SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
Rule 14a-(b)
|_| Definitive Additional Materials |_| Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a- 12
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
-------------------------------------------
WPI GROUP, INC.
(Name of Registrant as Specified in Its Charter)
-------------------------------------------
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: N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:1 N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
1 Set forth the amount on which the filing fee is calculated
and state how it was determined.
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-1l(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>
WPI GROUP, INC.
1155 ELM STREET
MANCHESTER, NH 03101-1508
October __, 2000
Dear Shareholder:
On behalf of the Board of Directors and management of WPI Group, Inc., I
cordially invite you to attend the Annual Meeting of Shareholders to be held at
the Company's headquarters at 1155 Elm Street, Manchester, New Hampshire, on
November __, 2000 at 10:00 a.m.
It is an exciting time for WPI Group. The Company has recently taken large
steps in its plans to divest itself of its non-core businesses and to focus on
the development of its promising diagnostics business. We have also helped to
secure our future by obtaining addition financing through a debt and equity
investment made by Sunrise Capital Partners, a private investment fund based in
New York. Sunrise manages over $200 million of committed capital, focusing on
small and middle-market companies.
At the Annual Meeting you will be asked to consider and vote on a number of
proposals:
o the election of seven directors to the Company's Board of Directors;
o an amendment to the Company's Articles of Incorporation increasing the
number of shares of common stock that the Company is authorized to
issue;
o an amendment to the Company's Articles of Incorporation to changing the
name of the Company;
o an amendment to the Company's 1997 Equity Incentive Plan increasing the
number of shares available for issuance under that plan;
o an amendment to the Company's Articles of Incorporation creating a class
of preferred stock, for which the Board of Directors of the Company will
have the right to fix the rights, terms and preferences at the time of
issuance, with no further action on the part of the shareholders;
o the ratification of the appointment of Arthur Andersen LLP as the
Company's independent accountants.
The amendment to the Company's Articles of Incorporation increasing the
number of authorized shares of common stock is being sought in connection with
the financing transaction between the Company and Sunrise. The first portion of
that transaction was completed on August 9, 2000, but the amendment is necessary
to complete the other portions. The Board of Directors and management of the
Company believe that this transaction is vital to the Company's near-and
long-term success. Failure by the Company's shareholders to approve the proposal
could have a material adverse effect on our business and the development of new
products.
Detailed descriptions of each of the matters presented for shareholder
approval are set forth in the accompanying proxy statement. I urge you to read
it and consider each of the proposals carefully. Whether or not you plan to
attend the meeting in person, please take the time to fill out and return the
enclosed proxy card; doing so will not limit your right to vote in person if you
decide to attend the meeting.
I hope that you can join us.
Sincerely,
John R. Allard
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
[LOGO OMITTED][LOGO OMITTED]
The WPI Family of Companies
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held November __, 2000
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of WPI Group, Inc. will be held at the
Company's corporate headquarters at 1115 Elm Street, Manchester, New Hampshire,
on November ___, 2000 at 10:00 a.m., local time, for the following purposes:
1. To elect seven directors to the Board of Directors.
2. To approve an amendment to the Company's Amended and Restated Articles
of Incorporation increasing the authorized number of shares of common stock
which may be issued by the Company from 20,000,000 to 75,000,000.
3. To approve an amendment to the Company's Amended and Restated Articles
of Incorporation changing the name of the Company.
4. To approve amendments to the Company's 1997 Equity Incentive Plan
increasing the number of shares of the Company's common stock available for
issuance from 750,000 to 3,500,000 and increasing the limit on the number of
stock-based awards that can be granted to any one person during any year from
200,000 to 500,000.
5. To approve an amendment to the Company's Amended and Restated Articles
of Incorporation creating a class of preferred stock, for which the Board of
Directors of the Company will have the right to fix the rights, terms and
preferences at the time of issuance, with no further action on the part of the
shareholders, and authorizing the issuance of up to 20,000,000 shares of
preferred stock; and
6. To ratify the appointment of Arthur Anderson LLP as the Company's
independent accountants for the fiscal year ending September 24, 2000; and
7. To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on October 2,
2000 as the record date for determination of shareholders entitled to notice of
and to vote at the Annual Meeting and any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
William V. A. Zorn, Secretary
October __, 2000
--------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
On behalf of the Board of Directors we urge you to promptly mark, sign, date and
return the accompanying proxy in the enclosed envelope even if you plan to
attend the Meeting. This will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the Meeting. You
may revoke your proxy and vote in person if you decide to attend the Meeting.
--------------------------------------------------------------------------------
<PAGE>
WPI GROUP, INC.
PROXY STATEMENT
2000 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of WPI Group, Inc. (the "Company") for the
Annual Meeting of Shareholders to be held on November __, 2000, and any
adjournments thereof.
Copies of this Proxy Statement and the accompanying proxy are being mailed
on or about October 5, 2000 to the holders of record of the common stock of the
Company on October 2, 2000 (the "Record Date"). On that date there were
7,890,663 shares of common stock outstanding and entitled to vote. The proxy may
be revoked by a shareholder at any time prior to its use by giving notice of
such revocation to the Secretary of the Company prior to the Annual Meeting, by
appearing at the Meeting and voting in person or by returning a duly executed
proxy bearing a later date. The expense of this solicitation will be paid by the
Company. Some of the officers and regular employees of the Company may solicit
proxies personally and by telephone.
At the Meeting, each shareholder will be entitled to one vote for each
share of stock standing in such shareholder's name on the books of the Company
at the close of business on the Record Date.
The presence at the Meeting in person or by proxy of the holders of a
majority of the shares of common stock outstanding on the Record Date will
constitute a quorum.
Properly executed proxies will be voted in accordance with the directions
made in the proxy card by the shareholder. If no directions are given in an
otherwise properly executed proxy, the proxy will be voted in accordance with
the recommendation of the Board of Directors as described in this Proxy
Statement.
The Company will treat abstentions and broker non-votes as present at the
Annual Meeting solely for the purpose of determining whether or not a quorum
exists. Abstentions and broker non-votes will have no effect on the outcome of
the election of directors, the proposals to amend the Company's Amended and
Restated Articles of Incorporation, the proposal to amend the Company's 1997
Equity Incentive Plan or the proposal to ratify the appointment of independent
accountants.
A plurality of the votes cast is required for the election of directors.
The affirmative vote of the majority of the votes cast is required to amend the
Company's Amended and Restated Articles of Incorporation, to amend the Company's
1997 Equity Incentive Plan and to ratify the appointment of independent
accountants for fiscal 2000.
The mailing address of the principal executive offices of the Company is
1115 Elm Street, Manchester, New Hampshire 03101.
<PAGE>
Proposal No. 1
ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
The Board of Directors of the Company is currently composed of seven
directors, although up to 15 directors are permitted by the Company's By Laws.
Seven directors are to be elected at the Meeting to serve one-year terms until
the 2001 Annual Meeting of Shareholders and until their respective successors
are elected and qualify. The Board of Directors has nominated John R. Allard,
Paul J. Giovacchini, Irwin N. Gold, Joseph A. Julian, Jr., David A. Preiser,
Michael D. Stewart and Bernard Tenenbaum, each of whom is currently a director,
for election to the Board of Directors.
The Board of Directors believes that all nominees are willing and are able
to serve as directors, but if any nominee should decline to serve or become
unavailable for election as a director at the Meeting, the persons named in the
proxy will vote for such nominee or nominees as may be designated by the Board
of Directors, unless the Board of Directors reduces the number of directors
accordingly.
The following table sets forth, as of August 18, 2000, certain information
as to the nominees:
<TABLE>
<CAPTION>
Director
Name Age Since Position with the Company
---- --- --------- -------------------------
<S> <C> <C> <C>
John R. Allard........................... 34 1998 Chairman, President and Chief
Executive Officer
Paul G. Giovacchini...................... 43 1990 Director
Irwin A. Gold............................ 43 2000 Director
Joseph A. Julian, Jr..................... 33 2000 Director
David A. Preiser......................... 43 2000 Director
Michael D. Stewart....................... 31 2000 Director
Bernard H. Tenenbaum..................... 45 1994 Director
</TABLE>
John Allard has been Chairman of the Company since July 2000, a director of
the Company since August 1998 and President and Chief Executive Officer of the
Company since December 1999. From February 1999 to December 1999, Mr. Allard
served as President and Chief Operating Officer of the Company. Mr. Allard was
Senior Vice President, Business Development from August 1998 to February 1999.
Mr. Allard is also a Director and Senior Partner of Allard Nazarian Group, Inc.,
where he served as Chief Executive Officer from December 1992 to August 1998.
-2-
<PAGE>
Paul Giovacchini has been a director of the Company since September 1990.
Mr. Giovacchini has been a Senior Investment Manager for Signal Capital
Corporation, a Massachusetts-based investment firm, since August 1990. Since
1995, Mr. Giovacchini has also been a partner of Seacoast Capital Partners,
L.P., a private equity investment partnership which focuses on investing in
small, growing companies.
Irwin Gold has been a director of the Company since July 2000. Mr. Gold is
a Senior Managing Director and member of the Board of Directors of Houlihan
Lokey Howard & Zukin, ("Houlihan Lokey"), an affiliate of Sunrise Capital
Partners, L.P. ("Sunrise"). Mr. Gold is a principal of Sunrise and has been
national co-director of Houlihan Lokey's Financial Restructuring Group since
1988. Mr. Gold is also a director of Cole National Corporation.
Joseph Julian has been a director of the Company since July 2000. Mr.
Julian is currently a principal of Sunrise. Mr. Julian has worked for the
Financial Restructuring Group of Houlihan Lokey since 1989.
David Preiser has been a director of the Company since July 2000. Mr.
Preiser is currently the Managing Partner of Sunrise. Mr. Preiser has worked for
the Financial Restructuring Group of Houlihan Lokey since 1991. Mr. Preiser is
also a director of Jos A. Bank Clothiers and NVR Inc.
Michael Stewart has been a director of the Company since July 2000. Mr.
Stewart is currently a principal of Sunrise. Mr. Stewart has worked for the
Financial Restructuring Group of Houlihan Lokey since 1990.
Bernard Tenenbaum has been a director of the Company since 1989. Since
April 1997, Mr. Tenenbaum has been President of the Children's Leisure Products
Group of The Jordan Company, a leveraged buyout firm based in New York. From
1993 to 1997, Mr. Tenenbaum was Vice President, Corporate Development, of Russ
Berrie & Company, a global impulse-gift company. Mr. Tenenbaum was also the
founding Director of the George Rothman Institute for Entrepreneurial Studies at
Fairleigh Dickinson University in New Jersey. He also served as the Associate
Director of the Sol C. Snider Entrepreneurial Center of the Wharton School at
the University of Pennsylvania. In addition to his career in business
development and advanced business studies, Mr. Tenenbaum has served as a
business consultant for AT&T, IBM CIGNA Corporation and the Philadelphia
Phillies.
Recommendation of the Board of Directors
The Board of Directors recommends that shareholders vote "FOR" the election
of the seven nominees. Proxies solicited by the Board of Directors will be voted
"FOR" the seven nominees unless otherwise indicated.
Board of Directors and Committees of the Board
The Board of Directors held nine meetings during the last fiscal year. With
the exception of Irving Gutin and Bernard Tenenbaum, each of the directors
attended 75% or more of the aggregate total number of Board meetings and total
number of meetings of ` Committees on which the director served. There are two
committees of the Board, the Audit Committee and the Stock Option/Compensation
Committee. The Audit Committee, consisting of Stephen Carlotti, Paul
-3-
<PAGE>
Giovacchini and Peter Danforth from October 1998 through January 1999 and
consisting of Stephen Carlotti, Paul Giovacchini, Irving Gutin, Steven Shulman,
Bernard Tenenbaum and James Risher (all the outside directors), from February
1999 through September 1999, held five meetings during the 1999 fiscal year. The
Audit Committee reviews the scope of and the results of the audit by the
independent public accountants, makes recommendations to the Board as to the
selection of independent public accountants for each fiscal year, and reviews
the adequacy of the Company's internal accounting and financial controls.
The Stock Option/Compensation Committee, consisting during the 1999 fiscal
year of Irving Gutin, Steven Shulman and Bernard Tenenbaum, held one meeting
during the 1999 fiscal year. The Stock Option/Compensation Committee is
responsible for reviewing and making recommendations to the Board on matters
concerning the administration of the employee incentive plans and the
compensation of executive officers of the Company. The Company does not have a
nominating committee.
Compensation of Directors
Directors who are not employees of the Company receive an annual fee of
$14,000 and $250 for each committee meeting attended; committee chairmen receive
an additional $500 annual fee for each committee they chair. Directors may elect
to take all or a portion of their annual retainer in shares of Company common
stock. Officers serve at the discretion of the Board of Directors. Directors who
are employees of the Company do not receive any directors' fees.
Executive Officers
The following table sets forth in certain information concerning the
executive officers of the Company.
Name Age Position and Offices
John R. Allard 34 Chairman of the Board, President and Chief
Executive Officer
John W. Powers 43 Vice President and Chief Financial Officer
John Powers has been Vice President and Chief Financial Officer of the
Company since February 1997. From August 1993 to February 1997, Mr. Powers was
the Chief Financial Officer of Janco Companies, a manufacturer of medical and
electronic products. Prior to August 1993, Mr. Powers was a certified public
accountant with an national and regional public accounting firm.
-4-
<PAGE>
SECURITY OWNERSHIP OF
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the common stock as of August 29, 2000 by: (i) each person who is
known by the Company to beneficially own more than 5% of the outstanding shares
of common stock; (ii) each of the Company's directors; and (iii) all directors
and officers of the Company as a group.
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned Beneficially Owned
5% Owners
<S> <C> <C>
Gerald R. Allard(1) ........................................ 677,012 8%
520 South Collier Boulevard
Chalet Number 301
Marco Island, FL 38937
Dimension Fund Advisors(2) ................................. 468,300 6%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Michael Foster(3)........................................... 925,937 11%
170 Cliff Road
Nantucket, MA 02584
Sunrise Capital Partners, L.P.(4) .......................... 10,874,286 63%
685 Third Avenue, 15th Floor
New York, NY 10017
Directors and Executive Officers
John R. Allard(5)........................................... 294,602 4%
1155 Elm Street
Manchester, NH 03101
Paul G. Giovacchini(6)...................................... 10,833 *
55 Ferncroft Road
Danvers, MA 01923
Irwin N. Gold(7)............................................ 10,874,286 63%
685 Third Avenue, 15th Floor
New York, NY 10017
Joseph A. Julian, Jr.(8).................................... 10,874,286 63%
685 Third Avenue, 15th Floor
New York, NY 10017
John W. Powers(9)........................................... 48,133 *
1155 Elm Street
Manchester, NH 03101
David A. Preiser(10)........................................ 10,874,286 63%
685 Third Avenue, 15th Floor
New York, NY 10017
-5-
<PAGE>
Michael D. Stewart(11) ..................................... 10,874,286 63%
685 Third Avenue, 15th Floor
New York, NY 10017
Bernard H. Tenenbaum(12).................................... 13,928 *
767 5th Avenue, 48th Floor
New York, NY 10053
All executive officers and directors as a
group(8 persons)(13)........................................ 11,241,782 64%
----------
</TABLE>
* Less than one percent
(1) According to a Schedule 13D filed with the Securities and Exchange
Commission (the "Commission") on September 8, 2000, Gerald R. Allard, a
private investor with an address of 520 South Collier Boulevard, Chalet
Number 301, Marco Island, Florida 38937, has shared voting power (with
Sunrise, see footnote (4)) and sole dispositive power with respect to the
677,012 shares of common stock (which figure includes 31,907 shares of
common stock which Mr. Allard has the right to acquire within 60 days
pursuant to the exercise of common stock purchase warrants and 162,727
shares of common stock which Mr. Allard has the right to acquire within
60 days pursuant to the conversion of convertible promissory notes held
by him).
(2) According to a Schedule 13G filed with the Commission on February 3,
2000, Dimensional Fund Advisors, a Commission-registered investment
adviser with its principal place of business at 1299 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401, has sole voting and dispositive power with
respect to the 468,300 shares of common stock.
(3) Includes 317,280 shares of the Company's common stock which Mr.
Foster has the right to acquire within 60 days pursuant to the exercise
of stock options. Mr. Foster retired as Chairman and Chief Executive
Officer of WPI Group as of December 21, 1999.
(4) According to a Schedule 13D filed with the Commission on August 21,
2000, Sunrise, a private investment fund with its principal place of
business at 685 Third Avenue, 15th Floor, New York, NY 10017, has sole
voting and dispositive power with respect to 9,514,944 shares of common
stock (which figure includes 1,308,204 shares of common stock which
Sunrise has the right to acquire within 60 days pursuant to the exercise
of common stock purchase warrants and 6,671,840 shares of common stock
which Sunrise has the right to acquire within 60 days pursuant to the
conversion of convertible promissory notes held by Sunrise). Sunrise also
has shared voting power (but not shared dispositive power) with respect
to 1,359,342 shares of common stock not held of record by Sunrise but
which are the subject of a stockholders agreement between Sunrise and the
owners of such shares.
(5) Mr. Allard has shared voting power (with Sunrise, see footnote (4)) and
sole dispositive power with respect to the 294,602 shares (which figure
includes 155,000 shares of common stock which Mr. Allard has the right to
acquire within 60 days pursuant to the exercise of the exercise of stock
options, 12,264 shares of common stock which Mr. Allard has the right to
acquire within 60 days pursuant to the exercise of common stock purchase
warrants and 62,548 shares of common stock which Mr. Allard has the right
to acquire within 60 days pursuant to the conversion of convertible
promissory notes held by him.)
(6) Includes 10,833 shares of the Company's common stock which Mr.
Giovacchini has the right to acquire within 60 days pursuant to exercise
of stock options.
(7) Includes 10,874,286 shares of the Company's common stock beneficially
owned by Sunrise (see footnote (4)). Mr. Gold may be deemed to share
beneficial ownership of the common stock owned by Sunrise by virtue of
his status as a principal of Sunrise Advisors, LLC, the managing partner
of Sunrise. Mr. Gold disclaims any beneficial ownership in these shares.
(8) Includes 10,874,286 shares of the Company's common stock beneficially
owned by Sunrise (see footnote (4)). Mr. Julian may be deemed to share
beneficial ownership of the common stock owned by Sunrise by virtue of
his status as a principal of Sunrise Advisors, LLC, the managing partner
of Sunrise. Mr. Julian disclaims any beneficial ownership in these
shares.
(9) Includes 48,133 shares of the Company's common stock which Mr. Powers
has the right to acquire within 60 days pursuant to exercise of stock
options.
-6-
<PAGE>
(10) Includes 10,874,286 shares of the Company's common stock
beneficially owned by Sunrise (see footnote (4)). Mr. Preiser may be
deemed to share beneficial ownership of the common stock owned by Sunrise
by virtue of his status as the managing member of Sunrise Advisors, LLC,
the managing partner of Sunrise. Mr. Preiser disclaims any beneficial
ownership in these shares.
(11) Includes 10,874,286 shares of the Company's common stock
beneficially owned by Sunrise (see footnote (4)). Mr. Stewart may be
deemed to share beneficial ownership of the common stock owned by Sunrise
by virtue of his status as a principal of Sunrise Advisors, LLC, the
managing partner of Sunrise. Mr. Stewart disclaims any beneficial
ownership in these shares.
(12) Includes 10,883 shares of the Company's common stock which Mr. Tenenbaum
has the right to acquire within 60 days pursuant to the exercise of stock
options.
(13) Includes 299,611 shares of the Company's common stock which certain
officers and directors (excluding Messrs. Gold, Julian, Preiser and
Stewart) have a right to acquire within 60 days pursuant to the exercise
or conversion of stock options, common stock purchase warrants and
convertible promissory notes (consisting of 224,799 shares of common
stock pursuant to the exercise of stock options, 12,264 shares of common
stock pursuant to the exercise of common stock purchase warrants and
62,548 shares of common stock pursuant to the conversion of convertible
promissory notes). Also includes 10,874,286 shares of the Company's
common stock which are beneficially owned by Sunrise (see footnote (4)).
Messrs. Gold, Julian, Preiser and Stewart may be deemed to share
beneficial ownership of the common stock owned by Sunrise by virtue of
their relationships with Sunrise Advisors, LLC, the managing partner of
Sunrise. Messrs. Gold, Julian, Preiser and Stewart each disclaim
beneficial ownership of the shares owned by Sunrise.
CHANGE OF CONTROL TRANSACTION
On July 31, 2000, the Company and its subsidiaries entered into a
Convertible Note Agreement (the "Convertible Note Agreement") with Sunrise
Capital Partners, L.P., a private investment fund ("Sunrise"). The Convertible
Note Agreement and the transactions contemplated thereby are described more
fully under the heading "Proposal No. 2" on page __; the description which
follows below is qualified entirely by reference to that section. We urge you to
read the information contained under the heading "Proposal No. 2" for a more
complete description of the Sunrise transaction.
Pursuant to the Convertible Note Agreement, Sunrise and certain other
participants (which include certain members of the Company's management and some
members of the Allard-Nazarian Group, Inc.) have agreed to invest up to $24.1
million in convertible promissory notes, common stock of the Company, and
warrants to purchase common stock. Sunrise and the other participants will
purchase the securities from the Company in three series. The first series of
securities were purchased on August 9, 2000; the second and third series can be
purchased only if the shareholders of the Company approve the amendment to the
Company's Articles of Incorporation described under "Proposal No. 2" and certain
other conditions are satisfied. Purchase of the third series of securities is at
the option of Sunrise.
After purchasing the first series of securities on August 9, 2000, Sunrise
owned approximately 50% of the outstanding voting shares of the Company on a
fully-diluted basis (assuming conversion by Sunrise of all the promissory notes
and exercise by Sunrise of all the common stock purchase warrants). In the event
the Proposal No. 2 is approved and Sunrise purchases additional notes and
warrants pursuant to the terms of the Convertible Note Agreement, Sunrise will
beneficially own approximately 56% of the outstanding voting shares of the
Company on a fully-diluted basis (assuming conversion by Sunrise of all the
promissory notes and exercise by Sunrise of all the common stock purchase
warrants). Because the
-7-
<PAGE>
percentages in this paragraph were calculated on a fully diluted basis and
include only those shares held of record by Sunrise, the percentages are smaller
than the Sunrise percentages shown in the table under "Security Ownership of
Principal Shareholders and Management" on page __.
In addition, pursuant to the Convertible Note Agreement, for so long as any
of the promissory notes purchased by Sunrise remain outstanding, the Company has
agreed to nominate for election to the Company's Board of Directors a majority
of nominees designated by Sunrise. Prior to entering into the transaction with
Sunrise, Stephen Carlotti resigned from the Board of Directors of the Company.
Four additional Board members - Michael Foster, Irving Gutin, James Risher and
Steven Shulman - resigned from the Board of Directors in connection with the
transaction, and were replaced by four nominees designated by Sunrise who were
elected by the remaining Board members: David A. Presier, Joseph A. Julian, Jr.,
Michael D. Stewart and Irwin N. Gold.
Sunrise Capital Partners, L.P. is a private investment fund with over $200
million in committed capital focusing on the acquisition of controlling
interests in middle market companies. The funds invested by Sunrise were drawn
from funds held for investment. Participating with Sunrise in the purchase of
the first series of securities were The John R. Allard Revocable Trust of 1993,
Lisa A. DiBrigida, Kim Allard Socha, The Michael E. Allard Revocable Trust of
1994, Gerald R. Allard, The David and Angella Nazarian Family Trust, The Samy
Nazarian Trust, Younes Nazarian and Richard A. Beyer. Collectively, these
participating interests represented approximately 11% of the outstanding voting
shares of the Company on a fully-diluted basis (assuming conversion by the
participants of all the promissory notes purchased by them and exercise by the
participants of all the common stock purchase warrants) following the sale on
August 9, 2000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that each
director and certain officers of the Company file reports of initial beneficial
ownership and changes in beneficial ownership of the Company's common stock with
the Securities and Exchange Commission. To the Company's knowledge, during 1999
all directors and officers filed such required notices.
-8-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
services in all capacities to the Company for the fiscal years ended September
26, 1999, September 27, 1998 and September 28, 1997 of those persons who were at
September 26, 1999 (i) the Chief Executive Officer and (ii) each of the four
most highly compensated executive officers of the Company other than the Chief
Executive Officer (with the Chief Executive Officer, collectively, the "Named
Officers" ).
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Securities
Underlying All Other
Name and Principal Position Year Annual Compensation(1) Options Compensation ($)
--------------------------- ---- ------------------- ------- ----------------
Salary ($) Bonus ($)
---------- ---------
<S> <C> <C> <C> <C> <C>
John R. Allard(2)........................... 1999 272,921 -- 25,000 13,234(3)
President and CEO 1998 -- -- 20,000 --
1997 -- -- -- --
John W. Powers.............................. 1999 168,222 -- 7,200 11,992(4)
Vice President and CFO 1998 135,522 -- 5,000 10,848(5)
1997 -- -- 5,000 --
Michael Foster(6)........................... 1999 509,648 100,000 79,939(7)
Formerly, Chairman and CEO 1998 400,036 -- 86,000 23,855(8)
1997 325,000 -- 48,000 25,028
Timothy Jones(9)............................ 1999 188,574 -- 7,200 12,616(10)
Formerly, Vice President Information 1998 175,032 -- 15,000 11,378(11)
Solutions 1997 150,020 -- 20,000 11,616
Richard Longo(12)........................... 1999 178,398 -- 1,500 11,687(13)
Formerly, Vice President 1998 -- -- 5,000 --
Industrial Technology 1997 -- -- -- --
----------
</TABLE>
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which was less than the lesser of $50,000 or 10% of the total
of annual salary and bonus reported.
(2) Mr. Allard became Chief Executive Officer in December 1999 and Chairman
in July 2000.
(3) Includes $9,000 auto allowance, $4,000 contribution to the Company's
401(k) plan and $234 for group term life insurance.
(4) Includes $7,800 auto allowance, $4,000 contribution to the Company's
401(k) plan and $192 group term life coverage.
(5) Includes $7,800 auto allowance, $2,650 contribution to the Company's
401(k) plan and $398 group term life coverage
(6) Mr. Foster retired as Chairman and Chief Executive Officer as of December
1999.
(7) Includes $1,913 auto allowance, $68,700 life insurance premium paid by
the Company, $4,000 contribution to the Company's 401(k) plan and $1,806
for group term life insurance.
-9-
<PAGE>
(8) Includes $20,000 life insurance premium paid by the Company, $3,200
contribution to the Company's 401(k) plan and $655 for group term life
insurance.
(9) Mr. Jones resigned his position with the Company as of September 29,
1999.
(10) Includes $7,800 auto allowance, $4,000 contribution to the Company's
401(k) plan and $816 for group term life insurance.
(11) Includes $7,800 auto allowance, $3,029 contribution to the Company's
401(k) plan and $549 group term life coverage.
(12) Mr. Longo resigned his position with the Company as of December 22, 1999.
(13) Includes $7,150 auto allowance, $4,000 contribution to the Company's
401(k) plan and $537 for group term life insurance.
Option Grants in Last Fiscal Year (Individual Grants)
The following table contains information concerning the grant of stock
options under the Company's 1995 Stock Option Plan and the 1997 Equity Incentive
Plan to the Named Officers during the Company's last fiscal year.
<TABLE>
<CAPTION>
Number of
Securities % of Total
Underlying Options Granted Grant Date
Options to Employees In Exercise Expiration Present
Name Granted Fiscal 1999 Price ($) Date Value(1)
---- ------------- --------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
John R. Allard(2)............................ 25,000(3) 9.4% $3.562 03/22/09 $43,250
President and CEO
John W. Powers............................... 7,200(4) 2.7% $5.50 10/19/08 $18,216
Vice President, CFO
Michael Foster(5)............................ 100,000(6) 37.5% $5.50 10/19/08 $253,000
Formerly, Chairman and CEO
Timothy Jones(7)............................. 7,200(4) 2.7% $5.50 10/19/08 $18,216
Formerly, Vice President Information
Solutions
Richard Longo(8)............................. 1,500(4) 0.6% $5.50 10/19/08 $3,795
Formerly, Vice President Industrial
Technology
----------
</TABLE>
(1) The weighted average fair value of options granted to the named
officers was $2.53, with the exception of Mr. Allard, whose average was
$1.73. The values were estimated on the date of grant using the
Black-Sholes option pricing model with the following weighted average
assumptions used: Risk free interest rates ranging from 4.03% to 5.10%,
expected dividend yield of 0%, expected option lives of 5 years and
expected volatilities ranging from 46.82% to 48.38%.
(2) Mr. Allard became Chief Executive Officer in December 1999 and Chairman
in July 2000.
(3) Options granted under the Company's 1997 Equity Incentive Plan at an
exercise price equal to the fair market value of the Company's common
stock on the date of grant. The options vest in 1/3 increments on
03/23/00, 03/23/01 and 03/23/02.
(4) Options granted under the Company's 1997 Equity Incentive Plan at an
exercise price equal to the fair market value on the date of grant. The
options vest in 1/3 increments on 10/1/99, 10/1/00 and 10/1/01.
(5) Mr. Foster retired as Chairman and Chief Executive Officer as of
December 21, 1999.
-10-
<PAGE>
(6) Options granted under the Company's 1997 Equity Incentive Plan at an
exercise price equal to the fair market value of the Company's Common
Stock on the date of grant. The options granted to Mr. Foster are fully
vested.
(7) Mr. Jones resigned his position with the Company as of September 29,
1999.
(8) Mr. Longo resigned his position with the Company as of December 22,
1999.
Option Exercises And Fiscal Year End Values
The following table contains information with respect to aggregate stock
options exercised by the Named Officers during fiscal 1999, as well as
unexercised options to purchase the Company's common stock granted through
September 26, 1999 under the Company's 1995 Stock Option Plan or 1997 Equity
Incentive Plan to the Named Officers and held by them at that date.
Aggregated Options/SAR Exercises In Last Fiscal Year And Fiscal Year End Option
Value
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money at
September 26, 1999 September 26, 1999 ($)(1)
------------------------------ -------------------------
Shares Acquired Value
on Realized Common
Name Exercise (#) ($) Stock Common Stock
---- ------------ --- ---------------- -----------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John Allard............. -- -- 6,667 38,333 -- --
President and CEO
John Powers............. -- -- 6,667 10,533 -- --
Vice President, CFO
Michael Foster.......... -- -- 317,280 -- -- --
Formerly, Chairman and
CEO
Timothy Jones........... -- -- 30,000 17,200 -- --
Formerly, Vice
President Information
Solutions
Richard Longo........... -- -- 1,667 4,833 -- --
Formerly, Vice
President Industrial
Technology
----------
</TABLE>
(1) Based on the difference between the exercise price of each grant and the
closing price of the Company's Common Stock as quoted on the Nasdaq NMS
on September 27, 1999, which was $3.345.
The foregoing options were granted under either the 1995 Stock Option Plan
(the "1995 Plan") or the 1997 Equity Incentive Plan (the "1997 Plan"). Both
plans are administered by the Stock Option/Compensation Committee, which
consists of not less than three outside directors. The Committee determines the
key employees to whom, and the time or times at which, options will be granted,
the number of shares subject to each option and the terms upon which each
-11-
<PAGE>
option may be granted. An aggregate of 550,000 shares of common stock are
reserved for issuance under the 1995 Plan and an aggregate of 750,000 shares of
common stock are reserved for issuance under the 1997 Plan. Since the adoption
of the 1995 Plan on June 6, 1995, options for a total of 550,000 shares of
common stock (or all of the shares reserved for issuance) have been granted to
selected officers and key employees of the Company. Since the adoption of the
1997 Plan on June 10, 1997, options for a total of 434,200 shares of common
stock have been granted to selected officers and key employees of the Company.
Change In Control Plan and Severance Agreements
The Board of Directors has adopted a Change in Control Plan which covers
two current officers and one key employee, including certain Named Officers. The
provisions of the Change in Control Plan only become effective upon the
occurrence of an event constituting a change in control of the Company. Under
the Change in Control Plan, a "Change in Control" shall be deemed to have
occurred if any of the following events occur: (i) any "person" (as such term is
defined in Section 13 and 14 under the Exchange Act) except for Michael Foster,
directly or indirectly, is or becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Exchange Act) of 25% or more of the Company's
common stock; (ii) any change occurs in the composition of the company's Board
of Directors resulting in a majority of the present directors not constituting a
majority two years from such date, provided that directors who were elected by
or on the recommendation of such present majority shall be excluded; or (iii)
any other event that would be required to be reported under Item 1 of Form 8-K
pursuant to Section 13 or Section 15(d) of the Exchange Act. A change in control
shall not be deemed to have occurred if such change in control results from a
distressed sale of the Company due to the Company's material default with
respect to any applicable debt covenants with its lender.
The Change in Control Plan provides that if, within one (1) year after a
change in control of the Company, a Named Officer is discharged without Cause
(as defined below) or has resigned for reasons relating to a diminution of
responsibilities, compensation or benefits or relocation of place of employment,
the Company shall pay to such individual a lump sum severance benefit. For
purposes of the Change in Control Plan, "Cause" shall mean conviction of certain
crimes, willful misconduct or conduct that caused the Company to suffer a
substantial loss or damage. Currently, each Named Officer would receive between
nine and eighteen months of base salary, plus bonus, depending upon the Named
Officer's years of service and status with the Company. At the discretion of the
Board of Directors, the vesting of options may be accelerated in the event of a
Change in Control. A Named Officer may resign at any time and for any reason
within one year of a Change in Control and receive the base salary component
only of the lump sum benefit.
In addition to being covered by the Change In Control Plan, Mr. Allard has
a Severance Agreement with the Company which provides, in relevant part, that if
the Company terminates his employment for any reason other than cause, or in
connection with a change-in-control, the Company will continue to pay him at his
then present salary rate for a period of twelve months.
Mr. Foster has a Severance Agreement with the Company, effective January 1,
2000 and continuing for a period of five years, which provides, in relevant
part, for severance of $250,000 per year, payment of life and medical insurance
premiums of $16,000 for the first year of the Agreement and approximately
$20,000 for the next four years and a car allowance of $12,000
-12-
<PAGE>
per year. The agreement also provides for the full vesting of options held by
Mr. Foster. The expiration and option exercise prices remain unchanged.
Report of the Compensation Committee
During fiscal 1999, the Compensation Committee in consultation with the
Company's other outside directors established the compensation of the Chairman
and Chief Executive Officer and the President and Chief Operating Officer of the
Company. The criteria for bonus awards of the Chief Executive Officer and Chief
Operating Officer in respect of the 1999 fiscal year were determined at a
meeting of the Compensation Committee as constituted on October 20, 1998
(Messrs. Irving Gutin, Steven Shulman and Bernard Tenenbaum). In determining the
individual elements of compensation, the Compensation Committee strives to
enable the Company to attract and retain key executives critical to the
long-term success of the Company, provide compensation opportunities which are
comparable to those offered by similar companies, reward long-term strategic
management and the enhancement of shareholder value and create a
performance-oriented environment.
In order to meet the foregoing objectives, the Compensation Committee in
consultation with the Company's other outside directors has attempted to design
and choose components of compensation. The Compensation Committee consulted with
outside compensation consultants to assist in this process and provide
competitive information, advice and recommendations relating to compensation
issues. Compensation packages consist of cash, certain benefits and equity-based
compensation. The Company's compensation provides for competitive base salaries
which reflect individual performance and level of responsibility. Annual
bonuses, when given, are linked to the financial performance of the Company and
its subsidiaries as a whole, job performance and the meeting of specific goals.
Also included are plans which reward the enhancement of long-term value to the
Company's shareholders.
The compensation of the Named Officers for fiscal 1999 was based on the
policies described above. Bonus awards are determined on the basis of a formula
in which a weighted performance factor is applied to a target award established
for each of the above officer's respective salary levels. The weighted
performance factor is derived as a result of the achievement of certain Company
performance targets, including the achievement of a certain level of earnings
per share. No bonuses were paid to the above officers in fiscal 1999.
Annually, the Compensation Committee reviews with the Chief Executive
Officer the individual performance of each of the other executive officers and
his recommendations with respect to the appropriate compensation awards. The
Stock Option/Compensation Committee also reviews with the Company's Chief
Executive Officer the financial and other objectives for each of the executive
officers for the following year.
The Compensation Committee has not formally addressed the restrictions
under Section 162(m) of the Internal Revenue Code of 1986 because the
Compensation Committee does not anticipate paying compensation to its executive
officers in an amount to which Section 162(m) would apply.
-13-
<PAGE>
Irving Gutin (Chairman)
Steven Shulman
Bernard Tenenbaum
Performance Graph
Set forth below is a line graph comparing the yearly percentage change in
the total shareholder return on the Company's common stock against the total
return of the NASDAQ Market Index and a peer group index consisting of companies
which sell handheld computers, terminals and associated software, electrical
equipment products and instrumentation. The peer group was selected with the
assistance of the Company's investment bankers and includes the following
issuers: Aura Systems, Inc., Applied Cellular Technology, Inc., BEI
Technologies, Inc., Fieldworks, Inc., Itron, Inc., Magnetek, Inc., Metrologic
Instruments, Inc., Miltope Group, Inc., NAI Technologies, Inc., Percon, Inc.,
Symbol Technologies, Inc., ScanSource, Inc., Telxon Corp., Unova, Inc. and
Woodhead Industries, Inc. The current peer group has not changed from the peer
group used last year. Management believes that the current peer group provides a
broad cross section of companies in lines of business that are similar to the
Company's line of business.
[OBJECT OMITTED]
year Company Market Peer
1994 100.000 100.000 100.000
1995 104.348 138.067 120.351
1996 282.609 163.845 118.733
1997 421.739 224.968 164.934
1998 230.435 228.773 151.972
1999 104.348 371.687 137.442
Certain Relationships and Related Transactions
The Company is currently leasing and occupying a building at 850 Perimeter
Road, Manchester, New Hampshire (the "Perimeter Road Facility") from 850
Perimeter Road Associates NA, LLC, a New Hampshire limited liability company in
which Mr. Allard is a member. The current yearly base rental for the Perimeter
Road facility, which houses the operations of WPI Instruments, Inc., is
$402,408. The lease term expires on December 31, 2002, and may be renewed by the
Company for an extended term to December 31, 2007. In
-14-
<PAGE>
management's opinion, the lease rate for this facility is not in excess of the
range of fair market rentals in the relevant area.
Hinckley, Allen & Snyder, a law firm of which Stephen Carlotti, a director
until July 2000, is a member, provided legal services to the Company during its
1999 fiscal year.
Proposal No. 2
AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO INCREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
(Item 2 on the Proxy Card)
General
The Company's Amended and Restated Articles of Incorporation authorize the
issuance of 20,000,000 shares of common stock, $.01 par value. On September 13,
2000, the Board of Directors of the Company unanimously approved an amendment to
the Amended and Restated Articles of Incorporation to increase the number of
authorized shares of common stock from 20,000,000 to 75,000,000 and to submit
the proposed amendment to the Company's shareholders.
The general purpose and effect of the proposed amendment to the Company's
Amended and Restated Articles of Incorporation is to increase the number of
shares of common stock that the Company is authorized to issue. The Company's
Amended and Restated Articles of Incorporation currently provide that the
Company may issue up to 20,000,000 shares of common stock. The proposed
amendment would increase the number of authorized shares by 55,000,000, to
75,000,000 shares. This increase would create a sufficient reserve of shares of
common stock for the Company's future needs, and would allow the Company to
reserve shares of common stock for issuance upon conversion of certain debt
instruments described below.
The Sunrise Capital Partners Transaction
On July 31, 2000, the Company and its subsidiaries entered into a
Convertible Note Agreement with Sunrise. Pursuant to the Convertible Note
Agreement, Sunrise and certain other participants (which include members of the
Company's management and some members of the Allard-Nazarian Group) have agreed
to invest up to $24.1 million in a combination of convertible promissory notes
(the "Notes"), common stock and warrants to purchase common stock (the
"Warrants"). The Company entered into the Convertible Note Agreement in order to
raise capital to help the Company meet its near- and long-term liquidity needs.
The Board of Directors and management of the Company believes that the
transactions contemplated by the Convertible Note Agreement are necessary to
finance the Company's continuing operations and to finance the development of
the Company's new products.
The Company will use the money raised from the sale of Notes, common stock
and Warrants to refinance, in part, amounts owed under the Company's existing
senior credit facility with certain lenders, including Fleet Bank-NH. The money
will also be used to repay amounts owed to certain affiliates of the
Allard-Nazarian Group under a series of promissory notes dated
-15-
<PAGE>
August 3, 1998. The balance of the cash will be used to finance the Company's
operations and to finance the development of new products.
Background of the Sunrise Transaction
Beginning in April 1999, the Board of Directors of the Company instructed
management to explore various strategic alternatives for the Company in order to
maximize shareholder value. After several months of planning and analysis, the
Board authorized a series of initiatives designed to reposition the Company as a
provider of vehicle diagnostic equipment and software solutions. Accordingly,
the Company engaged in a series of transactions to divest several of its
business lines and use the proceeds from those divestitures to reduce corporate
debt. The Company also continued to invest in research and development in order
to develop new products for its diagnostic business.
The Company's operating losses increased in fiscal 1999 and 2000 due to a
number of factors, including the restructuring charges it recognized as a result
of the divestitures, decreased sales in some of its remaining business units and
increased interest costs. During that period of time, the Company also failed to
comply with the financial covenants contained in its existing senior credit
facility, and sought from its lenders a number of waivers and amendments to the
terms of its facility designed to address the Company's inability to comply with
the terms of the debt. During this period, cash from the Company's operations
became insufficient to meet the Company's near- and long-term liquidity
requirements, and to finance the Company's investment in developing new
products.
In January, 2000, the Company, with the assistance of the investment
banking firm of McFarland Dewey & Co., L.L.C. ("McFarland Dewey"), began
exploring means of raising additional capital for the Company to finance the
Company's continuing operations and refinance its existing indebtedness. During
this period, the Company negotiated with its lenders several forbearance
arrangements pursuant to which the lenders agreed to forbear from exercising
certain rights and remedies available under the senior credit facility while the
Company pursued alternative means of financing.
Between March and May 2000, the Company engaged in discussions with a
number of parties, including Sunrise, about possible investments in the Company.
The Board of Directors and management of the Company, with the assistance of its
outside financial advisors, considered each of the proposals that the Company
received, and the increasing urgency for obtaining a means of funding the
Company's short-term operations. On May 17, 2000, the Board of Directors
concluded that the proposal received from Sunrise was the most favorable to the
Company and its shareholders and directed the Company to execute a commitment
letter with Sunrise outlining the material terms of Sunrise's investment. The
Company and Sunrise then began the preparation and negotiation of the definitive
documentation for their agreement, while continuing to negotiate with the
Company's senior lenders appropriate modifications to the Company's existing
senior credit facility.
The Board of Directors also retained McFarland Dewey to render its opinion
as to whether the proposal to invest up to $24 million into the Company by
Sunrise was fair from a financial perspective to the shareholders of the
Company. On July 25, 2000 McFarland Dewey delivered a written opinion to the
Board of Directors of the Company stating that, as of that date,
-16-
<PAGE>
the financial terms of Sunrise's investment in the Company were fair from a
financial perspective to the shareholders of the Company. The full text of the
fairness opinion is set forth in Appendix A attached to this proxy statement.
Shareholders are urged to read this opinion in its entirety for a description of
the procedures followed, matters considered, assumptions made and methods
employed by McFarland Dewey in arriving at its opinion.
In approving the transaction with Sunrise, the Company's Board considered,
among other things, the following factors (none of which were qualified or
assigned relative weight as compared to any other factor):
o the Company's need for capital to finance its current operations and
the development of new products
o the Company's inability to meet the financial covenants in its existing
senior credit facility, and the ability of the lenders thereunder to
cause the amounts owing under the facility to be payable at any time
o the extensive effort that the Company and the Board of Directors had
made to obtain alternative sources of funding, and the Board's belief
that the proposal made by Sunrise was superior to all other proposals
o the substantial amount of capital that Sunrise and the other
participants were prepared to commit to invest in the Company
o the terms of the Notes to be issued to Sunrise, which permitted the
Company to defer payment of fees and interest in the short term by
delivery of additional Notes
In light of these and other factors, the Company's Board of Directors approved
the form and terms of the transaction with Sunrise. The parties executed the
Convertible Note Agreement on July 31, 2000.
Terms of the Sunrise Transaction
The Convertible Note Agreement provides for the sale of three series of
convertible Notes, in aggregate principal amounts of $14.1 million, $5.0 million
and up to $5.0 million, respectively. The Notes, which mature three years from
the date of issuance, bear interest at the rate of 10.75% per annum, and are
convertible into shares of the Company's common stock. At any time prior to
maturity of the Notes, each holder thereof has the option to convert any or all
of the outstanding principal balance of the Notes, together with any accrued but
unpaid interest and fees, into common stock of the Company at a rate of one
share of common stock for each $1.75 of principal, interest and fees converted
(subject to adjustment in the event of any stock dividend, stock split,
combination, reclassification or similar event). Under certain circumstances,
the Company may demand that a holder convert the Notes into common stock on the
same terms.
Interest on the Notes is payable in cash. If the Company is not in default
under the terms of the Convertible Note Agreement, the Company may elect to pay
interest in additional Notes.
In addition, in conjunction with the sale of each series of Notes, the
Convertible Note Agreement provides for the sale of Warrants representing the
right to purchase 20% of the number of shares of common stock which would be
issuable upon conversion of each such series
-17-
<PAGE>
of Notes. The Warrants, which will be exercisable at any time at the option of
the holder, have an exercise price of $1.75 per share.
Each sale of Notes and Warrants is subject to a closing fee equal to 2% of
the aggregate principal amount of the Notes issued. The Company may also elect
to pay the closing fee in additional Notes. In addition, Sunrise Advisors, LLC,
the managing partner of Sunrise, will receive a transaction fee, payable in
cash, equal to 2% of the aggregate principal amount of Notes issued.
The Notes are subordinated in right of payment to the payment in full of
all obligations of the Company under the Company's existing senior credit
facility as amended in an aggregate amount not to exceed $26 million. The
Company is not permitted to incur any other indebtedness that is subordinated to
the indebtedness under the existing senior credit facility and senior to the
Notes or any other indebtedness of the Company.
The Notes are secured by a second priority lien on all the Company's
existing and after-acquired real, personal and intellectual property, including
a pledge of 100% of the capital stock of all the Company's subsidiaries (other
than certain foreign subsidiaries to the extent such pledge would result in
material adverse tax consequences).
The shares of common stock of the Company issued and to be issued to
Sunrise and the other participants have been and will be issued pursuant to
exemptions from the registration requirements of federal and state securities
laws. These shares may therefore, be resold without registration only as
provided for by Rule 144 under the Securities Act of 1933 or as otherwise
provided under the Securities Act. Pursuant to a Registration Rights Agreement
entered into by the Company, Sunrise and the other participants in connection
with the Convertible Note Agreement, the holders of at least 30% of the shares
of common stock of the Company issued or issuable upon conversion of the Notes
and exercise of the Warrants issued to Sunrise and the other participants have
the right to require the Company to register the shares under the Securities
Act. In the event the Company proposes to register any securities of the Company
for sale to the public under the Securities Act, all holders of the shares of
common stock of the Company underlying the Notes and the Warrants also have the
right to require the Company to include their shares along with the securities
of the Company in the registration statement.
In the event of a change of control in the Company, Sunrise and the other
participants have the option to require the Company to repurchase the Notes at a
price equal to 110% of the outstanding principal amount, including accrued
interest and fees, of the Notes. In the event of asset dispositions or the
issuance of equity securities by the Company, Sunrise and the other participants
have the option to require the Company to make repayments on the Notes in
certain circumstances.
Purchase of the Initial Series of Securities
On August 9, 2000, Sunrise and the other participants purchased the first
series of Notes (in aggregate principal amount of approximately $14.1 million),
Warrants to purchase an additional 1.6 million shares of common stock, as well
as approximately 1.8 million shares of Company common stock (representing
approximately 20% of the outstanding capital stock of the
-18-
<PAGE>
Company). In connection with this initial purchase, the closing fee of
approximately $280,000 was paid by the Company by the issuance of additional
Notes.
As of August 9, 2000, after giving effect to the initial purchase of Notes,
Warrants and common stock by Sunrise and the other participants, there were
approximately 7.9 million shares of common stock of the Company outstanding. In
addition, approximately 11.2 million shares were reserved for issuance, as
follows: approximately 1.3 million shares were reserved under the Company's 1997
Plan and its 1995 Plan; approximately 25,000 shares were reserved under the
Company's Employee Stock Purchase Plan and its Stock Bonus Award Plan;
approximately 8.2 million shares were reserved for issuance upon conversion of
the outstanding principal of the Notes and related fees; and approximately 1.7
million shares were reserved for issuance upon exercise of outstanding common
stock purchase warrants. Accordingly, after the first sale of Notes to Sunrise
and the other participants, the Company has only .8 million authorized shares
that are not issued or reserved for issuance.
Purpose and Effect of the Proposed Charter Amendment
As described above, the Convertible Note Agreement contemplates the sale to
Sunrise and the other participants of two series of additional Notes in
aggregate principal amount of up to $10,000,000, as well as Warrants to purchase
approximately 1.1 million additional shares of common stock. Assuming the
issuance and conversion of all the additional Notes, including the conversion of
interest and related closing fees, and the exercise of all additional Warrants,
the Company will be required to issue approximately 7.0 million additional
shares of common stock. Accordingly, the Company and its Board of Directors are
asking the shareholders to increase the number of authorized shares of common
stock in order to allow the Company to issue the additional Notes and the
additional Warrants and to pay any interest accruing on the Notes "in kind" by
delivery of additional Notes.
If the shareholders of the Company fail to approve Proposal No. 2, the
Company will be unable to satisfy its obligations under the Convertible Note
Agreement and issue additional Notes and Warrants. This could have a material
adverse effect of the Company because, without the proceeds to be provided by
the sale of the additional Notes and Warrants:
o the Company may not generate sufficient cash to fund its costs of
operations
o the Company may not be able to meet its payment obligations, including
payments to suppliers and payments due under the Company's existing
senior credit facility
o the Company may not be able to pursue opportunities in its existing
business lines
o the Company may be unable to finance the development of new products
o the Company will be unable to meet the operating and financial covenants
contained in its existing debt instruments which may result in events of
default under the terms thereof
o the Company would again be forced to seek alternative means of raising
capital, which would likely be on terms less favorable than the terms of
the Sunrise transaction
-19-
<PAGE>
Any or all of these factors could have a material adverse effect on the
Company. Accordingly, the Board is asking its shareholders to vote in favor of
Proposal No. 2 so that the Company will have a sufficient number of authorized
shares to complete the transaction with Sunrise and the other participants.
The Company is asking its shareholders to authorize an increase in the
number of authorized shares of common stock that is greater than the number
necessary to allow the Company to issue the additional Notes and the related
additional Warrants, in order to create a reserve for future needs. If the Board
of Directors deems it to be in the best interest of the Company and that of the
shareholders to issue these additional shares of common stock in the future, the
Board of Directors generally will not seek further authorization by vote of the
shareholders, unless such authorization is otherwise required by law or
regulations. The proposed amendment would give the Board of Directors the
flexibility to act promptly when it determines that issuance of additional
shares in the best interest of the Company and the Shareholders.
Other Factors to be Considered by Shareholders
The increase in the number of authorized shares of common stock will have a
dilutive effect on the percentage ownership of shares held by existing
shareholders when those shares are issued. Issuance of shares greater than those
necessary to allow the Company to issue the additional Notes and related
additional Warrants could have an anti-takeover effect. If the Board of
Directors desired to issue additional shares in the future, such issuance could
dilute the voting power of a person seeking control of the Company, thereby
deterring or rendering more difficult a merger, tender offer, proxy contest or
an extraordinary corporate transaction opposed by the Company.
Stockholders Agreement
Pursuant to a Stockholders Agreement dated August 9, 2000, Sunrise and
certain other shareholders (including all the participants in the Sunrise
transaction and certain current and former members of management) have agreed to
vote in favor of Proposal No. 2. These shareholders, in the aggregate, own
approximately 64% of the outstanding shares of common stock of the Company.
Recommendation of the Board of Directors
For the reasons discussed above, the Board of Directors recommends that the
shareholders adopt the following vote:
That the proposed amendment to the Corporation's Amended and
Restated Articles of Incorporation to increase the authorized
capital stock of the Corporation to seventy-five million
(75,000,000) shares of One Cent ($.01) par value common stock as
heretofore recommended by the Board of Directors hereby is
approved and adopted.
The affirmative vote of a majority of the outstanding shares of common
stock present or represented at the Meeting is required to approve an amendment
to Amended and Restated
-20-
<PAGE>
Articles of Incorporation increasing the number of authorized shares of common
stock from 20,000,000 to 75,000,000.
The Board of Directors recommends that the shareholders vote "FOR" the
amendment to the Amended and Restated Articles of Incorporation to increase the
number of authorized shares of common stock from 20,000,000 to 75,000,000.
Proxies solicited by the Board of Directors will be voted "FOR" the proposal
unless otherwise indicated.
Proposal No. 3
AMENDMENT TO AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO CHANGE THE NAME OF THE COMPANY
(Item 3 on the Proxy Card)
The Board of Directors of the Company is proposing that the shareholders
amend the Company's Amended and Restated Articles of Incorporation to change the
name of the Company.
At the present time, the Company has not decided on a new name. The Company
has retained the services of a consultant to help it choose a new name and is
awaiting the consultant's report. By the time of the Annual Meeting, the Board
of Directors will have chosen a new name, and the new name will be presented to
the shareholders at the Meeting. Properly executed proxies marked "FOR" Proposal
No. 3, and properly executed proxies for which no direction on Proposal No. 3 is
given, will be voted at the Annual Meeting in favor of the new name determined
by the Board of Directors, although shareholders voting by proxy will not know
the new name when they are completing and returning their proxies.
Reasons for the Proposal
With the recent sales of six of the Company's subsidiaries and the
Company's expansion of its electronic vehicle diagnostics business, the current
name is no longer readily identifiable with the Company's business. Management
and the Board intend to choose a new name that is a more exciting, descriptive
reflection of the Company's new focus and that will create more awareness of the
Company's most important product line. The Company plans to continue to focus on
the electronic vehicle diagnostics business, and the Board of Directors believes
that it is in the Company's best interest to change its name to one more
identified with that business.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders adopt the following
vote:
That the proposed amendment to the Corporation's Amended and Restated
Articles of Incorporation to change the name of the Corporation to the name
determined by the Board of Directors and presented to shareholders at the
Annual Meeting is approved and adopted.
-21-
<PAGE>
The affirmative vote of a majority of the outstanding shares of common
stock present or represented at the Meeting is required to approve an amendment
to the Company's Amended and Restated Articles of Incorporation changing the
Company's name.
The Board of Directors recommends that the shareholders vote "FOR" approval
of the amendment to the Amended and Restated Articles of Incorporation to change
the name of the Company from WPI Group, Inc. to the name determined by the Board
of Directors and presented to shareholders at the Annual Meeting. Proxies
solicited by the Board of Directors will be voted "FOR" the proposal unless
otherwise indicated.
Proposal No. 4
AMENDMENT OF 1997 EQUITY INCENTIVE PLAN
(Item 4 on the Proxy Card)
The Board of Directors has unanimously approved, subject to shareholder
approval, amendments to the Company's 1997 Equity Incentive Plan to increase the
number of shares of the Company's common stock available for issuance under the
1997 Plan from 750,000 to 3,500,000 and to increase the limit on the number of
stock-based awards that can be granted to any one person during any year from
200,000 to 500,000 (the "Amendment").
Background
The Company has historically utilized stock options as part of its overall
compensation program for key employees, directors and officers. As of September
15, 2000, options for approximately 716,000 shares were outstanding under the
1997 Plan, leaving a balance of only approximately 34,000 shares that could be
used for future awards under the 1997 Plan. The Board of Directors believes that
it is in the best interest of the Company to have stock-based awards available
in order to retain, attract and motivate highly qualified personnel for the
Company. The Amendment, if approved by shareholders, will enable the Company to
reserve a sufficient number of shares of common stock for future awards under
the 1997 Plan. The amendment will also increase the number of stock-based awards
that can be granted to any one person during any one year of the Company.
Description of the 1997 Plan
The 1997 Plan was originally approved by the Board in 1997 and by the
shareholders at the Company's 1998 Annual Meeting. The following summary of the
1997 Plan is qualified in its entirety by reference to the complete text of the
1997 Plan. The full text of the 1997 Plan, as proposed to be amended, is
available upon written request to the Company. Capitalized terms used herein
will, unless otherwise defined, have the meanings assigned to them in the text
of the 1997 Plan.
The 1997 Plan is intended to provide officers and other employees of the
Company and each of its subsidiaries with appropriate incentives and rewards to
encourage them to enter into and continue in the employ of the Company and to
acquire a proprietary interest in the long-term
-22-
<PAGE>
success of the Company; to compensate each member of the Board of the Company
who is not an employee of the Company (each a "Non-Employee Director") and
provide incentives to Non-Employee Directors which are directly linked to
increases in stock value; and to reward the performance of individual officers,
other employees, consultants and Non-Employee Directors in fulfilling their
personal responsibilities for long-range achievements.
The 1997 Plan is intended to comply with the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934. In addition, the 1997
Plan is intended to provide performance-based compensation so as to be eligible
for compliance with Section 162(m) of the Internal Revenue Code which,
generally, limits the deduction by an employer for compensation of certain
covered officers. Under Section 162(m), certain compensation, including
compensation based on the attainment of performance goals, may be disregarded
for purposes of this deduction limit if certain requirements are met. Among the
requirements for compensation to qualify for this exception is that the material
terms pursuant to which the compensation is to be paid be disclosed to and
approved by the shareholders in a separate vote prior to the payment.
General
The 1997 Plan provides for the granting of awards to such employees
(including officers of the Company, whether or not they are directors of the
Company) and consultants of the Company as the Stock Option/Compensation
Committee of the Board (the "Committee") may select from time to time. Currently
there are approximately 480 employees and consultants eligible to participate in
the 1997 Plan. The 1997 Plan also provides for the mandatory grant of
Non-Qualified Stock Options to Non-Employee Directors of the Company. Currently,
there are six such directors.
An aggregate of 750,000 shares of common stock of the Company is currently
reserved for issuance under the 1997 Plan, subject to adjustment as described
below. Such shares may be authorized but unissued common stock or authorized and
issued common stock held in the Company's treasury. Generally, shares subject to
an award that remain unissued upon expiration or cancellation of the award will
be available for other awards under the 1997 Plan. Currently, the total number
of shares of common stock subject to awards (including awards paid in cash but
denominated as shares of common stock) granted to any one Participant of the
1997 Plan during any tax year of the Company cannot exceed 200,000 shares. In
the event that the Committee determines that any dividend or other distribution,
stock split, recapitalization, reorganization, merger or other similar corporate
transaction or event affects the common stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
Participants under the 1997 Plan, then the Committee will make such equitable
changes or adjustments as it deems necessary to the number and kind of shares of
common stock which may thereafter be issued in connection with awards, the limit
on individual awards, the number and kind of shares of common stock subject to
each outstanding award, and the exercise price, grant price or purchase price of
each award.
Awards under the 1997 Plan may be made in the form of (a) Incentive Stock
Options, (b) Non-Qualified Stock Options (Incentive and Non-Qualified Stock
Options are collectively referred to as "options"), (c) Stock Appreciation
Rights, (d) Restricted Stock, (e) Phantom Stock, and (f) Other Awards.
-23-
<PAGE>
Administration
The 1997 Plan is administered by the Committee. The Committee consists of
two or more persons, each of whom is a "nonemployee director" within the meaning
of Section 162(m) and a "disinterested person" within the meaning of Rule 16b-3.
The Committee is authorized, among other things, to construe, interpret and
implement the provisions of the 1997 Plan, to select the persons to whom awards
will be granted, to determine the terms and conditions of such awards and to
make all other determinations deemed necessary or advisable for the
administration of the 1997 Plan; provided, however, that the Committee may not
exercise discretion under any provision of the 1997 Plan with respect to
Non-Qualified Stock Options granted to Non-Employee Directors.
Options
The Committee determines each option's expiration date; provided, however,
that no incentive stock option may be exercised more than ten years after the
date of grant. The purchase price per share payable upon the exercise of an
option (the "option exercise price") is established by the Committee; provided,
however, that in the case of an Incentive Stock Option, the option exercise
price may be no less than the Fair Market Value of a share of common stock on
the date of grant. The option exercise price is payable by any one of the
following methods or a combination thereof: (a) cash; (b) personal, certified or
bank cashier's check; (c) wire transfer; (d) with consent of the Committee, by
surrender of shares of common stock held at least six months by the Participant
and having a Fair Market Value on the date of the exercise equal to the option
exercise price; or (e) by such other payment method as the Committee may
prescribe.
The Committee may specify at the time of grant or with respect to
Non-Qualified Stock Options, at or after the time of grant, that a Participant
will be granted a new Non-Qualified Stock Option (a "Reload Option") for a
number of shares equal to the number of shares surrendered by the participant
upon exercise of all or part of an option. Reload Options will be subject to
such conditions as may be specified by the Committee in its discretion, subject
to the terms of the 1997 Plan. The 1997 Plan provides that a Non-Employee
Director who first became a director after April 1, 1997 will be granted
automatically a Non-Qualified Stock Option to purchase 10,000 shares of common
stock. Commencing with the 1999 Annual Meeting of Shareholders, each
Non-Employee Director (other than a director who is first elected at the annual
meeting for that year or within six months prior to such annual meeting) will be
granted automatically a Non-Qualified Stock Option to purchase 2,500 shares of
common stock; provided, however, that no annual grants to Non-Employee Directors
shall be made unless the Company's earnings per share for the most recently
completed fiscal year has increased from the prior fiscal year by at least 15%.
Non-Qualified Stock Options granted to Non-Employee Directors shall be
exercisable in 1/3 increments beginning on the first anniversary of the date
that the Non-Qualified Stock Option is granted and expire ten years from the
date of grant.
Stock Appreciation Rights
Stock appreciation rights may be granted in connection with all or any part
of, or independently of, any option granted under the 1997 Plan. A stock
appreciation right granted independently of any option will be subject to the
same vesting rules as described above for options. A stock appreciation right
granted in tandem with any stock option will be exercisable
-24-
<PAGE>
only when and to the extent the option to which it relates is exercisable. The
grantee of a stock appreciation right has the right to surrender the stock
appreciation right and receive from the Company, in cash, an amount equal to the
excess of the Fair Market Value of a share of common stock over the exercise
price of the stock appreciation right for each share of common stock in respect
of which such stock appreciation right is being exercised.
Restricted Stock
The Committee may grant restricted shares of common stock to such persons,
in such amounts, and subject to such terms and conditions (including the
attainment of performance goals) as the Committee may determine in its
discretion.
Phantom Stock
The Committee may grant shares of Phantom Stock to such persons, in such
amounts, and subject to such terms and conditions (including the attainment of
performance goals) as the Committee may determine in its discretion. If the
requirements specified by the Committee are met, the grantee of such an award
will receive a cash payment equal to the Fair Market Value of the shares covered
thereby plus the dividends that would have been paid on such shares had they
actually been outstanding following the grant date.
Other Awards
Other awards valued in whole or in part by reference to, or otherwise based
on, common stock may be granted either alone or in addition to other awards
under the 1997 Plan. Subject to the provisions of the 1997 Plan, the Committee
will have the sole and complete authority to determine the persons to whom and
the time or times at which such Other Awards will be granted, the number of
shares of common stock to be granted pursuant to such Other Awards and all other
conditions of such Other Awards.
Other Features of the 1997 Plan
The Board may suspend, revise, terminate or amend the 1997 Plan at any
time; provided, however, that shareholder approval must be obtained if and to
the extent that the Board deems it appropriate to satisfy Section 162(m); and
provided further that no such action may, without the consent of a Participant,
reduce the Participant's rights under any outstanding award.
Unless otherwise determined by the Committee, or unless the applicable
agreement otherwise provides, in the event of a Change In Control (as defined
under the Company's Change In Control Plan), all outstanding awards will become
fully vested and/or immediately exercisable.
Certain Federal Income Tax Consequences
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to awards under the 1997 Plan. This summary is not intended to be exhaustive
and, among other things, does not describe state, local or foreign income and
other tax consequences.
-25-
<PAGE>
Non-Qualified Stock Options
An optionee will not recognize any taxable income upon the grant of a
Non-Qualified Stock Option. The Company will not be entitled to a tax deduction
with respect to the grant of a Non-Qualified Stock Option. Upon exercise of a
Non-Qualified Stock Option, the excess of the Fair Market Value of the common
stock on the exercise date over the option exercise price will be taxable as
compensation income to the optionee and will be subject to applicable
withholding taxes. The Company will generally be entitled to a tax deduction at
such time in the amount of such compensation income. The optionee's tax basis
for the common stock received pursuant to the exercise of a Non-Qualified Stock
Option will equal the sum of the compensation income recognized and the exercise
price.
In the event of a sale of common stock received upon the exercise of a
Non-Qualified Stock Option, any appreciation or depreciation after the exercise
date generally will be taxed as capital gain or loss and will be long-term
capital gain or loss if the holding period for such common stock is more than
twelve months.
Incentive Stock Options
An optionee will not recognize any taxable income at the time of grant or
timely exercise of an Incentive Stock Option and the Company will not be
entitled to a tax deduction with respect to such grant or exercise. Exercise of
an Incentive Stock Option may, however, give rise to taxable compensation income
subject to applicable withholding taxes, and a tax deduction to the Company, if
the Incentive Stock Option is not exercised on a timely basis (generally, while
the optionee is employed by the Company or within 90 days after termination of
employment) or if the optionee subsequently engages in a "disqualifying
disposition" as described below.
A sale or exchange by an optionee of shares acquired upon the exercise of
an Incentive Stock Option more than one year after the transfer of the shares to
such optionee and more than two years after the date of grant of the Incentive
Stock Option will result in any difference between the net sale proceeds and the
exercise price being treated as long-term capital gain (or loss) to the
optionee. If such sale or exchange takes place within two years after the date
of grant of the Incentive Stock Option or within one year from the date of
transfer of the Incentive Stock Option shares to the optionee, such sale or
exchange will generally constitute a "disqualifying disposition" of such shares
that will have the following results: any excess of (a) the lesser of (i) the
Fair Market Value of the shares at the time of exercise of the Incentive Stock
Option and (ii) the amount realized on such disqualifying disposition of the
shares over (b) the option exercise price of such shares, will be ordinary
income to the optionee, subject to applicable withholding taxes, and the Company
will be entitled to a tax deduction in the amount of such income. Any further
gain or loss after the date of exercise generally will qualify as capital gain
or loss and will not result in any deduction by the Company.
Restricted Stock
A grantee will not recognize any income upon the receipt of Restricted
Stock unless the holder elects under Section 83(b) of the Code, within thirty
days of such receipt, to recognize ordinary income in an amount equal to the
Fair Market Value of the Restricted Stock at the time of receipt, less any
amount paid for the shares. If the election is made, the holder will not be
-26-
<PAGE>
allowed a deduction for amounts subsequently required to be returned to the
Company. If the election is not made, the holder will generally recognize
ordinary income, on the date that the restrictions to which the Restricted Stock
are subject are removed, in an amount equal to the Fair Market Value of such
shares on such date, less any amount paid for the shares. At the time the holder
recognizes ordinary income, the Company generally will be entitled to a
deduction in the same amount.
Generally, upon a sale or other disposition of Restricted Stock with
respect to which the holder has recognized ordinary income (i.e., a Section
83(b) election was previously made or the restrictions were previously removed),
the holder will recognize capital gain or loss in an amount equal to the
difference between the amount realized on such sale or other disposition and the
holder's basis in such shares. Such gain or loss will be long-term capital gain
or loss if the holding period for such shares is more than twelve months.
Other Types of Awards
The grant of a stock appreciation right or Phantom Stock award will not
result in income for the grantee or in a tax deduction for the Company. Upon the
settlement of such a right or award, the grantee will recognize ordinary income
equal to the aggregate value of the payment received, and the Company generally
will be entitled to a tax deduction in the same amount.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders adopt the
following vote:
That the proposed amendments to the 1997 Equity Incentive Plan
increasing the number of shares of common stock available for
issuance under the Plan from 750,000 to 3,500,000 and
increasing the limit on the number of stock-based awards that
can be granted to any one person during any one year from
200,000 to 500,000 as heretofore recommended by the Board of
Directors hereby are approved and adopted.
The affirmative vote of a majority of the outstanding shares of common
stock present or represented at the Meeting is required to approve the
amendments to the 1997 Plan increasing the number of authorized shares of common
stock available for issuance from 750,000 to 3,500,000 and increasing the number
of share limits on the number of stock-based awards that can be granted to any
one person during any one year by the Company from 200,000 to 500,000.
The Board of Directors recommends that the shareholders vote "FOR" the
amendments to the 1997 Equity Incentive Plan. Proxies solicited by the Board of
Directors will be voted "FOR" the proposal unless otherwise indicated.
-27-
<PAGE>
Proposal No. 5
AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
TO AUTHORIZE THE ISSUANCE OF 20,000,000 SHARES OF PREFERRED STOCK
(Item 5 on the Proxy Card)
On September 13, 2000, the Board of Directors of the Company unanimously
approved an amendment to the Amended and Restated Articles of Incorporation of
the Company which would create a series of preferred stock, par value $.01 per
share (the "Preferred Stock"), for which the Board would have the right to fix
the rights, terms and preferences at the time of issuance, and which would
authorize the issuance of up to 20,000,000 shares of such Preferred Stock. The
Company's Amended and Restated Articles of Incorporation currently only
authorize the issuance of common stock.
Purpose and Effect of the Proposed Charter Amendment
Subject to the provisions of the Company's Amended and Restated Articles of
Incorporation and the limitations prescribed by law, the Board of Directors
would be expressly authorized, at its discretion, to adopt resolutions to issue
shares, to fix the number of shares and to change the number of shares
constituting any series and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether the dividends are cumulative), dividend rates, terms
of redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any series of the
Preferred Stock, in each case without any further action or vote by the
shareholders. The board of directors would be required to make any determination
to issue shares of preferred stock based on its judgment as to the best
interests of the Company and its shareholders.
The proposed amendment will provide the Company with increased financial
flexibility in meeting future capital requirements by providing another type of
security in addition to its common stock, as it will allow Preferred Stock to be
available for issuance from time to time and with such features as determined by
the Board of Directors for any proper corporate purpose. Such purposes could
include, without limitation, issuance for cash as a means of obtaining capital
for use by the Company, or issuance as part or all of the consideration required
to be paid by the Company for acquisitions of other businesses or properties.
The Board of Directors believes that it is desirable that the Company have the
flexibility to issue shares of Preferred Stock without further shareholder
action, except as otherwise provided by law.
The Company has no immediate definitive plans to issue any shares of
preferred stock. Therefore, the terms, rights and features of any Preferred
Stock issued cannot be stated or predicted with certainty.
It is not possible to state the effects of the proposed amendment upon the
rights of holders of common stock until the Board of Directors determines the
respective rights of the holders of one or more series of Preferred Stock.
However, the issuance of shares of Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of
-28-
<PAGE>
the holders of common stock. Specifically, the effects of such issuances of
Preferred Stock could include (i) reduction of the amount otherwise available
for payment of dividends on common stock, if any, (ii) restrictions on dividends
on common stock, (iii) dilution of the voting power of common stock, and (iv)
restrictions on the rights of holders of common stock to share in the Company's
assets on liquidation until satisfaction of any liquidation preference granted
to the holders of such subsequently designated series of Preferred Stock. For
example, Preferred Stock issued by the Company may rank prior to the common
stock as to dividend rights, liquidation preferences or both, may have full or
limited voting rights, and may be convertible into shares of common stock.
Accordingly, the issuance of shares of Preferred Stock could decrease the amount
of earnings and assets allocable to or available for distribution to holders of
common stock and adversely affect the rights and powers, including voting rights
of the common stock, and may discourage bids for the common stock or may
otherwise adversely affect the market price of the common stock
Any issuance of Preferred Stock with voting rights could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company by increasing the number of outstanding shares entitled to vote and
by increasing the number of votes required to approve a change in control of the
Company. Shares of voting or convertible Preferred Stock could be issued, or
rights to purchase such shares could be issued, to render more difficult or
discourage an attempt to obtain control of the Company by means of a tender
offer, proxy contest, merger or otherwise. The ability of the Board of Directors
to issue such additional shares of Preferred Stock, with the rights and
preferences it deems advisable, could discourage an attempt by a party to
acquire control of the Company by tender offer or other means. Such issuances
could therefore deprive shareholders of benefits that could result from such an
attempt, such as the realization of a premium over the market price that such an
attempt could cause. Moreover, the issuance of such additional shares of
Preferred Stock to persons friendly to the Board of Directors could make it more
difficult to remove incumbent managers and directors from office even if such
change were to be favorable to shareholders generally.
While the amendment may have anti-takeover ramifications, the Board of
Directors believes that the financial flexibility offered by the amendment
outweighs any disadvantages. To the extent that the amendment may have
anti-takeover effects, the amendment may encourage persons seeking to acquire
the Company to negotiate directly with the Board of Directors enabling the Board
of Directors to consider the proposed transaction in a manner that best serves
the shareholders' interests.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders adopt the
following vote:
That the proposed amendment to the Amended and Restated
Articles of Incorporation to authorize the issuance of
20,000,000 shares of preferred stock, $.01 par value, having
such designations, preferences and relative, participating,
optional and or other special rights as determined by the
Board of Directors pursuant to the New Hampshire Business
Corporation Act as heretofore recommended by the Board of
Directors hereby is approved and adopted.
-29-
<PAGE>
The affirmative vote of a majority of the outstanding shares of common
stock present or represented at the Meeting is required to approve an amendment
to Amended and Restated Articles of Incorporation authorizing the issuance of
20,000,000 shares of Preferred Stock.
The Board of Directors recommends that the shareholders vote "FOR" the
amendment to the Amended and Restated Articles of Incorporation authorizing the
issuance of 20,000,000 shares of Preferred Stock. Proxies solicited by the Board
of Directors will be voted "FOR" the proposal unless otherwise indicated.
Proposal No. 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Item 6 on the Proxy Card)
The Board of Directors has appointed Arthur Andersen LLP as its independent
accountants for the fiscal year ending September 24, 2000, subject to
shareholder ratification.
A representative of Arthur Andersen LLP will be present at the Meeting,
will have an opportunity to make a statement if he or she so desires and is
expected to be available to respond to appropriate questions.
Ratification of the appointment of Arthur Andersen LLP as independent
accountants requires the affirmative vote of a majority of the outstanding
shares of common stock present or represented at the Meeting by holders of the
Company's common stock entitled to vote thereon.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote "FOR"
ratification of this appointment. Proxies solicited by the Board of Directors
will be voted "FOR" the proposal unless otherwise indicated.
DEADLINE FOR SHAREHOLDERS' PROPOSALS
Any shareholder proposals to be considered by the Company for inclusion in
the Company's proxy materials for the 2001 Annual Meeting must be received by
the Company at its principal executive offices by October 17, 2000.
OTHER MATTERS
Management knows of no matters to be presented at the Meeting other than
those set forth in the accompanying proxy. However, if other matters are
properly presented for action, it is the intention of the persons named in the
proxy to vote upon such matters in accordance with their best judgment.
-30-
<PAGE>
AVAILABILITY OF FORM 10-K AND FORM 10-Q
The Company's annual report on Form 10-K for the year ended September 26,
1999 and the Company's quarterly report on Form 10-Q for the period ending June
25, 2000 are incorporated by reference and are being mailed to shareholders with
this Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
William V. A. Zorn, Secretary
Manchester, New Hampshire
October __, 2000
-31-
<PAGE>
Appendix A
----------
McFarland Dewey & Co., LLC
230 Park Avenue
New York, New York 10169 - 1450
-----
Telephone (212) 867-4949
Facsimile (212) 867-0334
E-mail: [email protected]
July 25, 2000
Board of Directors
WPI Group, Inc.
1155 Elm Street
Manchester, NH 03101
Attention: Mr. John Allard
President and Chief Executive Officer
Gentlemen:
WPI Group, Inc. ("WPI") and Sunrise Capital Partners
("Sunrise") have proposed entering into an agreement pursuant to which Sunrise
shall invest up to $24 million into WPI in the form of convertible subordinated
notes (the "Transaction"). The convertible subordinated notes, which mature in
three years, shall bear interest at a rate of 10.75% per annum and will be paid
either in cash or in kind. The conversion price is $1.75 per WPI share. This
Transaction will give Sunrise effective control of WPI. Upon the closing of the
Transaction certain Directors of WPI will resign and Sunrise will elect nominees
in their place which will give Sunrise a majority of the seats on the board.
In a separate Participation Agreement between Sunrise and the Allard
Nazarian Group ("ANG"), ANG will participate in the investment by Sunrise. ANG
will invest $1.5 million. In addition, WPI will exchange approximately $1.6
million of existing promissory notes (including accrued interest) held by ANG
for convertible subordinated notes, with the same terms as stated above.
You have asked us whether, in our opinion, the financial terms of the
above Transaction is fair from a financial point of view to the shareholders of
WPI.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed certain publicly available business and financial
information relating to WPI that we deemed to be relevant;
<PAGE>
(2) Reviewed certain confidential information furnished to us by WPI,
including financial forecasts relating to the business, earnings, cash
flow, assets, liabilities and prospects of WPI;
(3) Conducted discussions with members of senior management and
Directors of WPI concerning the matters described in clauses 1 and 2
above;
(4) Reviewed the potential pro forma financial impact on the business
and the existing shareholder's ownership of WPI;
(5) Considered the highly leveraged financial condition of WPI and the
effect that the demands of meeting its obligations to its senior
secured lenders has had on WPI in conducting its on-going business and
investing in lines of business presently under development;
(6) Reviewed the latest draft agreements for the Transaction which we
are advised reflect in all material aspects the final agreements;
(7) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions;
(8) Discussed the Transaction with other potential investors, all of
whom elected not to proceed with a Transaction.
We have been advised by management of the availability of funds from its
senior secured lenders which will, upon the closing of the Transaction, continue
to lend at least $15 million for the next 12 months. Such lenders are owed
approximately $30 million as of the date of this letter.
We have also reviewed the terms of a letter of intent that WPI executed to
sell the assets of its WPI Industrial Technology, Inc. ("Instruments")
subsidiary to a group of investors led by the present management of Instruments.
McFarland Dewey is acting as financial advisor to WPI with respect to this
potential transaction.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us, as
well as all information publicly available, and we have not assumed any
responsibility for independently verifying such information nor have we
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of WPI or been furnished to us with any such evaluation or
appraisal. With respect to the financial forecast information furnished to or
discussed with us by WPI, we have assumed that it has been reasonably prepared
and reflects the best currently available estimates and judgment of WPI's
management as to the expected future financial performance of WPI.
We have assumed that in the course of obtaining the necessary regulatory or
other consents or approvals (contractual or otherwise) for the Transaction, no
restrictions, including any amendments or modifications, will be imposed that
will have a material adverse effect on the contemplated benefits of this
Transaction.
We are acting as financial advisor to WPI in connection with the
Transaction and will receive a fee from WPI for our services, which is
contingent upon the consummation of the
-2-
<PAGE>
Transaction. We will receive no separate fee for this opinion. We have, in the
past, provided financial advisory services to WPI, and may continue to do so,
and have received, and may receive, fees for the rendering of such services. In
addition, WPI has agreed to indemnify us for certain liabilities arising out of
our engagement.
This opinion is for the use and benefit of the Board of Directors of WPI.
Our opinion does not otherwise address the merits of the underlying decision by
WPI to engage in the Transaction.
We are not expressing any opinion herein as to the price at which WPI
shares will trade following the announcement or consummation of the Transaction.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the financial terms of the Transaction are fair from a
financial point of view to the shareholders of WPI.
Very truly yours,
McFarland Dewey & Co., LLP
by: /s/ Alan R. McFarland
------------------------------
Alan R. McFarland, Member
-3-
<PAGE>
Appendix B
----------
WPI GROUP, INC.
1115 Elm Street
Manchester, New Hampshire 03101
PROXY SOLICITED ON BEHALF OF THE BOARD OF THE COMPANY
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON NOVEMBER __, 2000
The undersigned hereby appoints as Proxies, each of John R. Allard and John W.
Powers, each with full power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of capital stock
of WPI GROUP, INC. held of record by the undersigned on October 2, 2000, at the
Annual Meeting of Shareholders to be held on November __, 2000, and any
adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. YOU ARE ENCOURAGED
TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOXES, SEE REVERSE SIDE, BUT
YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS. IF NO DIRECTION IS GIVEN WITH RESPECT TO A
PARTICULAR PROPOSAL, THIS PROXY WILL BE VOTED FOR SUCH PROPOSAL. THE PROXIES
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES OF AMERICA.
<TABLE>
<CAPTION>
FOR ALL WITHHELD ALL FOR ALL
EXCEPT:
1. Election of 7 directors
John Allard, Paul Giovacchini, Irwin Gold, Joseph Julian,
David Preiser, Michael Stewart, Bernard Tenenbaum / / / / / /
-------------------------------------------------------------------
(Except nominee(s) written above)
<S> <C> <C> <C> <C>
2. Approve an amendment to the Company's Amended and Restated FOR AGAINST ABSTAIN
Articles of Incorporation to increase the number of shares of
common stock the Company is authorized to issue. / / / / / /
FOR AGAINST ABSTAIN
3. Approve an amendment to the Company's Amended and Restated
Articles of Incorporation to change the name of the Company. / / / / / /
FOR AGAINST ABSTAIN
4. Approve an amendment to the Company's 1997 Equity Incentive
Plan to increase the number of shares available for issuance. / / / / / /
<PAGE>
5. Approve an amendment to the Company's Amended and Restated FOR AGAINST ABSTAIN
Articles of Incorporation to authorize the issuance of shares
of preferred stock. / / / / / /
FOR AGAINST ABSTAIN
6. Ratify the appointment of Arthur Anderson LLP as independent
auditors. / / / / / /
FOR AGAINST ABSTAIN
7. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the Meeting. / / / / / /
</TABLE>
Date: , 2000
--------------------------------------
--------------------------------------
--------------------------------------
Signature(s)
NOTE: Please sign exactly as name appears hereon.
If shares are registered in more than one name, the signatures of all such
persons are required. A corporation should sign in the full corporate name by a
duly authorized officer stating his title. Trustees, guardians, executors, and
administrators should sign in their official capacity giving their full title as
such. If a partnership, please sign in the partnership name by authorized
persons.
If you have had a change of address, please print or type your new address on
the lines below.
---------------------------
---------------------------
-2-
