common Stock(3)
- ---- --------------------- ---------------
<S> <C> <C>
Robert A. Carlson 100,467 1.20%
Stephen A. Barre 17,654 --
Edward L. Hennessy, Jr. -0- --
Charles S. Holmes(4) 1,000,000 11.82%
C. Shelton James(5) 14,793 --
Dennis McCarthy -0- --
Richard A. Schneider 16,812 --
All directors and officers as a group
(7 persons) 1,149,721 13.59%
</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 June 28, 1996 for such
persons as follows: Mr. Carlson, -0-; Mr. Barre, 3,120; Mr. Hennessy, -0-;
Mr. Holmes, -0-; Mr. James, 7,401; Mr. McCarthy, -0-; Mr. Schneider, -0-;
and all directors and officers as a group, 16,751.
(3) The percentages of Common Stock outstanding are based on 8,459,437 shares
outstanding on June 28, 1996.
(4) Excludes Warrants to purchase 2,000,000 shares of Common Stock owned by Mr.
Holmes.
(5) Excludes 400,636 shares of Common Stock, Warrants to purchase 250,000
shares of Common Stock and Notes convertible into 500,000 shares 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.
-20-
<PAGE>
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 13, 1995, Charles S. Holmes loaned the Company $1,000,000 at 12%
interest, and received a fee of 3% of such principal amount (the "Holmes
Transaction"), and in December 1995, Mr. Holmes loaned the Company an additional
$1,000,000 on the same terms, both of which loans were integrated with the
Company's private placement (the "Holmes Transaction") of 12% Convertible
Subordinated Notes due January 15, 2001 (the "Notes") and Warrants to purchase
Common Stock (the "Warrants") and Mr. Holmes received 2,000 Units consisting of
$2,000,000 aggregate principal amount of Notes and Warrants to purchase 500,000
shares of Common Stock in exchange therefor. In connection with the Holmes
Transaction, Mr. Holmes became a director of the Company in October 1995. In
connection with the Holmes Transaction, the Company issued Warrants to purchase
an aggregate of 1,200,000 additional shares of Common Stock at $2.50 per share
to Mr. Holmes for advisory services in connection with the Private Placement and
the engagement of Commonwealth Associates as the Company's placement agent.
In December 1995 and January 1996, Active Investors II, Ltd. loaned the
Company $500,000 and $400,000, respectively, at 12% interest (the "James
Transaction"), both of which loans were integrated with the James Transaction
and Active Investors received 900 Units consisting of $900,000 aggregate
principal amount of Notes and Warrants to purchase 225,000 shares of Common
Stock in exchange therefor. On May 2, 1996, Active Investors purchased an
additional 100 Units from the Company consisting of $100,000 aggregate principal
amount of Notes and Warrants to purchase 25,000 shares of Common Stock. C.
Shelton James, a director of the Company, is the President and a director of
Active Investors. Active Investors and certain affiliated limited partnerships
currently own shares of Common Stock of the Company.
In connection with the Private Placement, the Company agreed to use its
best efforts to cause the resignation of two then-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) and one designated solely by Active Investors. Dennis
McCarthy was designated to serve in such capacity by Mr. Holmes, while Edward L.
Hennessy, Jr. was designated to serve in such capacity by Active Investors, and
each became a director of the Company on March 6, 1996.
On May 9, 1996, the Company entered into an agreement with Mr. Holmes which
provided that in consideration of his converting the 12% Convertible
Subordinated Promissory Note due 2001 of the Company in the aggregate unpaid
principal amount of $2,000,000 held by him (the "Note") into 1,000,000 shares of
Common Stock of the Company as provided in Section 6 of the Note (the
"Conversion") which enabled the Company to achieve recompliance with the Net
Tangible Asset Requirement of The Nasdaq Stock Market, Inc., the Company would
immediately grant Mr. Holmes warrants to purchase 300,000 shares of Common Stock
at any time and from time to time on or before February 15, 2002 at an exercise
price of $3.00 per share, subject to adjustment in certain events.
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RATIFICATION AND APPROVAL OF THE ADOPTION OF
THE 1996 STOCK OPTION PLAN
Shareholders are being requested at the Annual Meeting to consider and act
upon a proposal to ratify the 1996 Stock Option Plan (the "1996 Stock Option
Plan") for key management employees and directors.
The following is a summary of certain provisions of the 1996 Stock Option
Plan. This summary does not purport to be complete and is qualified in its
entirety by reference to the full text of the 1996 Stock Option Plan, which is
set forth in its entirety in Appendix 4 hereto.
Purpose; Eligibility
The purpose of the 1996 Stock Option Plan is to advance the interests of
the Company by providing, through the grant of options to purchase shares of
Common Stock, a larger personal and financial interest in the success of the
Company to key management employees and directors upon whose judgment, interest
and special efforts the Company is largely dependent for the successful conduct
of its operations. The Company believes that the acquisition of such interests
stimulate the efforts of such key management employees and directors on behalf
of the Company and strengthen their desire to remain in the employ of the
Company.
All key management personnel and directors of the Company and its
subsidiaries and affiliates are eligible to receive options under the 1996 Stock
Option Plan. Recipients of options are selected by the Compensation Committee
(as hereinafter defined).
Administration
The 1996 Stock Option Plan will be administered by the Compensation
Committee composed of three members of the Board of Directors, none of whom will
be eligible to be granted an option under the 1996 Stock Option Plan during his
tenure on the committee. The Compensation Committee will have the authority to
(i) select the key management employees and directors of the Company to whom
options may be granted under the 1996 Stock Option Plan; (ii) determine the
number of shares subject to each option and the terms and conditions, not
inconsistent with the provisions of the 1996 Stock Option Plan, governing such
option; (iii) interpret the 1996 Stock Option Plan and any option granted
thereunder; (iv) establish such rules and regulations as it deems appropriate
for the administration of the 1996 Stock Option Plan; and (v) take such other
action as it deems necessary or desirable for the administration of the 1996
Stock Option Plan.
The Board of Directors may amend the 1996 Stock Option Plan in any respect
from time to time, provided that no amendment shall become effective unless
approved by affirmative vote of the Company's shareholders if such approval is
necessary for the continued validity of the Plan or if the failure to obtain
such approval would adversely affect the compliance of the Plan with Rule 16b-3
under the Securities Exchange Act of 1934 or any other rule or regulation, and
provided further that any action of the Board of Directors and the shareholders
may not impair the rights of a recipient without the consent of such recipient.
Shares Subject to 1996 Stock Option Plan
If approved by the shareholders, 400,000 shares of Common Stock will be
reserved for issuance under the 1996 Stock Option Plan. Such shares will be set
aside out of the authorized and unissued shares of Common Stock or shares held
in treasury.
Any shares subject to an option which for any reason expires or is
terminated unexercised as to such shares may again be subject to an option under
the 1996 Stock Option Plan. In the event of any change in the outstanding Common
Stock by reason of a stock dividend, stock split, combination of shares,
recapitalization or other similar change in the capital stock of the Company or
in the event of the merger or consolidation of the Company with or into any
other corporation or the reorganization of the Company, the number of shares
covered by each outstanding option granted under the 1996 Stock Option Plan, the
price per share thereof and the total number of shares for which options may be
granted under the 1996 Stock Option Plan are adjusted by the Board of Directors
in a manner it determines to be appropriate and equitable.
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Subject to the approval of the shareholders of the Company, the 1996 Stock
Option Plan will be effective as of March 6, 1996, and will terminate on March
6, 2006 or such earlier date as the Board of Directors may determine. Any option
outstanding under the 1996 Stock Option Plan at the time of its termination will
remain in effect in accordance with the terms and conditions of the 1996 Stock
Option Plan.
Terms and Conditions of Options
Options granted under the 1996 Stock Option Plan are nonstatutory stock
options not intended to qualify as incentive stock options under the Internal
Revenue Code.
The option price per share of Common Stock underlying each option will be
the fair market value of a share of Common Stock on the date of grant of such
option. Options will have such term as will be fixed by the Compensation
Committee, provided that no option may be exercised during the first year after
the date of grant of such option or after the expiration of ten years from its
date of grant.
In general, no person may exercise an option more than 30 days after the
first date on which he is neither an employee nor a director of the Company. If
the recipient ceases to be an employee or director of the Company by reason of
death, disability, or (in the case of an employee) retirement at or after normal
retirement age under any pension plan of the Company, he or his estate may
exercise any options held by him within 12 months from the first date on which
he is neither an employee nor a director of the Company. Except as otherwise
determined by the Compensation Committee, the options are exercised with respect
only to such number of shares of Common Stock as to which the right of exercise
had accrued prior to such termination of employment. In no event may an option
be exercised after the expiration of the term of such option.
The 1996 Stock Option Plan permits the purchase price of shares of Common
Stock acquired by exercise of an option to be paid in cash or in shares of
Common Stock valued at their fair market value on the date of exercise, or in a
combination thereof. Alternatively, an option may be exercised in whole or in
part by delivering a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds necessary to pay the purchase price and applicable withholding
taxes, and such other documents as the Committee deems necessary.
No option will be assignable or transferable by the recipient except by
will or by the laws of descent and distribution. During the lifetime of a
recipient, options may be exercisable only by such recipient.
Federal Income Tax Consequences
Under current law, the Federal income tax treatment of options granted
under the 1996 Stock Option Plan is as set forth below.
The grant of an option will have no immediate tax consequences to the
Company or the employee. The exercise of an option will require an employee to
include in his gross income the amount by which the fair market value of the
acquired shares on the exercise date exceeds the option price. Upon a subsequent
sale or taxable exchange of shares acquired upon exercise of an option, an
employee will recognize long- or short-term capital gain or loss equal to the
difference between the amount realized on the sale and the tax basis of such
shares.
The Company will be entitled to a deduction at the same time and in the
same amount as the employee is in receipt of income in connection with his
exercise of an option. Such amount will not be exempt, however, from Section
162(m) of the Internal Revenue Code, which limits to $1 million a publicly held
corporation's deduction in any taxable year for compensation (other than certain
exempted compensation) paid to an individual who is its chief executive officer
or one of its four other most highly compensated officers.
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Accounting Treatment
The Company currently accounts for the grant or exercise of options using
the accounting method prescribed by APB opinion 25 which does not result in a
charge against the Company's earnings. The Company does not currently expect to
adopt the accounting method prescribed by SFAS 123; however, the Company will
include the proforma disclosures required by SFAS 123 when required.
Vote Required
The affirmative vote of the holders of a majority of shares of Common Stock
outstanding and entitled to vote at the Annual Meeting is required for the
ratification and adoption of the 1996 Stock Option Plan. Accordingly votes
"withheld" will count as a vote "against" ratification and approval of the 1996
Stock Option Plan. The Board of Directors has not determined what action will be
taken if the 1996 Stock Option Plan is not approved by the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL
TO RATIFY THE ADOPTION OF THE COMPANY'S 1996 STOCK OPTION PLAN.
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ADOPTION OF AMENDMENTS TO
THE 1993 STOCK OPTION PLAN FOR DIRECTORS
Shareholders are being requested at the Annual Meeting to consider and act
upon a proposal to (1) amend paragraph 6 of the 1993 Stock Option Plan for
Directors (the "1993 Stock Option Plan") which will increase from 1,560 to 5,000
the number of options granted to directors upon election or reelection of Common
Stock available for the grant of stock options, (2) amend paragraph 8 of the
1993 Stock Option Plan which will increase from 11 months to one year after
their date of grant the time at which options will become exercisable and (3)
amend paragraph 10 of the 1993 Stock Option Plan to permit the exercise of an
option by delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver the amount of sale or loan
proceeds necessary to pay the purchase price and applicable withholding taxes.
The following is a summary of certain provisions of the 1993 Stock Option
Plan. This summary does not purport to be complete and is qualified in its
entirety by reference to the full text of the 1993 Stock Option Plan, which is
set forth in its entirety in Appendix 5 hereto.
To date, 216,320 shares of Common Stock have been reserved for issuance
under the 1993 Stock Option Plan. Such shares are set aside out of the
authorized and unissued shares of Common Stock or shares held in treasury. If
approved by the shareholders, the proposed amendment to paragraph 6 of the 1993
Stock Option Plan would increase the number of options granted to directors upon
election or reelection from 1,560 to 5,000.
Purpose; Eligibility
The purpose of the 1993 Stock Option Plan is to advance the interests of
the Company by providing non-employee directors of the Company, through the
grant of options to purchase shares of Company Common Stock, with a larger
personal and financial interest in the Company's success.
Only directors who are not full time employees of the Company or an
affiliate of the Company will be eligible to be granted options under the 1993
Stock Option Plan. Based on the current composition of the Board of Directors,
Messrs. Barre, James, Hennessy, Holmes and McCarthy will be eligible to be
granted options under the 1993 Stock Option Plan while Mr. Carlson and Mr.
Schneider will not.
Administration; Amendment
The 1993 Stock Option Plan is administered by the compensation committee
(the "Compensation Committee") of the Board of Directors of the Company. The
Compensation Committee has full power and authority to (i) determine the terms
and conditions, not inconsistent with the provisions of the 1993 Stock Option
Plan, governing each option granted under the 1993 Stock Option Plan; (ii)
interpret the 1993 Stock Option Plan and any option granted thereunder; (iii)
establish such rules and regulations as it deems appropriate for the
administration of the 1993 Stock Option Plan; and (iv) take such other action as
it deems necessary or desirable for the administration of the 1993 Stock Option
Plan.
The Board of Directors may amend the 1993 Stock Option Plan in any respect
from time to time; provided, however, that no amendment may become effective
unless approved by affirmative vote of the Company's shareholders if such
approval is necessary or desirable for the continued validity of the 1993 Stock
Option Plan or if the failure to obtain such approval would adversely affect the
compliance of the 1993 Stock Option Plan with Rule 16b-3 or any successor rule
under the Securities Exchange Act of 1934, as amended, or any other rule or
regulation; and provided, further, that the 1993 Stock Option Plan may not be
amended more than once in any six month period. No amendment may, without the
consent of a participant, impair his rights under any option previously granted
under the 1993 Stock Option Plan.
The Board of Directors has the power, in the event of any disposition of
substantially all of the assets of the Company, its dissolution, any merger or
consolidation of the Company with or into any other corporation, or the merger
or consolidation of any other corporation into the Company, to amend all
outstanding options to permit their exercise prior to the effectiveness of any
such transaction and to terminate such options as of such effectiveness. If the
Board of Directors exercises such power, all options then outstanding will be
deemed to
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have been amended to permit the exercise thereof in whole or in part by the
holder at any time or from time to time as determined by the Board prior to the
effectiveness of such transaction and such options shall be deemed to terminate
upon such effectiveness.
Shares Subject to the 1993 Stock Option Plan
Options may be granted from time to time under the 1993 Stock Option Plan
for the purchase, in the aggregate, of not more than 156,000 (as adjusted)
shares of Common Stock (subject to adjustment as hereinafter provided). Such
shares may be set aside out of the authorized but unissued shares of Common
Stock not reserved for any other purpose or out of previously issued shares
acquired by the Company and held in its treasury. The closing price per share of
Common Stock on June 14, 1996 as reported on the Nasdaq National Market was
$3.375.
Commencing with the election of directors at the Company's 1993 Annual
Meeting of Shareholders, each non-employee director elected or reelected as a
director of the Company received, on the date of each such election or
reelection, a grant of an option to purchase 1,000 shares of Common Stock
(subject to adjustment as hereinafter provided). It is proposed that this
provision be amended to grant an option to purchase 5,000 shares (subject to
adjustment as hereinafter provided) to each non-employee director commencing
with the election of directors at the Annual Meeting.
In the event of any change in the outstanding Common Stock by reason of any
stock dividend, stock split, combination of shares, recapitalization, or other
similar change in the capital stock of the Company, or in the event of the
merger or consolidation of the Company into or with any other corporation or the
reorganization of the Company, there shall be substituted for or added to each
share theretofore appropriated for the purposes of the 1993 Stock Option Plan or
thereafter subject, or which may become subject, to an option under the 1993
Stock Option Plan, the number and kind of shares of stock or other securities
into which each outstanding share of Company Common Stock shall be so changed or
for which each such share shall be exchanged or to which each such share shall
be entitled, as the case may be. Outstanding options will be appropriately
amended as to price and other terms in a manner consistent with the
aforementioned adjustment to the shares subject to the 1993 Stock Option Plan.
The 1993 Stock Option Plan was effective as of February 11, 1993, and will
terminate on February 11, 2003, or such earlier date as the Board of Directors
may determine. Any option outstanding under the 1993 Stock Option Plan at the
time of its termination will remain in effect in accordance with its terms and
conditions and those of the 1993 Stock Option Plan.
Terms and Conditions of Options
Options granted under the 1993 Stock Option Plan are nonstatutory options
not qualifying as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended.
The price at which shares of Common Stock may be purchased upon the
exercise of an option granted under the 1993 Stock Option Plan will be the fair
market value of such shares on the date of grant of such option.
Options will be granted for terms of ten years. Options currently become
exercisable 11 months after their date of grant and may not be exercised prior
to that date. It is proposed that this provision be amended to increase such
period from 11 months to one year.
In general, no person may exercise an option more than 30 days after the
first date on which he ceases to be a Director of the Company. If a participant
ceases to be a Director of the Company by reason of death or disability, he or
his estate may exercise any options held by him within 12 months after the date
he ceases to be a Director of the Company. An option may be exercised following
the termination of a participant's directorship only if the right of exercise
had accrued on or before the last day on which he was a Director of the Company.
In no event may an option be exercised after the expiration of the term of such
option.
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The 1993 Stock Option Plan permits the purchase price of shares of Common
Stock acquired by exercise of an option to be paid in cash or in shares of
Common Stock valued at their fair market value on the date of exercise, or in a
combination thereof. It is proposed that this provision be amended to add that,
alternatively, an option may be exercised in whole or in part by delivering a
properly executed exercise notice together with irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay the purchase price and applicable withholding taxes, and such
other documents as the Committee may determine.
No option is assignable or transferable by the recipient other than by will
or by the laws of descent and distribution. During the lifetime of a recipient,
options may be exercisable only by such recipient.
Federal Income Tax Consequences
Under current law, the Federal income tax treatment of options granted
under the 1993 Stock Option Plan is as set forth below.
The grant of an option will have no immediate tax consequences to the
Company or the Director. The exercise of an option will require a Director to
include in his gross income the amount by which the fair market value of the
acquired shares on the exercise date exceeds the option price. Upon a subsequent
sale or taxable exchange of shares acquired upon exercise of an option, a
Director will recognize long- or short-term capital gain or loss equal to the
difference between the amount realized on the sale and the tax basis of such
shares.
The Company will be entitled to a deduction at the same time and in the
same amount as the Director is in receipt of income in connection with his
exercise of an option.
Accounting Treatment
The Company currently accounts for the grant or exercise of options using
the accounting method prescribed by APB opinion 25 which does not result in a
charge against the Company's earnings. The Company does not currently expect to
adopt the accounting method prescribed by SFAS 123; however, the Company will
include the proforma disclosures required by SFAS 123 when required.
Proposed Amendments
If approved by the shareholders, the proposed amendment to paragraph 6 of
the 1993 Stock Option Plan would increase the number of options granted to
directors upon election or reelection from 1,560 to 5,000 commencing with the
election of directors at the Annual Meeting while the proposed amendment to
paragraph 8 would increase from 11 months to one year after their date of grant
the time at which options will become exercisable and the proposed amendment to
paragraph 10 would permit the exercise of an option by delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver the amount of sale or loan proceeds necessary to pay the purchase price
and applicable withholding taxes. Such changes are highlighted in the text of
the 1993 Stock Option Plan which is set forth in Appendix 3 hereto. No other
changes to the 1993 Stock Option Plan are contemplated by the proposed
amendments thereto.
Vote Required
The affirmative vote of the holders of a majority of shares of Common Stock
present at the Annual Meeting and voting is required for the ratification and
adoption of the amendments to the 1993 Stock Option Plan. Accordingly votes
"withheld" will not count as a vote "against" ratification and approval of the
amendment to the 1993 Stock Option Plan. The members of the Board acknowledge
that they and future directors would personally benefit from such approval. The
Board believes, however, that the 1993 Stock Option Plan is important to the
Company's ability to attract and retain qualified individuals to serve as
directors and will advance the Company's interests by providing non-employee
directors with a larger personal and financial interest in the Company's
success. The Board of Directors has not determined what action will be taken if
the adoption of the amendments to the 1993 Stock Option Plan are not ratified by
the shareholders.
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THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL
TO RATIFY THE ADOPTION OF THE AMENDMENTS TO THE 1993 STOCK OPTION PLAN FOR
DIRECTORS.
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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, 1996. 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 FISCAL YEAR ENDING DECEMBER 31, 1996.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Shareholder proposals for inclusion in the proxy materials and
consideration at the 1997 Annual Meeting of Shareholders, if any, must be
received by the Company on or before March 3, 1997 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: July 1, 1996
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, 1995 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.
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Appendix 1
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 by the New York
Department of State on August 19, 1991.
THIRD. Paragraph "7" of the Certificate of Incorporation of the
Corporation, which sets forth (i) certain provisions with respect to the number
of directors of the Corporation; (ii) the procedure for nominating a director of
the Corporation; (iii) certain provisions with respect to governance of the
Board of Directors of the Corporation; (iv) certain procedures for calling a
special meeting of shareholders of the Corporation; and (v) certain procedures
required to amend Paragraph 7 of the Certificate of Incorporation of the
Corporation and certain definitions applicable to said Paragraph 7, is hereby
eliminated in its entirety and the following language is substituted in lieu
thereof which has the effect of creating a classified Board of Directors
containing two classes, one class having four members and one class having three
members:
"7. The number of directors of the Corporation shall be seven and
shall contain two classes, designated Class I and Class II, as shall
be specified by the continuing directors. Class I shall consist of
four directors and Class II shall consist of three directors. Both
Class I and Class II directors shall serve until the second and next
annual meeting of shareholders following ratification and approval by
the shareholders of this Section 7. At each annual meeting of
shareholders following such approval, successors to the class of
directors whose term expires at such annual meeting shall be elected
for a two year term. A director shall hold office until the annual
meeting of shareholders for the year in which his term expires and
until his successor shall be elected and shall qualify, subject
however, to prior death, resignation, retirement, disqualification or
removal for cause from office. Any vacancy on the Board of Directors
may be filled by the directors then in office, although less than a
quorum, or by a sole remaining director."
FOURTH: The aforesaid amendment to the Certificate of Incorporation of the
Corporation was authorized by the vote of the Board of Directors of the
Corporation taken at a meeting of said Board of Directors followed by the vote
of the holders of a majority of all outstanding shares of the Corporation
entitled
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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 August, 1996, and the statements contained herein are
affirmed as true under the penalties of perjury.
NAI TECHNOLOGIES, INC.
By____________________________
Robert A. Carlson
Chairman of the Board
By____________________________
Richard A. Schneider
Secretary
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Appendix 2
PARAGRAPH 7 OF THE RESTATED CERTIFICATE OF INCORPORATION
OF THE COMPANY EXISTING ON THE DATE HEREOF
7.(a) The number of directors of the Corporation be no less than three nor
more than seven; within such limits, the number of directors shall be as fixed
from time to time by vote of the Board of Directors; provided, however, that in
the event that a majority of the "continuing directors" determined that an
"other entity" (as defined below) beneficially owns twelve (12%) or more of the
outstanding shares of stock of the Corporation entitled to vote in the election
of directors, the following provisions shall apply, from and after such
determination:
(i) The number of directors of the Corporation shall be increased to
nine and the newly created directorships resulting from such increase shall be
filled by vote of a majority of the directors then in office.
(ii) The directors (including both "continuing directors" (as defined
below) and directors elected to fill the newly created directorships) shall be
divided into three classes, designated Class I, Class II and Class III, as shall
be specified by the continuing directors. Class I directors will serve until the
third annual meeting of shareholders following such determination, Class II
directors shall serve until the second annual meeting of shareholders following
such determination, and Class III directors shall serve until the next annual
meeting of shareholders following such determination. At each annual meeting of
shareholders following such determination, successors to the class of directors
whose term expires at the annual meeting shall be elected for a three-year term.
A director shall hold office until the annual meeting for the year in which his
term expires and until his successor shall be elected and shall qualify, subject
however, to prior death, resignation, retirement, disqualification or removal
for cause from office. Any vacancy on the Board of Directors may be filled by a
majority of the Board of Directors then in office, although less than a quorum,
or by a sole remaining director.
(b) No person (other than a person nominated by or on behalf of the Board
of Directors) shall be eligible for election as a director at any annual or
special meeting of shareholders unless a written request that his or her name be
placed in nomination is received from a shareholder of record by the Secretary
of the Corporation not less than 30 days prior to the date fixed for the
meeting, together with the written consent of such person to serve as a
director.
(c) Except to the extent prohibited by law, the Board of Directors shall
have the right (which, to the extent exercised, shall be exclusive) to establish
the rights, powers, duties, rules and procedures that from time to time shall
govern the Board of Directors and each of its members, including without
limitation the vote required for any action by the Board of Directors, the
determination by resolution of the Board of Directors of the officers of the
Corporation and their respective titles and duties, the determination by
resolution of the Board of Directors of the manner of choosing the officers of
the Corporation and the terms of their respective offices, the determination by
resolution of the Board of Directors of the terms and conditions under which the
Corporation shall exercise the powers granted to it as of January 1, 1984 by
ss.ss. 721-727 of the New York Business Corporation Law, as such powers may
exist from time to time after January 1, 1984, and that from time to time shall
affect the directors' power otherwise to manage the business and affairs of the
Corporation; and, notwithstanding any other provision of this Certificate of
Incorporation to the contrary, no by-law shall be adopted by shareholders which
shall interpret or qualify, or impair or impede the implementation of, the
foregoing. Any inconsistency between, on the one side, a document which
implements the provisions of this subparagraph (c) and sets forth the rights,
powers, duties, rules and/or procedures governing the Board of Directors and, on
the other side, any by-law or other corporate document shall be construed in
favor of the document setting forth such rights, powers, duties, rules and/or
procedures.
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(d) Except to the extent, if any, otherwise required by law, a special
meeting of the shareholders of the Corporation may be called only by the
President or the Board of Directors of the Corporation.
(e) No amendment to the Certificate of Incorporation of the Corporation
shall amend, alter, change or repeal any of the provisions of this Paragraph 7
unless the amendment affecting such amendment, alteration, change or repeal
shall receive the affirmative vote of the holders of eighty percent (80%) of all
shares of stock of the Corporation entitled to vote in the election of
directors, considered for purposes of this Paragraph 7 as one class; provided
that this subparagraph (e) shall not apply to, and such eighty percent (80%)
vote or consent shall not be required for, any amendment, alteration, change or
repeal unanimously recommended to the shareholders by the Board of Directors of
the Corporation if each of such directors is a person who would be eligible to
serve as a `continuing director' (as defined below) or is a person elected by
the vote of a majority of the directors then in office as provided in
subparagraph (a) of this paragraph 7.
(f) As used in this Paragraph 7, (i) the term `continuing director' shall
mean either a person who was a member of the Board of Directors of the
Corporation elected by the shareholders of the Corporation prior to the time
that an 'other entity' acquired twelve percent (12%) or more of the stock of the
Corporation entitled to vote in the election of directors, or a person
recommended to succeed any continuing director by a majority of continuing
directors then in office as provided in subparagraph (a) of this paragraph 7;
(ii) the term 'other entity' shall include any corporation, person or other
entity (other than the Corporation, any of its subsidiaries or a trustee holding
stock for the benefit of employees of the Corporation or its subsidiaries, or
any one of them, pursuant to one or more employee benefit plans or arrangements)
and any other entity with which it or its `affiliate' or `associate' (as defined
below) has any agreement, arrangement or understanding, directly or indirectly,
for the purposes of acquiring, holding, voting or disposing of stock of the
Corporation, or which is its `affiliate' or `associate' as those terms are
defined in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934 as in effect on January 1, 1984, together with the
transaction or series of transactions not involving a `public offering' of the
Corporation's stock within the meaning of the Securities Act of 1933, provided
that `other entity' does not include any one or any group of more than one of
the persons who was a director of the Corporation as of January 1, 1984 and who
owned beneficially as of that date more than five percent (5%) of the
Corporation's issued and outstanding shares of Common Stock, or any one or any
group of more than one continuing director (as defined above); (iii) any other
entity (as defined above) shall be deemed to be the beneficial owner of any
shares of stock of the Corporation which such other entity has the right to
acquire pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise; and (iv) the outstanding shares of any class
of stock of the Corporation shall include shares deemed owned through
application of clause (iii) above but shall not include any other shares which
may be issuable pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise.
(g) A majority of the continuing directors shall have the power and duty to
determine for the purposes of this Paragraph 7 on the basis of information known
to them whether (i) an other entity beneficially owns twelve percent (12%) or
more of the outstanding shares of stock of the Corporation entitled to vote in
the election of directors, (ii) an other entity is an `affiliate' or `associate'
(as defined above) of another or (iii) an other entity has an agreement,
arrangement or understanding with another.
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Appendix 3
PARAGRAPH 14 OF THE RESTATED CERTIFICATE OF
INCORPORATION OF THE COMPANY
14. (a) The affirmative vote of the holders of eighty percent (80%) of all
shares of stock of the Corporation entitled to vote in the election of
directors, considered for the purposes of this Paragraph 14 as one class, shall
be required for the adoption or authorization of (i) a business combination (as
hereinafter defined) with any other entity (as hereinafter defined) if, as of
the record date for the determination of shareholders entitled to notice thereof
and to vote thereon, such other entity is the beneficial owner, directly or
indirectly, of more than ten percent (10%) of the outstanding shares of stock of
the Corporation entitled to vote in the election of directors, considered for
the purposes of this Paragraph 14 as one class, or (ii) a proposed dissolution
of the Corporation or a proposed amendment of the Certificate of Incorporation
of the Corporation which would either change the entitlement of the holders of
shares of Common Stock of the Corporation to vote in the election of directors
or would authorize the Corporation to issue either shares of capital stock
(other than shares of its Common Stock) or bonds, debentures or other
obligations, which, if issued, would or could be entitled to vote in the
election of directors if, as of the record date for the determination of
shareholders entitled to notice of and to vote on such proposed dissolution or
such proposed amendment, an other entity (as hereinafter defined) is the
beneficial owner, directly or indirectly, of more than ten percent (10%) of the
outstanding shares of stock of the Corporation entitled to vote in the election
of directors, considered for the purposes of this Paragraph 14 as one class;
provided that such eighty percent (80%) voting requirement shall not be
applicable to the adoption or authorization of a business combination if:
(i) The cash, or fair market value of other consideration,
to be received per share by holders of shares of any class of
capital stock of the Corporation in such business combination
bears the same or a greater percentage relationship to the
market price of such shares of capital stock immediately prior
to the announcement of such business combination as the
highest per share price (including brokerage commissions
and/or soliciting dealers' fees) which such other entity has
theretofore paid for any of such shares of capital stock
already owned by it bears to the market price of such shares
of capital stock immediately prior to the commencement of
acquisition of such shares of capital stock by such other
entity;
(ii) The cash, or fair market value of other consideration,
to be received per share by holders of shares of any class of
capital stock of the Corporation in such business combination
is not less than the highest per share price (including
brokerage commissions and/or soliciting dealers' fees) paid by
such other entity in acquiring any of its holdings of such
shares of capital stock;
(iii) After such other entity has acquired such
greater-than-ten percent (10%) interest and prior to the
consummation of such business combination: (i) such other
entity shall have taken steps to ensure that the Corporation's
Board of Directors included at all times representation by
continuing director(s) (as hereinafter defined) proportionate
to the shareholdings of the Corporation's shareholders not
affiliated with such other entity (with a continuing director
to occupy any resulting fractional board position); (ii) such
other entity shall not have acquired any newly issued shares
of capital stock, directly or indirectly, from the Corporation
(except upon conversion of securities acquired by it prior to
obtaining such greater-than-ten percent (10%) interest or as
a result of a pro rata stock dividend or
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stock split); and (iii) such other entity shall not have
acquired any additional shares of the Corporation's
outstanding capital stock or securities convertible into
capital stock except as a part of the transaction which
results in such other entity acquiring such greater-than-ten
percent (10%) interest; and
(iv) Such other entity shall not have received the benefit,
directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges or
other financial assistance or tax credits provided by the
Corporation.
The provisions of this Paragraph 14 shall also apply to a business
combination with any other entity which at any time has been the beneficial
owner, directly or indirectly, of more than ten percent (10%) of the outstanding
shares of stock of the Corporation entitled to vote in the election of
directors, considered for the purpose of this Paragraph 14 as one class,
notwithstanding the fact that such other entity has reduced its shareholdings
below ten percent (10%) if, as of the record date for the determination of
shareholders entitled to notice of and to vote on the business combination, such
other entity is an `affiliate' of the Corporation (as hereinafter defined).
(b) As used in this Paragraph 14, (i) the term `other entity' shall include
any corporation, person or other entity (other than the Corporation, any of its
subsidiaries or a trustee holding stock for the benefit of employees of the
Corporation or its subsidiaries, or any one of them, pursuant to one or more
employee benefit plans or arrangements) and any other entity with which it or
its `affiliate' or `associate' (as defined below) has any agreement, arrangement
or understanding, directly or indirectly, for the purpose of acquiring, holding,
voting or disposing of stock of the Corporation, or which is its `affiliate' or
`associate' as those terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934 as in effect on January 1,
1984, together with the successors and assigns of such persons in any
transaction or series of transactions not involving a `public offering' of the
Corporation's stock within the meaning of the Securities Act of 1933, provided
that `other entity' does not include any one or any group of more than one of
the persons who was a director of the Corporation as of January 1, 1984 and who
owned beneficially as of that date more than five percent (5%) of the
Corporation's issued and outstanding shares of Common Stock, or any one or any
group of more than one continuing director (as defined below); (ii) an other
entity (as defined above) shall be deemed to be the beneficial owner of any
shares of stock of the Corporation which such other entity has the right to
acquire pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise; (iii) the outstanding shares of any class of
stock of the Corporation shall include shares deemed owned through application
of clause (ii) above but shall not include any other shares which may be
issuable pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise; (iv) the term `business combination' shall
include any merger or consolidation of the Corporation with or into any other
corporation, or the sale or lease of all or any substantial part of the assets
of the Corporation to, or any sale or lease to the Corporation or any subsidiary
thereof in exchange for securities of the Corporation of any assets (except
assets having an aggregate fair market value of less than $1,000,000) of, any
other entity; (v) the term `continuing director' shall mean either a person who
was a member of the Board of Directors of the Corporation elected by the
shareholders of the Corporation prior to the time than an other entity acquired
in excess of ten percent (10%) of the stock of the Corporation entitled to vote
in the election of directors, or a person recommended to succeed any continuing
director by a majority of continuing directors; and (vi) for the purposes of
subparagraphs (a)(i) and (ii) of this Paragraph 14 the term `other consideration
to be received' shall mean capital stock of the Corporation retained by its
shareholders (other than such other entity) in the event of a business
combination with such other entity in which the Corporation is the surviving
corporation.
(c) A majority of the continuing directors shall have the power and duty to
determine for the purposes of this Paragraph 14 on the basis of information
known to them whether (i) such other entity beneficially owns more than ten
percent (10%) of the outstanding shares of stock of the Corporation entitled to
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vote in the election of directors, (ii) an other entity is an `affiliate' or
`associate' (as defined above) of another, (iii) an other entity has an
agreement, arrangement or understanding with another, or (iv) the assets being
acquired by the Corporation, or any subsidiary thereof, having an aggregate fair
market value of less than $1,000,000.
(d) No amendment to the Certificate of Incorporation of the Corporation
shall amend, alter, change or repeal any of the provisions of this Paragraph 14,
unless the amendment effecting such amendment, alteration, change or repeal
shall receive the affirmative vote of the holders of eighty percent (80%) of all
shares of stock of the Corporation entitled to vote in the election of
directors, considered for the purposes of this Paragraph 14 as one class;
provided that this paragraph (d) shall not apply to, and such eighty percent
(80%) vote shall not be required for, any amendment, alteration, change or
repeal unanimously recommended to the shareholders by the Board of Directors of
the Corporation if all of such directors are persons who would be eligible to
serve as `continuing directors' within the meaning of subparagraph (b) of this
Paragraph 14.
(e) Nothing contained in this Paragraph 14 shall be construed to relieve
any other entity from any fiduciary obligation imposed by law.
(f) The provisions of this Paragraph 14 shall not apply to:
(i) The adoption or authorization of any business
combination described in paragraph (a) of this Paragraph 14 if
the Board of Directors of the Corporation shall have approved
by resolution a memorandum of understanding with the other
corporation, person or entity with whom such business
combination is proposed prior to the time that such other
corporation, person or entity shall have become a beneficial
owner of five percent (5%) or more of the outstanding shares
of any class of capital stock of the Corporation entitled to
vote in the election of directors; or
(ii) The adoption or authorization of any business
combination, proposed dissolution or proposed amendment
described in paragraph (a) of this Paragraph 14, if such
business combination, proposed dissolution or proposed
amendment is approved, prior to its adoption or authorization
by the shareholders of the Corporation, by a resolution of the
Board of Directors of the Corporation which is approved by at
least two-thirds of those members of the Board of Directors of
the Corporation who are not, at the time of their approval,
involved with and/or representing an other entity which, at
such time, is the beneficial owner, directly or indirectly, of
more than ten percent (10%) of the outstanding shares of stock
of the Corporation then entitled to vote in the election of
directors.
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Appendix 4
NAI Technologies, Inc.
1996 Stock Option Plan
1. Purpose. The purpose of the NAI Technologies, Inc. 1996 Stock Option
Plan (the "Plan") is to advance the interests of NAI Technologies, Inc. ("NAI")
and its subsidiaries and affiliates (all such companies being hereinafter
referred to collectively as the "Company") by providing, through the grant of
options to purchase shares of NAI common stock, a larger personal and financial
interest in the success of the Company to key management employees and directors
upon whose judgment, interest and special efforts the Company is largely
dependent for the successful conduct of its operations. It is believed that the
acquisition of such interests will stimulate the efforts of such key management
employees and directors on behalf of the Company and strengthen their desire to
remain in the employ of the Company.
As used herein, the term "subsidiary" shall mean any corporation of which
NAI or another subsidiary owns stock possessing 50% or more of the total
combined voting power of all classes of stock, and the term "affiliate" shall
mean any entity in which NAI has a significant equity interest or management
control as determined by the Board of Directors.
2. Administration. The Plan shall be administered by a committee (the
"Committee"), no member of which shall be eligible for options under the Plan,
consisting of three members of the Board of Directors of NAI (the "Board"). The
Committee shall be constituted in such a manner as to satisfy the requirements
of applicable law, the provisions of Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any successor rule. The
Committee shall be appointed, and vacancies shall be filled, by the Board. The
Committee shall have full power and authority to (i) select the key management
employees and directors of the Company to whom options may be granted under the
Plan; (ii) determine the number of shares subject to each option and the terms
and conditions, not inconsistent with the provisions of the Plan, governing such
option; (iii) interpret the Plan and any option granted thereunder; (iv)
establish such rules and regulations as it deems appropriate for the
administration of the Plan; and (v) take such other action as it deems necessary
or desirable for the administration of the Plan. The Committee's interpretation
and construction of any provision of the Plan or the terms of any option shall
be conclusive and binding on all parties.
3. Participants. Only directors and key management employees of the
Company shall be eligible to be granted options under the Plan.
Nothing contained in the Plan, or in any option granted pursuant to the
Plan, shall confer upon any employee or director any right to the continuation
of his employment or directorship.
4. Effectiveness and Termination of the Plan. The Plan is effective as of
March 11, 1996, the date of its adoption by the Board of Directors, and will
terminate on March 11, 2001 or such earlier time as the Board of Directors may
determine. Any option outstanding under the Plan at the time of its termination
shall remain in effect in accordance with its terms and conditions and those of
the Plan.
5. The Shares. Options may be granted from time to time under the Plan for
the purchase, in the aggregate, of not more than 400,000 shares of common stock,
$.10 par value of the Company ("Common Stock") (subject to adjustment pursuant
to section 14). Such shares of Common Stock may be set aside out of the
authorized but unissued shares of Common Stock not reserved for any other
purpose or out of previously issued shares acquired by the Company and held in
its treasury. Any shares of Common Stock which, by reason of the termination or
expiration of an option or otherwise, are no longer subject to purchase pursuant
to an option granted under the Plan, may again be subjected to an option under
the Plan.
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6. Status of Options. Options granted under the Plan are nonstatutory
options not intended to qualify as incentive stock options under Section 422 of
the Internal Revenue Code.
7. Option Price. The price at which shares of Common Stock may be purchased
upon the exercise of an option granted under the Plan shall be the fair market
value of such shares on the date of grant of such option.
8. Term and Exercisability of Options. Options may be granted for terms of
not more than ten years and shall be exercisable in accordance with such terms
and conditions as are set forth in the option agreements evidencing the grant of
such options.
Except as otherwise determined by the Committee pursuant to Section 9, no
option granted under the Plan shall be exercisable by a participant during the
first year after the date of grant of such option. In no event shall an option
be exercised or shares be issued pursuant to an option if any requisite approval
or consent of any governmental authority having jurisdiction over the exercise
of options or the issue and sale of the Common Stock shall not have been
secured.
9. Termination of Employment. Except as otherwise provided in this Section
9, no person may exercise an option more than 30 days (or such longer period as
the Committee may establish) after the first date on which he is neither an
employee nor a director of the Company. If a participant ceases to be an
employee or director of the Company by reason of death, disability, or an
employee's retirement at or after his normal retirement date under the Company's
pension plan in which he is a participant, he or his estate may exercise any
options held by him within 12 months after the later of the date he ceases to be
an employee or the date he ceases to be a director of the Company.
Except as otherwise determined by the Committee, options may be exercised
following the termination of a participant's employment or directorship with
respect only to such number of shares of Common Stock as to which the right of
exercise had accrued on or before the last day on which he was either an
employee or a director of the Company. In no event may an option be exercised
after the expiration of the term of such option.
10. Payment. Full payment of the purchase price for shares of Common Stock
purchased upon the exercise, in whole or in part, of an option granted under the
Plan shall be made at the time of such exercise. The purchase price may be paid
in cash or in shares of Common Stock valued at the fair market value thereof on
the date of purchase, or in a combination thereof. Alternatively, an option may
be exercised in whole or in part by delivering a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds necessary to pay the purchase
price and applicable withholding taxes, and such other documents as the
Committee may determine.
No shares of Common Stock shall be issued or transferred to a participant
until full payment therefor has been made, and a participant shall have none of
the rights of a stockholder until shares are issued or transferred to him.
11. Nontransferability. Options granted under the Plan shall not be
transferable other than by will or by the laws of descent and distribution, and,
during a participant's lifetime, shall be exercisable only by him.
12. Surrender of Options. The Committee may require the surrender of
outstanding options as a condition to the granting of new options.
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13. Issuance of Shares. If a participant so requests, shares purchased upon
the exercise of an option may be issued or transferred in the name of the
participant and another person jointly with the right of survivorship.
14. Changes in Capital Structure, etc. In the event of any change in the
outstanding Common Stock by reason of any stock dividend, stock split,
combination of shares, recapitalization, or other similar change in the capital
stock of NAI, or in the event of the merger or consolidation of NAI into or with
any other corporation or the reorganization of NAI, the number of shares covered
by each outstanding option granted under the Plan, the price per share thereof,
and the total number of shares for which options may be granted under the Plan
shall be adjusted by the Board in such manner as it determines to be appropriate
and equitable.
15. Amendment. The Board may amend the Plan in any respect from time to
time; provided, however, that, no amendment shall become effective unless
approved by affirmative vote of the Company's shareholders if such approval is
necessary for the continued validity of the Plan or if the failure to obtain
such approval would adversely affect the compliance of the Plan with Rule 16b-3
under the Exchange Act or any other rule or regulation. No amendment may,
without the consent of a participant, impair his rights under any option
previously granted under the Plan.
The Board shall have the power, in the event of any disposition of
substantially all of the assets of the Company, its dissolution, any merger or
consolidation of the Company with or into any other corporation, or the merger
or consolidation of any other corporation into the Company, to amend all
outstanding options to permit their exercise prior to the effectiveness of any
such transaction and to terminate such options as of such effectiveness. If the
Board shall exercise such power, all options then outstanding shall be deemed to
have been amended to permit the exercise thereof in whole or in part by the
holder at any time or from time to time as determined by the Board prior to the
effectiveness of such transaction and such options shall be deemed to terminate
upon such effectiveness.
16. Legal and Regulatory Requirements. No option shall be exercisable and
no shares will be delivered under the Plan except in compliance with all
applicable federal and state laws and regulations including, without limitation,
compliance with withholding tax requirements and with the rules of all domestic
stock exchanges on which the Common Stock may be listed. Any share certificate
issued to evidence shares for which an option is exercised may bear such legends
and statements as the Committee shall deem advisable to assure compliance with
federal and state laws and regulations. No option shall be exercisable, and no
shares will be delivered under the Plan, until the Company has obtained consent
or approval from regulatory bodies, federal or state, having jurisdiction over
such matters as the Committee may deem advisable.
In the case of the exercise of an option by a person or estate acquiring
the right to exercise the option by bequest or inheritance, the Committee may
require reasonable evidence as to the ownership of the option and may require
consents and releases of taxing authorities that it may deem advisable.
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Appendix 5
NAI TECHNOLOGIES, INC.
1993 Stock Option Plan for Directors
(As Amended)
1. Purpose. The purpose of the NAI Technologies, Inc. 1993 Stock Option
Plan for Directors (the "Plan") is to advance the interests of NAI Technologies,
Inc. (the "Company") by providing non-employee directors of the Company, through
the grant of options to purchase shares of common stock of the Company, with a
larger personal and financial interest in the Company's success.
2. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of three members of the Board of Directors of the
Company (the "Board"). The Committee shall be appointed, and vacancies shall be
filled, by the Board. The Committee shall have full power and authority to (i)
determine the terms and conditions, not inconsistent with the provisions of the
Plan, governing each option granted under the Plan; (ii) interpret the Plan and
any option granted thereunder; (iii) establish such rules and regulations as it
deems appropriate for the administration of the Plan; and (iv) take such other
action as it deems necessary or desirable for the administration of the Plan.
The Committee's interpretation and construction of any provision of the Plan or
the terms of any option shall be conclusive and binding on all parties.
3. Participants. Only directors who are not full-time employees of the
Company or an affiliate of the Company shall be eligible to be granted options
under the Plan.
Nothing contained in the Plan, or in any option granted pursuant to the
Plan, shall confer upon any director any right to the continuation of his
directorship or limit in any way the right of the Company to terminate his
directorship at any time.
4. Effectiveness and Termination of Plan. The Plan shall become effective
on the date of its adoption by the Board, subject to the ratification of the
Plan at the 1993 Annual Meeting of Shareholders by the holders of a majority of
the issued and outstanding shares of Common Stock (as defined in Section 5). The
Plan shall terminate on February 11, 2003, or such earlier date as the Board may
determine. Any option outstanding under the Plan at the time of its termination
shall remain in effect in accordance with its terms and conditions and those of
the Plan.
5. The Shares. Options may be granted from time to time under the Plan for
the purchase, in the aggregate, of not more than 156,000 (as adjusted) shares of
common stock, $.10 par value, of the Company ("Common Stock") (subject to
adjustment pursuant to Section 14). Such shares of Common Stock may be set aside
out of the authorized but unissued shares of Common Stock not reserved for any
other purpose or out of previously issued shares acquired by the Company and
held in its treasury. Any shares of Common Stock which, by reason of the
termination or expiration of an option or otherwise, are no longer subject to
purchase pursuant to an option granted under the Plan may again be subjected to
an option under the Plan.
6. Option Grants. Commencing with the election of directors at the
Company's 1996 Annual Meeting of Shareholders, each non-employee director
elected or reelected as a director of the Company shall receive on the date of
each such election or reelection a grant of an option to purchase 5,000 shares
of Common Stock (subject to adjustment pursuant to Section 14).
7. Option Price. The price at which shares of Common Stock may be purchased
upon the exercise of an option granted under the Plan shall be the fair market
value of such shares on the date of grant of such option.
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8. Term and Exercisability of Options. Options shall be granted for terms
of ten years and shall be exercisable in accordance with such terms and
conditions not inconsistent herewith as are set forth in the option agreements
evidencing the grant of such options.
Options shall become exercisable 1 year after their date of grant and may
not be exercised prior to that date. In no event shall an option be exercised or
shares be issued pursuant to an option if any requisite approval or consent of
any governmental authority having jurisdiction over the exercise of options or
the issue and sale of the Common Stock shall not have been secured.
9. Termination of Directorship. Except as otherwise provided in this
Section 9, no person may exercise an option more than 30 days after the first
date on which he ceases to be a director of the Company. If a participant ceases
to be a director of the Company by reason of death or disability, he or his
estate may exercise any options held by him within 12 months after the date he
ceases to be a director of the Company.
An option may be exercised following the termination of a participant's
directorship only if the right of exercise had accrued on or before the last day
on which he was a director of the Company. In no event may an option be
exercised after the expiration of the term of such option.
10. Payment. Full payment of the purchase price for shares of Common Stock
purchased upon the exercise, in whole or in part, of an option granted under the
Plan shall be made at the time of such exercise. The purchase price may be paid
in cash or in shares of Common Stock valued at the fair market value thereof on
the date of purchase, or in a combination thereof. Alternatively, an option may
be exercised in whole or in part by delivering a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds necessary to pay the purchase
price and applicable withholding taxes, and such other documents as the
Committee may determine.
No shares of Common Stock shall be issued or transferred to a participant
until full payment therefor has been made, and a participant shall have none of
the rights of a stockholder until shares are issued or transferred to him.
11. Nontransferability. Options granted under the Plan shall not be
transferable other than by will or by the laws of descent and distribution, and,
during a participant's lifetime, shall be exercisable only by him.
12. Issuance of Shares. If a participant so requests, shares purchased upon
the exercise of an option may be issued or transferred in the name of the
participant and another person jointly with the right of survivorship.
13. Status of Options. Options granted under the Plan are nonstatutory
options not qualifying as incentive stock options under Section 422 of the
Internal Revenue Code.
14. Changes in Capital Structure, etc. In the event of any change in the
outstanding Common Stock by reason of any stock dividend, stock split,
combination of shares, recapitalization, or other similar change in the capital
stock of the Company, or in the event of the merger or consolidation of the
Company into or with any other corporation or the reorganization of the Company,
there shall be substituted for or added to each Share theretofore appropriated
for the purposes of the Plan or thereafter subject, or which may become subject,
to an option under the Plan, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so changed
or for which each such share shall be exchanged or to which each such share
shall be entitled, as the case may be. Outstanding options shall be
appropriately amended as to price and other terms in a manner consistent with
the aforementioned adjustment to the Shares subject to the Plan.
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15. Amendment. The Board may amend the Plan in any respect from time to
time; provided, however, that no amendment shall become effective unless
approved by affirmative vote of the Company's shareholders if such approval is
necessary or desirable for the continued validity of the Plan or if the failure
to obtain such approval would adversely affect the compliance of the Plan with
Rule 16b-3 or any successor rule under the Securities Exchange Act of 1934 or
any other rule or regulation; and provided, further, that the Plan shall not be
amended more than once in any six-month period. No amendment may, without the
consent of a participant, impair his rights under any option previously granted
under the Plan.
The Board shall have the power, in the event of any disposition of
substantially all of the assets of the Company, its dissolution, any merger or
consolidation of the Company with or into any other corporation, or the merger
or consolidation of any other corporation into the Company, to amend all
outstanding options to permit their exercise prior to the effectiveness of any
such transaction and to terminate such options as of such effectiveness. If the
Board shall exercise such power, all options then outstanding shall be deemed to
have been amended to permit the exercise thereof in whole or in part by the
holder at any time or from time to time as determined by the Board prior to the
effectiveness of such transaction and such options shall be deemed to terminate
upon such effectiveness.
16. Legal and Regulatory Requirements. No option shall be exercisable and
no shares will be delivered under the Plan except in compliance with all
applicable federal and state laws and regulations including, without limitation,
compliance with withholding tax requirements and with the rules of all domestic
stock exchanges on which the Common Stock may be listed. Any share certificate
issued to evidence shares for which an option is exercised may bear such legends
and statements as the Committee shall deem advisable to assure compliance with
federal and state laws and regulations. No option shall be exercisable, and no
shares will be delivered under the Plan, until the Company has obtained consent
or approval from regulatory bodies, federal or state, having jurisdiction over
such matters as the Committee may deem advisable.
In the case of the exercise of an option by a person or estate acquiring
the right to exercise the option by bequest or inheritance, the Committee may
require reasonable evidence as to the ownership of the option and may require
consents and releases of taxing authorities that it may deem advisable.
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APPENDIX A--PROXY
NAI TECHNOLOGIES, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 7, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert A. Carlson or Richard A. Schneider
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 Chase Manhattan Bank Building
located at 270 Park Avenue, New York, New York 10022, on Wednesday, August 7,
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:
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1. PROPOSAL TO APPROVE AND ADOPT AN AMENDMENT TO THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION TO CREATE A CLASSIFIED BOARD OF DIRECTORS
CONTAINING TWO CLASSES, ONE CLASS HAVING FOUR MEMBERS AND ONE CLASS
HAVING THREE MEMBERS, BEGINNING WITH THE 1997 ANNUAL MEETING OF
SHAREHOLDERS, WHICH REPLACES THE PROVISIONS OF THE RESTATED
CERTIFICATE OF INCORPORATION WHICH PROVIDES FOR A CLASSIFIED BOARD OF
DIRECTORS CONTAINING THREE CLASSES UNDER CERTAIN CIRCUMSTANCES, AS
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELECTION OF THE FOLLOWING NOMINEES FOR DIRECTOR: Robert A. Carlson, Richard A.
Schneider, Stephen A. Barre,
Edward L. Hennessy, C. Shelton
James, Charles S. Holmes and
James McCarthy.
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.
____________________________________________
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3. PROPOSAL TO RATIFY AND APPROVE THE ADOPTION OF THE COMPANY'S 1996 STOCK
OPTION PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO RATIFY AND APPROVE THE ADOPTION OF AMENDMENTS TO THE 1993
STOCK OPTION PLAN FOR DIRECTORS INCREASING THE NUMBER OF OPTIONS
GRANTED TO DIRECTORS UPON ELECTION OR REELECTION FROM 1,560 TO 5,000
AND MAKING CERTAIN OTHER CHANGES, AS DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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5. PROPOSAL TO RATIFY AND APPROVE THE SELECTION OF KPMG PEAT MARWICK AS
THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER
31, 1996.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. 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.
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" ITEMS 1, 2, 3, 4 AND 5 AND THE PROXIES WILL USE THEIR DISCRETION
WITH RESPECT TO ANY MATTERS REFERRED TO IN ITEM 6.
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.
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