<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
QUESTECH, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
QuesTech, Inc.
7600-W Leesburg Pike
Falls Church, VA 22043
April 28, 1997
To Our Stockholders:
On behalf of the Board of Directors, we cordially invite you to attend the
Annual Meeting of Stockholders on Friday, May 23, 1997, at 10 A.M. at the
DoubleTree Hotel, 7801 Leesburg Pike, Falls Church, Virginia 22043. The formal
Notice of Annual Meeting and Proxy Statement, which are contained in the
following pages, outline the action to be taken by the stockholders at the
Meeting.
At the Meeting, we will elect six directors and vote on the ratification of
the appointment of independent public accountants. We will also vote on the
adoption of an amendment to our existing employees' Incentive Stock Option Plan.
Finally, we will report on the progress of QuesTech and comment on matters of
current interest. During the Meeting, stockholders who are present at the
Meeting will have the opportunity to ask questions.
Please sign and return the enclosed Proxy form in the envelope provided as
soon as possible so your shares can be voted at the Meeting in accordance with
your instructions. Proxies of stockholders who attend the Meeting and vote in
person will not be voted.
We are pleased by our stockholders' interest in QuesTech and gratified that
in the past so many of you have voted your shares either in person or by proxy.
We hope that you will continue to do so. Please return your proxy card as soon
as possible.
Sincerely yours,
VINCENT L. SALVATORI GERALD F. MAYEFSKIE
Chairman of the Board and President and Chief
Chief Executive Officer Operating Officer
<PAGE>
QuesTech, Inc.
7600-W Leesburg Pike
Falls Church, VA 22043
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Friday, May 23, 1997 at 10:00 A.M.
------------
To the Stockholders:
The Annual Meeting of Stockholders of QuesTech, Inc. will be held on Friday,
May 23, 1997, at 10:00 A.M., local time, at the DoubleTree Hotel, 7801 Leesburg
Pike, Falls Church, Virginia 22043, for the following purposes:
1. To elect six directors to the Company's Board of Directors;
2. To ratify the selection by the Board of Directors of Grant Thornton
as the independent auditors of the Company for the fiscal year ending
December 31, 1997;
3. To approve an amendment to the 1996 Incentive Stock Option Plan,
increasing the number of shares available for options by 4% of the total
number of outstanding shares, and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on April 7, 1997 has been fixed as the record date for
the determination of the stockholders entitled to notice of and to vote at the
Meeting and at any adjournment thereof.
By Order of the Board of Directors,
Christina Burkholder
Vice President, General Counsel
& Secretary to the Board
Falls Church, Virginia
April 28, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE INDICATE VOTING
INSTRUCTIONS ON THE ENCLOSED PROXY, SIGN AND PROMPTLY RETURN THE COMPLETED PROXY
IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
<PAGE>
QuesTech, Inc.
-------------
PROXY STATEMENT
-------------
ANNUAL MEETING OF STOCKHOLDERS
May 23, 1997
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of QuesTech, Inc. ("the Company" or "QuesTech") of proxies
for use at the Annual Meeting of Stockholders to be held on May 23, 1997. Only
stockholders of record at the close of business on April 7, 1997 are entitled to
notice of, and to vote at, the Meeting.
This Proxy Statement and Notice of Meeting, the proxy card and the Company's
Annual Report to Stockholders, which contains QuesTech's financial statements
for the year ended December 31, 1996, were first mailed to Stockholders on or
about April 28, 1997.
PROXY PROCEDURE:
Only shareholders of record at the close of business on April 7, 1997 are
entitled to vote in person or by proxy at the Annual Meeting.
QuesTech's Board of Directors solicits proxies so that each shareholder has
the opportunity to vote on the proposals to be considered at the Annual Meeting.
When a proxy card is returned properly signed and dated, the shares represented
thereby will be voted in accordance with the instructions on the proxy card. If
a shareholder attends the Annual Meeting, he or she may vote by ballot.
If a shareholder does not return a signed proxy card or does not attend the
Annual Meeting and vote in person, his or her shares will not be voted.
Stockholders are urged to mark the boxes on the proxy card to indicate
how their shares are to be voted. If a stockholder returns a signed proxy
card but does not mark the boxes, the shares represented by the proxy card
will be voted (1) to elect the nominees for directors proposed by the Board
of Directors; (2) to ratify the selection of Grant Thornton as the
independent auditors of the Company for the fiscal year ending December 31,
1997; and (3) to approve an amendment to the employees' Incentive Stock
Option Plan. A stockholder may revoke his or her proxy at any time before it
is voted by: (i) giving notice in writing to the Secretary of QuesTech; (ii)
granting a subsequent proxy; or (iii) appearing in person and voting at the
Annual Meeting.
1
<PAGE>
The Company had 1,653,304 outstanding shares of Common Stock as of the close
of business on April 7, 1997. The Company has no other voting securities.
Stockholders are entitled to one vote per share on each matter.
ELECTION OF DIRECTORS
At the Annual Meeting, an election will be held for six directors, each to
serve for a term of one year or until his successor is elected and qualified.
Although it is expected that all candidates will be able to serve, if one or
more is unable to do so, the proxy holders will vote the proxies for the
remaining nominees and for substitute nominees chosen by the Board.
All six of the nominees are currently serving as Directors of the Company
and previously have been elected as Directors by the stockholders of the
Company.
The table below presents information about each nominee, including any
positions they hold with the Company and biographical data for at least the last
five years.
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND SERVED AS
NAME AGE OTHER INFORMATION DIRECTOR SINCE
---- --- ------------------------ --------------
<S> <C> <C> <C>
Edward G. Broenniman........... 60 President and Chief Executive Officer of the 1996
Piedmont Group (1985-Present), a consulting
company; Chief Operating Officer and Chief
Financial Officer of Hemex, Inc. (1994-Present),
a medical products company; also serves as a
director of Hemex, Inc.; member of the
Company's Audit and Compensation
Committees.
Robert B. Costello............. 71 Chairman, Costello Group; former Senior 1991
Fellow, Hudson Institute, Indianapolis, Indiana
(1989-91); former Under secretary of Defense
(Acquisitions) and Assistant Secretary of
Defense for Production and Logistics (1986-
1989); chairman of the Company's Audit and
Deferred Compensation Committees; member of
the Company's Compensation and Nominating
Committees; also serves as a director of Cimlinc,
Inc. and Costello Group.
Gerald F. Mayefskie............ 56 President and Chief Operating Officer of the 1991
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND SERVED AS
NAME AGE OTHER INFORMATION DIRECTOR SINCE
---- --- ------------------------ --------------
<S> <C> <C> <C>
Company since 1991; formerly Vice President of
the Company and Vice President/General
Manager of the QuesTech Research Division.
Has been employed by the Company in various
executive positions for 25 years; member of the
Company's Deferred Compensation Committee.
Sebastian P. Musco............. 71 Vice Chairman of the Board of Directors; 1968
Chairman of QuesTech's Compensation and
Nominating Committees; member of
QuesTech's Audit and Deferred Compensation
Committees; Founder, Chairman of the Board
and Chief Executive Officer of Gemini
Industries, Inc.; Chairman, Care
Communications, Chicago, Illinois; Director and
former president of the International Precious
Metals Institute.
Vincent M. Russo............... 66 Independent consultant in logistics (1989- 1994
present); Lt. General (Rtd.) United States Army
(1952-1989); former Director, Defense Logistics
Agency; major assignments at the Dept. of Army
and at the U.S. Forces Command dealing with
logistics functions during military career;
member of the Company's Audit, Compensation
and Deferred Compensation Committees.
Vincent L. Salvatori........... 64 Chairman of the Board and Chief Executive 1968
Officer of the Company, President and Chief
Executive Officer since 1988; Director and
Chairman of the Board of the Company's
subsidiaries; member ex officio of the
Company's Audit, Compensation and Deferred
Committee Committees, and a member of the
Nominating Committee. Also serves as a
director of Dynamic Engineering, Incorporated
and Association for Corporate Growth,
Washington, D.C.
</TABLE>
There are no family relationships among any of the nominees for Director or
among them and any executive officer of the Company.
The six nominees for election as directors who receive the greatest number
of votes cast for the election of directors at the meeting shall be elected
directors, assuming there is a quorum present. The aggregate number of votes
entitled to be cast by all stockholders present in person
3
<PAGE>
or represented by proxy at the meeting, whether those stockholders vote
"for", "against", or abstain from voting, will be counted for purposes of
determining the number of shares present for purposes of establishing a
quorum.
The Board of Directors recommends a vote FOR each of the nominees for
director of the Company.
4
<PAGE>
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors, during the year ended December 31, 1996, held five
meetings. Each director attended in excess of 75% of the aggregate number of all
meetings of the Board and all meetings of the committees of the Board of
Directors on which he or she served in 1996.
During the fiscal year ended December 31, 1996, the Board had as standing
Committees an Audit Committee, a Compensation Committee, a Deferred Compensation
Committee and a Nominating Committee.
The Audit Committee consists of the independent directors of the Company:
Robert B. Costello, Chairman of the Committee, Sebastian P. Musco, Vincent M.
Russo, and Edward G. Broenniman. The Committee, which was established in 1985,
met five times during the year ended December 31, 1996. The Audit Committee
reviews the audit plan developed by the Company's independent auditors in
connection with their annual audit of the Company's financial statements, the
results of audits performed by the Company's independent auditors, the
independent auditors' charges to the Company, the response to management letters
issued by the Company's independent auditors, current accounting rules and
changes therein and the operations of the Company's Accounting Department. The
Audit Committee also recommends a selection of independent auditors to the Board
of Directors each year.
The Compensation Committee consists of the independent directors: Sebastian
P. Musco, Chairman of the Committee, Robert B. Costello, Vincent M. Russo, and
Edward G. Broenniman. This Committee has responsibility for administering and
recommending to the Board salaries of all corporate officers of the Company and
its subsidiaries.
The Deferred Compensation Committee consists of three independent directors
and an employee-director: Dr. Costello, Chairman, and Messrs. Musco, Russo, and
Mayefskie. This Committee is responsible for administering the Company's two
deferred compensation plans, including selection of participants, determination
of benefits, review of the Plans performance and amending the Plans.
The Nominating Committee Consisted of Mr. Musco, Chairman, Dr. Costello and
Mr. Salvatori. The Committee meets at least once each year to decide upon a
slate of candidates for directors for the coming year, which candidates are then
submitted to the full Board for its approval and eventual submission to the
shareholders. The Committee held one meeting during 1996.
Mr. Salvatori is a member of the Nominating Committee. He serves on all
other Committees in an ex officio capacity.
5
<PAGE>
EXECUTIVE OFFICERS
Certain information with respect to the Company's executive officers is
set forth below. Mr. O'Connell is serving a one-year term, as do all other
appointed officers, that will expire at the time of the first Board meeting
following the 1997 Annual Meeting of Stockholders. Each of Mr. Salvatori and
Mr. Mayefskie are serving pursuant to the terms of employment agreements, the
current terms of which will expire December 31, 1999 and November 17, 1998,
respectively. (See "Employment Agreements" below.)
<TABLE>
<CAPTION>
POSITIONS WITH SERVED AS
NAME THE COMPANY OFFICER SINCE AGE
- --------------------------- ------------------------------ --------------- ---
<S> <C> <C> <C>
Vincent L. Salvatori Chairman of the Board and 1968 64
Chief Executive Officer
Gerald F. Mayefskie Director; President and 1981 56
Chief Operating Officer
Joseph P. O'Connell Chief Financial Officer 1989 53
</TABLE>
Mr. O'Connell is the Chief Financial Officer of the Company. He has been
with the Company since 1989 and has served as an officer since that time.
For a summary of the business experience of each of the other executive
officers of the Company, see "Nominees for Election as Directors," above.
6
<PAGE>
STOCK OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of April 7, 1997 (except as
otherwise noted), with respect to the beneficial ownership of Common Stock by
each person known by the Company to beneficially own more than 5% of its
outstanding Common Stock, each nominee for Director, each executive officer
of the Company named in the Summary Compensation Table below, and all
directors and executive officers of the Company as a group. At the close of
business on April 7, 1997, there were issued and outstanding 1,653,304 shares
of Common Stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS
- -------------------------------------------------- ------------ ----------
<S> <C> <C>
Steven N. Bronson(1)
2101 W. Commercial Blvd., Ste. 1500
Ft. Lauderdale, FL 33309 100,000 5.8%
Stock Employee Compensation Trust(2)
("SECT")
c/o QuesTech, Inc.
7600-W Leesburg Pike Falls
Church, VA 22043 176,131 10.3%
Robert B. Costello 25,000(3) 1.5%
Edward G. Broenniman 1,500 *
Gerald F. Mayefskie 46,000(4) 2.7%
Sebastian P. Musco 149,480(5) 8.7%
Vincent M. Russo 700(6) *
Vincent L. Salvatori 188,298(7) 11.0%
Joseph P. O'Connell 18,451(8) *
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
All directors and executive
officers as a group
(7 persons) 605,560(10) 35.3%
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Based on information set forth in the Schedule 13D filed by Steven N.
Bronson on December 14, 1995 with the Securities and Exchange Commission,
holdings include 15,000 shares in the name of Barber & Bronson Incorporated.
(2) The SECT was established by the Company effective December 31, 1993. This
trust holds certain Common Stock of the Company for the purpose of funding
certain employee benefit plans of the Company. The members of the Board of
Directors of the Company serve as the Trustees of the SECT. Pursuant to the
governing trust document, shares held in the SECT are voted by the Trustees,
in some instances pursuant to the instruction of the beneficiaries of the
SECT.
(3) Does not include 176,131 shares held in the SECT which may be deemed to be
beneficially owned by Dr. Costello by virtue of his serving as a Trustee of
the SECT.
(4) Includes 8,000 shares which Mr. Mayefskie could acquire upon the exercise
of options vested as of April 7, 1997. Does not include 176,131 shares held
in the SECT which may be deemed to be beneficially owned by Mr. Mayefskie by
virtue of his serving as a Trustee of the SECT.
(5) Does not include 176,131 shares held in the SECT which may be deemed to be
beneficially owned by Mr. Musco by virtue of his serving as a Trustee of the
SECT.
(6) Does not include 176,131 shares held in the SECT which may be deemed to be
beneficially owned by Mr. Russo by virtue of his serving as a Trustee of the
SECT.
(7) Includes 12,000 shares which Mr. Salvatori could acquire upon the exercise
of options vested as of April 7, 1997. Does not include 176,131 shares held
in the SECT which may be deemed to be beneficially owned by Mr. Salvatori by
virtue of his serving as a Trustee of the SECT.
(8) Includes 2,000 shares which Mr. O'Connell could acquire upon the exercise
of options vested as of April 7, 1997.
8
<PAGE>
(9) Includes 176,131 shares held in the SECT which may be deemed to be
beneficially owned by the directors of the Company who are the Trustees of
the SECT and have the power, as trustees, to dispose of and vote such
shares.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND OTHER # SHARES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION GRANTED COMPENSATION
- -------------------------- ----- ---------- --------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vincent L. Salvatori 1996 $ 238,057 $ 60,000 $ 65,000(2) $ 49,979(3)
Chairman and Chief 1995 208,863 35,000 60,000 30,000 31,415
Executive Officer 1994 180,003 30,000 60,000 0 62,040
Gerald F. Mayefskie 1996 199,060 50,000 21,671(4) 38,051(5)
President and Chief 1995 179,262 25,000 20,000 20,000 36,583
Operating Officer 1994 160,041 25,000 20,000 0 34,978
Joseph P. O'Connell 1996 120,270 10,000 0 22,551(6)
Chief Financial 1995 119,002 12,000 0 5,000 20,193
Officer 1994 103,958 12,000 0 0 19,518
</TABLE>
- ------------------------
(1) Includes bonus for 1995 paid in 1996; does not include bonus earned for
1996 paid in the first quarter of 1997.
(2) Includes $21,671 as a director fee and $43,329 as a fee for serving as
Chairman of the Board of Directors.
(3) Includes life and medical insurance premiums of $12,692 and $7,431
respectively, reimbursement of medical expenses pursuant to an executive
reimbursement plan of $1,976, vacation payoff of $22,996, long-term
disability insurance premiums of $2,173 and long-term care insurance of
$2,711.
(4) Includes $21,671 as a director's fee.
(5) Includes life and medical insurance premiums of $9,574 and $5,523
respectively, vacation payoff of $15,382, long-term disability insurance
premiums of $5,926, and long-term care insurance of $1,646.
9
<PAGE>
(6) Includes life and medical insurance premiums of $4,457 and $8,165,
respectively, reimbursement of medical expenses pursuant to an executive
reimbursement plan of $4,516, vacation payoff of $2,347, and long-term
disability insurance premiums of $3,066.
10
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
No grants of stock options were made during the last completed fiscal year
to the Company's executive officers.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The table below provides certain information on option exercises and values
as of the year end for each of the named executive officers:
<TABLE>
<CAPTION>
TOTAL VALUE OF
TOTAL NUMBER OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES HELD AT FISCAL YEAR END HELD AT FISCAL YEAR END(1)
ACQUIRED ON VALUE ---------------------------- --------------------------
NAME EXERCISES REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- ---------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vincent L. Salvatori..................... 25,000 $ 139,375 6,000 24,000 18,600 74,400
Gerald F. Mayefskie...................... 10,000 50,000 4,000 16,000 14,000 56,000
Joseph P. O'Connell...................... 4,500 25,875 1,000 4,000 3,500 14,000
</TABLE>
- ------------------------
(1) Value of In-the-Money-Options. For purposes of this valuation, the
year-end stock price of $7.50 is being utilized. Thus, all options with an
exercise price less than $7.50 were in-the-money.
DIRECTORS' COMPENSATION
Effective since 1992, all directors receive a fee at an annual rate of
$20,000. These annual fees are all inclusive. No fees are paid for attendance at
Board or Committee Meetings. Mr. Salvatori receives an additional fee of $40,000
for serving as the Chairman of the Board of Directors. Mr. Musco receives an
additional fee of $20,000 for serving as Vice Chairman of the Board. Dr.
Costello receives an additional fee of $10,000 for serving as Chairman of the
Audit Committee. The directors are reimbursed expenses connected with attendance
at Board or Committee Meetings.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with its Chairman and Chief Executive
Officer, Vincent L. Salvatori, and its President and Chief Operating Officer,
Gerald F. Mayefskie. Mr. Salvatori's agreement is for a period of three years,
renewable annually for successive three-year periods by the Board of Directors
and has been existence since 1979. The agreement was most recently renewed in
November 1996 for the three-year period
11
<PAGE>
beginning January 1, 1997 to December 31, 1999. Mr. Salvatori's agreement
provides for life-time medical, health and dental coverage identical to the
coverage then provided by the Company's group and executive health plans, for
long-term care insurance, for life insurance in the sum of $300,000, and for
the payment of five years of total compensation in the event of either Mr.
Salvatori's voluntary or involuntary termination.
The employment agreement between the Company and its President and Chief
Operating Officer, Gerald F. Mayefskie, was first approved by the Board of
Directors on November 18, 1991 and was most recently renewed in November 1996
for a period of two years. Mr. Mayefskie's agreement is renewable annually by
the Board of Directors. His agreement provides for life-time medical, health and
dental coverage identical to the coverage then provided by the Company's group
and executive health plans, for long-term care insurance, for life insurance in
the sum of $300,000, and for payment of two years of compensation in the event
of either Mr. Mayefskie's voluntary or involuntary termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
None of the members of the Company's Compensation Committee was, during the
last fiscal year, an officer or employee of the Company or any of its
subsidiaries, was formerly an officer of the Company or any of its subsidiaries
or had any relationship with the Company required to be disclosed in this Proxy
Statement, except Vincent L. Salvatori who served as an ex officio member of the
Compensation Committee and as the Company's Chief Executive Officer and Robert
B. Costello, whose consulting agreement with the Company is discussed in
"Related Party Transactions" below.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
QuesTech's compensation program for executive officers is intended to align
executive compensation with the long-run profitability of the Company, and thus
with the interests of the shareholders. Based on superior results achieved by
the Company in 1996, the Committee believes this policy has been successful. The
Compensation Committee coordinates matters with the Board of Directors and with
management in establishing and implementing compensation policies. In addition
to base salary, compensation for the Company's executive officers may include
bonuses, stock options and certain other benefits, such as insurance.
The Compensation Committee is also responsible for determining the
recipients and number of options, the timing of grants and the option exercise
prices, in accordance with the terms of the Company's 1994 Stock Option Plan.
The Committee considers the recommendations of management and submits its
recommendations to the full Board of Directors.
12
<PAGE>
In considering base salary compensation for 1996, the Committee was pleased
by the fact that the Company continues to operate on a profitable basis, and
continues to increase revenues. The Committee believes that compensation should
reflect the fact that revenues have increased despite continuing difficult
economic conditions in the defense contracting markets and a continuing
investment in the Company's manufacturing subsidiary.
In the first quarter of 1996, the Compensation Committee considered
financial and operational results of 1995, which included increased profits,
revenue and earnings per share, and the exceptional efforts expended by the
Chief Executive Officer and the Chief Operating Officer to achieve those
results. The Compensation Committee recommended to the Board of Directors a cash
bonus of $60,000 for Mr. Salvatori and $50,000 for Mr. Mayefskie in
consideration of their work for the Company. The Committee felt the bonus amount
was appropriate in light of the Company's profitable financial position and the
Committee's understanding of the compensation packages for executives of
comparable position and responsibility in the industry. The Committee did not
apply objective Company performance criteria in establishing the bonuses. The
Board approved the bonuses, with Messrs. Salvatori and Mayefskie abstaining.
COMPENSATION COMMITTEE
Robert B. Costello
Sebastian P. Musco
Edward G. Broenniman
Vincent M. Russo
Vincent L. Salvatori (ex officio)
13
<PAGE>
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the Company's common stock against
the cumulative total return of the NASDAQ Composite Index and the Dow Jones
Equity Market Aerospace and Defense Index for the period of five years
commencing January 1, 1991 and ended December 31, 1996.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
QUESTECH, INC., NASDAQ COMPOSITE INDEX AND DOW JONES
EQUITY MARKET AEROSPACE AND DEFENSE INDEX
Research Total Return - Data Summary
QTEC
Cumulative Total Return
----------------------------------------
12/91 12/92 12/93 12/94 12/95 12/96
Questech Inc QTEC 100 114 150 221 543 429
NASDAQ STOCK MARKET-US INAS 100 116 134 131 185 227
DJ AEROSPACE & DEFENSE IARO 100 104 135 152 264 350
14
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Forms 3, 4 and 5 they file.
Based on the Company's review of the copies of such forms it has received,
the Company believes that all its officers, directors and greater than ten
percent beneficial owners complied with all filing requirements applicable to
them with respect to transactions during fiscal 1996.
RELATED PARTY TRANSACTIONS
Since 1992, the Company has had a Consultancy Agreement with director Robert
B. Costello. On May 17, 1996, the Board of Directors approved an amended
Consultancy Agreement. Pursuant to this amended Agreement, Dr. Costello, with
the permission of the Company's Chairman and Chief Executive Officer, can
provide the Company no more than 96 hours of consulting services during the
12-month period (May 17, 1996-1997) at a rate of $2,000/day. In addition, his
expenses for the consulting services for the twelve-month period are reimbursed.
The consulting services are determined by the Company's President and Chief
Operating Officer in the areas of marketing, support and technical assistance.
During 1996, Dr. Costello was paid $38,000 for consulting services under the
amended Agreement. This amount was on a basis at least as favorable to the
Company as could have been obtained from an unaffiliated party.
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders at the Annual Meeting, the Board
of Directors, on recommendation of the Audit Committee, has selected Grant
Thornton, independent public accountants, as auditors of the Company for the
fiscal year ending December 31, 1997. Grant Thornton has audited the accounts of
the Company since it became a public corporation in 1984. Representatives of the
firm will be present at the Annual Meeting and will be afforded the opportunity
to make a statement, if desired, and will be available to respond to appropriate
questions relating to the Company's 1996 financial statements.
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PROPOSAL TO AMEND 1996 STOCK OPTION PLAN
BACKGROUND OF AND REASONS FOR THE PROPOSAL
In 1982, the Board of Directors of the Company approved the adoption of the
Company's first Incentive Stock Option Plan (the "1982 Plan") and authorized
200,000 shares of the authorized but unissued Common Stock for issuance under
the 1982 Plan. The Board believed that long-term incentive stock awards as a
form of compensation is an important element in attracting and retaining the
best possible management talent and in motivating employees to achieve business
and financial goals which create value for shareholders. Pursuant to the terms
of the 1982 Plan, options could not be granted under the Plan after January 21,
1992. As of the date of this Proxy Statement, there are no options outstanding
under the 1982 Plan.
On November 15, 1994, the Stockholders approved the adoption of the 1994
Incentive Stock Option Plan (the "1994 Plan") and authorized 200,000 shares of
Common Stock for issuance under the 1994 Plan. As of the date of this Proxy
Statement, 173,000 shares of the Common Stock of the Company authorized under
the Plan are subject to options by officers and employees. These options were
awarded based on a combination of individual, business group and/or corporate
financial performance. Pursuant to the terms of the 1994 Plan, upon the
departure or termination of employment by an officer or employee, the options
are forfeited and returned to the option pool.
In 1996, it became clear to the Board of Directors that the absence of
available shares which would permit the grant of options to provide incentive
awards to officers and employees is impacting the capability of the Company to
attract and keep key employees. Accordingly, on March 17, 1996, the shareholders
approved the adoption of the 1996 Stock Option Plan (the "1996 Plan") as
recommended by the Board. There are currently 162,000 shares available for new
options under the 1996 Plan.
BOARD OF DIRECTORS--RECOMMENDATION
At the meeting of the Board of Directors held on March 17, 1997, the Board
of Directors unanimously approved an amendment to the 1996 Plan whereby the
total number of shares available under that plan will be increased by 4% of the
total number of shares outstanding as of April 7, 1997, which equals 66,132
shares, and recommended that the proposed amendment to the 1996 Plan be put to
the stockholders for their consideration and approval. The Board continues to
believes that cash compensation is inadequate to create the superior results
that the Company is seeking. Limiting the ability to provide incentive
compensation in the form of equity severely limits the Company's ability to
carry out its corporate governance responsibilities. The Board believes that the
discretion it had been able
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to exercise under the 1982 Plan and 1994 Plan for employees at all levels has
played an important role in driving the Company's profitable performance over
the last six years. Past experience has shown that it is prudent to increase
the number of shares available on an incremental basis, even though there are
still shares available for option under the 1996 Plan.
Set forth below is a description of the major features of the 1996 Plan
Amendment. This description is subject to and qualified in its entirety by the
full text of the Amendment to the 1996 Plan, a copy of which may be obtained
from the Company upon request.
GENERAL PLAN PROVISIONS
The purpose of the 1996 Plan, as adopted, was to attract, retain, motivate,
and reward employees and other individuals and to encourage ownership of the
Company's Common Stock by employees and other individuals by granting options to
purchase Common Stock ("Options"). The 1996 Plan originally provided that the
number of shares of Common Stock which may be issued in connection with Options
would not exceed 200,000 shares plus an annual increase, effective on each
January 1, equal to 1% of the shares of Common Stock allocated to the 1996 Plan
as of such January 1. Thus, effective January 1, 1997, the number of shares
available increased by 2,000 shares. If an Option expires or is terminated,
surrendered, or canceled, without having been fully exercised the shares covered
by such Option shall again be available for use under the 1996 Plan. The
Amendment to the 1996 Plan provides that the total number of shares of Common
Stock which may be issued in connection with options will not exceed 268,132
shares, which includes the 2,000 shares from the increase of 1% of the shares of
Common Stock as of January 1, 1997, plus 4% of the total number of Common Stock
Shares outstanding (which equals an additional 66,132 shares).
There are no changes in any other aspects of the 1996 Plan. As originally
adopted, if the Common Stock of the Company is changed by reason of any stock
dividend, spin-off, split-up, spin-out, recapitalization, merger, consolidation,
reorganization, combination, or exchange of shares, the number and class of
shares available for Options and the number of shares subject to any outstanding
Options, and the price thereof, as applicable, will be appropriately adjusted.
The 1996 Plan continues to be administered by a committee (the
"Committee") consisting of two members of the Board of Directors who are (a)
"disinterested persons", as defined in Rule 16b-3 ("Rule 16b-3") under the
Securities Exchange Act of 1934 (the "Exchange Act"), which currently means
persons who are not, during the one year prior to service as an administrator
of a plan, or during such service, granted or awarded equity securities of
the Company pursuant to the 1996 Plan or any other plan of the Company or its
affiliates, subject to certain exceptions, and (b) "outside directors", as
defined in Section
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162(m)(4)(C)(I) of the Code, which generally means persons who were never
officers of the Company, and who are not (i) currently employees, (ii) former
employees who still receive compensation, or (iii) compensated other than for
services as a director of the Company. Subject to the express provisions of
the 1996 Plan, the Committee has complete authority to (i) determine when and
to whom Options are granted and the type and amounts of Options; (ii)
determine the terms, conditions, and provisions of, and restrictions relating
to, each Option granted; (iii) interpret and construe the 1996 Plan and any
agreement evidencing and describing an Option; (iv) prescribe, amend, and
rescind rules and regulations relating to the 1996 Plan; (v) determine the
form and contents of all Option Agreements; (vi) determine all questions
relating to benefits under the 1996 Plan; and (vii) take any other action
which it considers necessary or appropriate for the administration of the
1996 Plan and to carry out the purposes of the Plan. All determinations made
by the Committee will be final.
The Board may amend the 1996 Plan at any time, provided that without
stockholder approval, the Board cannot amend the Plan if such amendment (i)
would cause options which are intended to qualify as Incentive Stock Options, as
described below, to fail to qualify as such, (ii) would cause the 1996 Plan to
fail to meet the requirements of Rule 16b-3, or (iii) would violate applicable
law. The 1996 Plan has no fixed termination date and will continue in effect
until terminated by the Board.
The amendment or termination of the 1996 Plan will not adversely affect any
Option granted prior to such amendment or termination, provided, however, that
any Option may be modified or canceled by the Committee if and to the extent
permitted by the 1996 Plan or the applicable award agreement or with the consent
of the participant to whom such Option was granted.
In the event of a Change in Control, as defined below, the Committee may
provide such protection as it deems necessary to maintain a participant's
rights. Without in any way limiting the generality of the foregoing sentence or
requiring any specific protection, the Committee may (i) provide for the
acceleration of any time periods relating to the exercise of any Option; (ii)
provide for purchase of an Option upon the participant's request for an amount
in cash equal to the amount which could have been attained upon the exercise of
the Option had it been currently exercisable; (iii) make such adjustment to the
outstanding Options as the Committee deems appropriate; or (iv) cause the
outstanding Options to be assumed, or new Options substituted therefor, by the
surviving corporation. "Change in Control" means i) the acquisition, without the
approval of the Board, by any person, other than the Company and certain related
entities, of more than 20% of the outstanding shares of Common Stock; ii) the
liquidation or dissolution of the Company following a sale or other disposition
of all or substantially all of its assets; iii) a merger or consolidation
involving the Company in which the Company is not the surviving parent
corporation; or iv) a change in the majority of the
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members of the Board during any two year period which is not approved
by at least two-thirds of the members of the Board who were members at the
beginning of the two year period.
Under the 1996 Plan, the Committee may grant Options at such times and in
such amounts to such recipients as the Committee will determine; and the grant
of each Option will be upon and subject to such terms and conditions as the
Committee will determine. Options may be awarded only to employees, employees
and owners of non-affiliated entities which have a direct or indirect ownership
interest in the Company or its affiliates, individuals who, and employees and
owners of entities which, are customers or suppliers of the Company or its
affiliates, individuals who, and employees and owners of entities which, render
services to the Company or its affiliates, and individuals who, and employees
and owners of entities which, have ownership or business affiliations with any
individual or entity previously described. The Committee has not yet determined
how many employees or others are likely to participate in the 1996 Plan;
however, participation is expected to be limited to no more than 10% of all of
the employees of the Company and its subsidiaries.
Two types of stock options may be granted under the 1996 Plan. Stock
options intended to qualify for special tax treatment under Section 422 of
the Code are referred to as "Incentive Stock Options," and options not
intended to so qualify are referred to as "Non-Qualified Stock Options." The
price of Incentive Stock Options will be determined by the Committee but will
be no less than the fair market value of the shares of Common Stock on the
date the option is granted. The price of Non-Qualified Stock Options will be
determined by the Committee and may at the discretion of the Committee be
less than the fair market value of the shares of Common Stock on the date the
option is granted.
The other terms of options will be determined by the Committee. In the case
of options intended to qualify as Incentive Stock Options, such terms must meet
all requirements of Section 422 of the Code. Currently, such requirements are
(i) the option must be granted within 10 years from the adoption of the plan,
(ii) the option may not have a term longer than 10 years, (iii) the option must
be not transferable other than by will or the laws of descent and distribution
and may be exercised only by the optionee during his lifetime, and (iv) the
maximum aggregate fair market value of Common Stock with respect to which such
options are first exercisable by an optionee in any calendar year may not exceed
$100,000. In addition, if the optionee owns more than 10% of the Company's
Common Stock or more than 10% of the total combined voting power of all classes
of stock of any Subsidiary, the option price must be at least 110% of fair
market value of the shares of Common Stock on the date the option is granted,
and the option may not have a term longer than five years.
Under the 1996 Plan, the grant of an Option may be evidenced by an agreement
which describes the specific Option granted and the terms, conditions and
provisions of, and restrictions relating to, such Option. The granting of an
Option may be conditioned upon the
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grantee's execution of an agreement. An agreement will contain such
provisions as the Committee will determine to be necessary, desirable and
appropriate.
Upon the exercise of an Option, payment may be made either (i) in cash, or
(ii), with the consent of the Committee, (a) by the tender to the Company of
shares of Common Stock having an aggregate fair market value equal to the amount
due the Company, (b) in other property, or (c) by any combination of the
foregoing.
Any Option granted to an individual who is subject to Section 16 of the
Exchange Act will not be transferable other than by will or the laws of descent
and distribution and will be exercisable during his lifetime only by him, his
guardian or his legal representative. In addition, any Incentive Stock Option
will not be transferable by the recipient other than by will or the laws of
descent and distribution and will be exercisable during his lifetime only by
him.
The Committee may require each person purchasing Common Stock pursuant to an
Option to represent to and agree with the Company in writing that such person is
acquiring the shares for investment and without a view to distribution or
resale. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer. All
certificates for shares delivered under the 1996 Plan will be subject to such
stock transfer orders and other restrictions as the Committee may from time to
time deem advisable under all applicable laws, rules, and regulations, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate references to such restrictions.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the federal income tax consequences of the
Company's 1996 Stock Plan, as amended, based on current income tax laws,
regulations and rulings. There is no change in the tax consequences resulting
from the Amendment to the 1996 Plan.
INCENTIVE STOCK OPTIONS. Subject to the effect of the Alternative
Minimum Tax, discussed below, an optionee does not recognize income on the
grant of an Incentive Stock Option. If an optionee exercises an Incentive
Stock Option in accordance with the terms of the option and does not dispose
of the shares acquired within two years from the date of the grant of the
option nor within one year from the date of exercise, the optionee will not
realize any income by reason of the exercise, and the Company will be allowed
no deduction by reason of the grant or exercise. The optionee's basis in the
shares acquired upon exercise will be the amount paid upon exercise. (See the
discussion below for the tax consequences of the exercise of an option with
stock already owned by the optionee.) Provided the optionee holds the shares
as a capital asset at the time of sale or other disposition of the shares,
his gain or loss, if any, recognized on the sale or other disposition will be
capital gain or loss. The amount of
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his gain or loss will be the difference between the amount
realized on the disposition of the shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise ("Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of (i) the
amount realized on the Early Disposition, or (ii) the fair market value of the
shares on the date of exercise, over the optionee's basis in the shares. The
Company will be entitled to a deduction in an amount equal to such income. The
excess, if any, of the amount realized on the Early Disposition of such shares
over the fair market value of the shares on the date of exercise will be
long-term or short-term capital gain, depending upon the holding period of the
shares, provided the optionee holds the shares as a capital asset at the time of
Early Disposition. If an optionee disposes of such shares for less than his
basis in the shares, the difference between the amount realized and his basis
will be a long-term or short-term capital loss, depending upon the holding
period of the shares, provided the optionee holds the shares as a capital asset
at the time of disposition.
The excess of the fair market value of the shares at the time the Incentive
Stock Option is exercised over the exercise price for the shares is an item of
tax preference ("Stock Option Preference").
NON-QUALIFIED STOCK OPTIONS. Non-Qualified Stock Options do not qualify for
the special tax treatment accorded to Incentive Stock Options under the Code.
Although an optionee does not recognize income at the time of the grant of the
option, he recognizes compensation income upon the exercise of a Non-Qualified
Option in an amount equal to the difference between the fair market value of the
stock on the date of exercise of the option and the amount of cash paid for the
stock. If the optionee was granted options in connection with employment, the
amount of compensation will be subject to withholding and employment taxes. If
the optionee was granted options in his capacity as a non-employee director, the
amount of compensation, although not subject to withholding and employment
taxes, is reportable on Form 1099 as non-employee compensation.
As a result of the optionee's exercise of a Non-Qualified Stock Option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. The Company's deduction will be taken
in the Company's taxable year in which the option is exercised.
The excess of the fair market value of the stock on the date of exercise of
a Non-Qualified Stock Option over the exercise price is not a Stock Option
Preference.
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PAYMENT IN SHARES. If the optionee exercises an option and surrenders stock
already owned by him ("Old Shares"), the following rules apply:
1. To the extent the number of shares acquired ("New Shares") exceeds
the number of Old Shares exchanged, the optionee will recognize ordinary
income on the receipt of such additional shares (provided the option is not
an Incentive Stock Option) in an amount equal to the fair market value of
such additional shares less any cash paid for them and the Company will be
entitled to a deduction in an amount equal to such income. The basis of such
additional shares will be equal to the fair market value of such shares (or,
in the case of an Incentive Stock Option, the cash, if any, paid for the
additional shares) on the date of exercise and the holding period for such
additional shares will commence on the date the option is exercised (or, in
the case of a Non-Qualified Stock Option, the date the Section 16(b)
Restriction, if applicable, lapses if the optionee has not elected to
recognize income upon the exercise of the option).
2. Except as provided below, to the extent the number of New Shares
acquired does not exceed the number of Old Shares exchanged, no gain or loss
will be recognized on such exchange, the basis of the New Shares received
will be equal to the basis of the Old Shares surrendered, and the holding
Period of the New Shares received will include the holding period of the Old
Shares surrendered. However, it is believed that, if the optionee exercises
an Incentive Stock Option by surrendering Old Shares, then, for purposes of
determining whether there is an Early Disposition of the New Shares and the
amount of ordinary income on any such Early Disposition, the holding period
for the New Shares will begin on the date the New Shares are transferred to
the optionee, and the optionee will be deemed to have disposed of the New
Shares with the lowest basis first. If the optionee exercises an Incentive
Stock Option by surrendering Old Shares which were acquired through the
exercise of an Incentive Stock Option or an option granted under an employee
stock purchase plan, and if the surrender occurs prior to the expiration of
the holding period applicable to the type of option under which the Old
Shares were acquired, the surrender will be deemed to be an Early
Disposition of the Old Shares. The federal income tax consequences of an
Early Disposition are discussed above.
3. If the Old Shares surrendered were acquired by the optionee by
exercise of an Incentive Stock Option, or an option granted under an
employee stock purchase plan, then, except as provided in 2 above, the
exchange will not constitute an Early Disposition of the Old Shares.
4. Based upon prior rulings of the Internal Revenue Service in
analogous areas, it is believed that if an optionee exercises an Incentive
Stock Option and surrenders Old Shares and if he disposes of the New Shares
received upon exercise
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within two years from the date of the grant of the option or within one year
from the date of exercise, the following tax consequences would result:
(i) To the extent the number of New Shares received upon exercise does
not exceed the number of Old Shares surrendered, the disposition of the New
Shares will not constitute an Early Disposition (unless the disposition is a
surrender of the New Shares in the exercise of an Incentive Stock Option).
(ii) The disposition of the New Shares will constitute an Early
Disposition to the extent the number of New Shares received upon exercise
and disposed of exceeds the number of Old Shares surrendered.
TAXATION OF PREFERENCE ITEMS. Section 55 of the Code imposes an Alternative
Minimum Tax equal to the excess, if any, of (i) 26% of the optionee's
"alternative minimum taxable income" up to $175,000 plus 28% of such income in
excess of $175,000 over (ii) his "regular" federal income tax. Alternative
minimum taxable income is determined by adding the optionee's Stock Option
Preference and any other items of tax preference to the optionee's adjusted
gross income and then subtracting certain allowable deductions and an exemption
amount. The exemption amount is $33,750 for single taxpayers, $45,000 for
married taxpayers filing jointly and $22,500 for married taxpayers filing
separately. However, these exemption amounts are phased out beginning at certain
levels of alternative minimum taxable income.
CHANGE OF CONTROL. If there is an acceleration of the vesting or payment of
Benefits and/or an acceleration of the exercisability of stock options upon a
Change of Control, all or a portion of the accelerated benefits may constitute
"Excess Parachute Payments" under Section 280G of the Code. The employee
receiving an Excess Parachute Payment incurs an excise tax of 20% of the amount
of the payment in excess of the employee's average annual compensation over the
five calendar years preceding the year of the Change of Control, and the Company
is not entitled to a deduction for such payment.
LIMITATION ON DEDUCTION. For taxable years beginning after 1993, Section
162(m) of the Code provides that no deduction will be allowed for certain
remuneration with respect to a covered employee to the extent such
remuneration exceeds $1,000,000.00. Under the regulations interpreting Code
Section 162(m), an employee is a covered employee if his compensation is
required to be reported under the SEC's disclosure rules and he is employed
as of the last day of the taxable year. Code Section 162(m) does not apply to
(a) compensation payable solely on account of the attainment of one or more
performance goals if (i) the goals are determined by a committee of two or
more outside directors, (ii) the material terms under which the remuneration
will be paid, including the goals, is disclosed to stockholders and approved
by a majority of the stockholders, and (iii), except in the case of Stock
Appreciation
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Awards and eligible options (as described below), the committee
certifies that the goals have been met; and (b) compensation payable under a
binding contract in effect on February 17, 1993 which is not thereafter
modified in any material respect. In addition, any compensation under a plan
or agreement approved by the stockholders (in a manner consistent with Rule
16b-3) before December 20, 1993 will be treated as satisfying the stockholder
approval and outside director requirements until the plan or agreement is
materially modified or the 1997 stockholders meeting, if the directors
establishing and administering the plan or agreement are "disinterested".
Compensation arising from stock options where the exercise price is no less
than fair market value on the date of grant constitutes compensation on
amount of attainment of a performance goal as long as the stockholders
approve the maximum number of shares per participant over a specific time
period. The $1,000,000.00 limitation is reduced by any remuneration subject
to such limitation for which a deduction is disallowed under the "Change of
Control" provisions set forth above.
The foregoing statement is only a summary of certain federal income tax
consequences of the 1996 Plan as amended and is based on the Company's
understanding of present federal tax laws and regulations.
MARKET VALUE
The market value of the Company's Common Stock was $7.50 per share on April
7, 1997.
FUNDING OF THE AMENDMENT TO THE 1996 PLAN:
The Board of Directors of the Company, within its discretion, and pursuant
to the terms of the 1996 Plan as adopted, may determine how options issued under
the 1996 Plan Amendment are to be funded (i.e. whether from SECT stock, from
authorized but unissued stock or from treasury stock), at the time an option is
exercised, or earlier if required. As before, at the appropriate time, the Board
of Directors will determine how such funding will be accomplished.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock represented at the Annual Meeting is required
for the approval of the Amendment to the 1996 Plan. Shares represented at the
Annual Meeting by proxies which are marked "withhold authority" with respect to
the Plan have the same effect as if the shares represented thereby were voted
against the Plan. Broker non-votes with respect to the Plan will be treated as
not represented at the Meetings as to this matter only.
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The Board of Directors recommends a vote FOR approval of the Amendment to
the 1996 Plan.
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SUBMISSION OF 1998 STOCKHOLDER PROPOSALS
Any stockholder who wishes to submit a proposal for presentation at the
Company's 1998 Annual Meeting of Stockholders must submit the proposal in
writing to the Secretary of QuesTech, Inc., 7600-W Leesburg Pike, Falls Church,
Virginia 22043, no later than January 21, 1998 for inclusion, if appropriate, in
the Proxy Statement and the form of proxy relating to the 1998 Annual Meeting.
Such proposals must comply with the SEC's proxy rules. In addition, such
stockholder proposals must be made in compliance with the Company's By-Laws,
which provide that directors can be nominated only by persons who solicit
proxies from all stockholders of the Company, such solicitation of proxies to be
made under the special provisions applicable to election contests of the
Securities and Exchange Commission's rules and regulations, Regulation
240.14(a)-11.
In addition, at least 120 days prior to the date of the Annual Meeting of
Stockholders in which the proposed nominees will be voted on, the Company must
be provided in writing a list of the names, addresses and qualifications of the
person(s) proposed nominees.
Any group which is or would be required to file a Form 13D with the
Securities and Exchange Commission shall file, at least 120 days prior to the
date of the Annual Meeting of Stockholders of the Company, a written statement
with the Company setting forth the information required in (c)(I)-(iv) of this
Sec. 13 and serve a copy of the Form 13D on the Company on the date filed with
the Securities and Exchange Commission.
Alternatively, in the event a person(s) determines that he is not required
to file a Form 13D with the Securities and Exchange Commission, but is required
to solicit proxies pursuant to the By-Laws for the purpose of nominating a
director of the Company, he shall deliver to the Company a written statement at
least 120 days prior to the Annual Meeting setting forth the following:
(i) The identity of the person(s) who will do the solicitation and each
other member and affiliate of any group of which the person is a part;
(ii) A statement that the person(s) is providing the statement pursuant
to this Section;
(iii) The number of shares of the Company owned, directly or indirectly,
by the person(s) and each other member and affiliate of the group or each
other member of the group he anticipates forming;
(iv) The range of voting power under which the proxy solicitation falls
or would, if consummated, fall;
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(v) A description in reasonable detail of the terms of the proposed
control-vote solicitation; and
(vi) Representations of the soliciting person(s), together with a
written statement, in reasonable detail of the facts upon which they are
based, that the proposed control-vote solicitation, if consummated, will not
be contrary to law and that the acquiring person(s) has financial capacity
to make the proposed control-vote solicitation.
Within thirty (30) days of the delivery of the written notice of prospective
proxy solicitation regarding an opposing director, the directors of the Company
shall call a special meeting of stockholders for the purpose of considering the
voting rights to be accorded the proxies acquired or to be acquired in the
control-vote acquisition. The special meeting of stockholders may be held at any
time after receipt by the Company of the documentation as called for in this
Section 13. The Company shall provide notice of the special shareholder meeting
to each stockholder providing, inter alia, a copy or summary of the opposition
person(s) documentation delivered to the Company pursuant to this Section, a
statement by the Board of Directors of the Company, authorized by its Directors,
of its position or recommendation with respect to the proposed proxy
solicitation.
At such special meeting of stockholders, the disinterested stockholders, as
defined below, shall determine whether the shares owned and/or controlled by the
person(s) or the proxies to be obtained in support of the opposition slate shall
be accorded voting rights at the Annual Meeting of Stockholders. For purposes of
this special meeting, "disinterested stockholders" shall consist of stockholders
who have no association with (i) the sponsoring or acquiring person(s) with
respect to the nominations; (ii) any officer of the Company; (iii) any associate
of an acquiring person; or (iv) any person who has given a prior proxy to the
acquiring person(s), or is or has been an associate of the acquiring person. In
addition, any stockholder who owns or controls at least 5% of the issued stock
of the Company shall not be considered a "disinterested stockholder."
At the special meeting of stockholders, the disinterested stockholders shall
then determine the grant of voting rights to the person(s) and proxies to be
solicited (or which have been solicited). Only if the disinterested stockholders
shall provide voting rights by a majority vote of the stock held by them shall
the opposition slate be placed in nomination.
No candidate for a director of the Company other than those proposed by the
methods set forth in Section 13 shall be nominated, balloted for, or elected.
If, following the vote at the special meeting of the stockholders referred
to above, the person(s) proposing the opposition slate (i) does not engage in
the proxy solicitation required by this paragraph 2, or (ii) loses the vote, or
(iii) obtains after such proxy solicitation less than
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51% of the votes of the Company, then such person(s) shall reimburse the
Company for all costs incurred by the Company in connection with the special
meeting of the stockholders and proxy solicitation contest, including, but
not limited to, the cost of preparing and distributing proxy materials,
attorney's and accounting fees.
The Company has not received any filings or notice in compliance with the
By-Laws regarding NOMINATIONS FOR DIRECTORS. Accordingly, and pursuant to
Section 13 of the By-Laws, no other nominations can be made for a director(s) at
this Annual Meeting, other than the Company's nominees.
There are eligibility standards for submissions of the proposals and
procedures for their omission under SEC Rules.
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ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for 1996 (without exhibits) can be obtained without
charge by writing to the Corporate Secretary, QuesTech, Inc., 7600-W Leesburg
Pike, Falls Church, Virginia 22043.
OTHER MATTERS
The Board of Directors of the Company knows of no matters which are to be
brought before the Meeting, other than as set forth above. However, if any other
matters properly come before the Meeting, it is the intention of the persons
named in the accompanying form of proxy to vote in accordance with their best
judgment on such matters.
EXPENSES
The cost of preparing, assembling and mailing material in connection with
this solicitation of proxies on behalf of the Board of Directors will be borne
by the Company. Solicitation will be made by mail. Some personal solicitation
may be made by directors, officers and employees without special compensation.
In addition, Georgeson and Company, Inc. has been retained to aid in the
solicitation. The fees and expenses of said organization for this solicitation
are not expected to exceed $10,000, exclusive of expenses.
It is important that proxies be returned promptly. Stockholders are urged to
date and sign the enclosed proxy and return it promptly in the accompanying
envelope.
By the Order of the Board of Directors
Christina M. Burkholder
Vice President/General Counsel
Falls Church, Virginia
April 28, 1997
29
<PAGE>
QUESTECH, INC.
PROXY CARD ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS MAY 23, 1997
The undersigned hereby appoints V. L. Salvatori and G. F. Mayefskie, and
each of them with full power of substitution, as proxies to represent the
undersigned at the 1997 Annual Meeting of Stockholders of QuesTech, Inc. ("QTI")
to be held at the DoubleTree Hotel, Falls Church, Virginia 22043, on Friday, May
23, 1997 at 10 AM Eastern Daylight Time, or at any adjournment or adjournment
thereof, and to vote upon the following matters the number of shares which the
undersigned would be entitled to vote if personally present:
<TABLE>
<S> <C> <C>
1. Election of Directors
FOR all nominees listed VOTE WITHHELD from the nominee(s) / /
below / /
</TABLE>
The Board of Directors recommends a vote FOR Vincent L. Salvatori, Gerald
F. Mayefskie, Sebastian P. Musco, Vincent M. Russo, Robert B. Costello,
and Edward G. Broenniman. (Instructions: To withhold authority to vote
for any individual nominee strike a line through that nominee's name.)
<TABLE>
<S> <C>
2. Ratification of Grant Thornton as Independent Auditors.
FOR / / AGAINST / / ABSTAIN / /
3. Approval of a proposal to amend the 1996 Incentive Stock Option Plan by increasing the shares available by 4% of
the total shares outstanding.
FOR / / AGAINST / / ABSTAIN / /
4. Upon such other matters as may properly come before the meeting or any adjournment or adjournments thereof.
</TABLE>
(CONTINUED AND TO BE DATED AND SIGNED ON REVERSE SIDE)
<PAGE>
PLEASE MARK, SIGN, DATE AND MAIL IN THE ENCLOSED ENVELOPE. NO POSTAGE NEEDED IF
MAILED IN THE UNITED STATES.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO CONTRARY
INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR
NOMINEES SET FORTH ABOVE, FOR THE RATIFICATION OF GRANT THORNTON AS INDEPENDENT
AUDITORS, AND FOR THE PROPOSED AMENDMENT TO THE STOCK OPTION PLAN FOR EMPLOYEES.
Dated: _____________________, 1997
__________________________________
Stockholder's Signature
Signature(s) should follow exactly
the name(s) on the stock
certificate. All co-owners should
sign. Executors and Administrators
may sign as such.
Attorneys-in-fact should sign both
names.
