PRELIMINARY
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NATIONAL TECHNICAL SYSTEMS, INC.
24007 Ventura Boulevard
Calabasas, California 91302
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NOTICE OF ANNUAL MEETING
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To the Shareholders:
Notice is hereby given that the annual meeting of shareholders of
National Technical Systems, Inc., a California corporation, will be held at the
Company's Culver City Facility, 5730 Buckingham Parkway, Culver City,
California, 90230, on Wednesday, June 27, 2001 at 10:00 a.m. for the purpose of
considering and acting upon the following:
1. To elect four directors for terms expiring in 2004;
2. To ratify Ernst & Young LLP as auditors for the year ending
January 31, 2002; and
3. To transact such other business and to consider and take
action upon any and all matters that may properly come before
the meeting or any adjournment or adjournments thereof.
Management has no information of any such other matters.
Pursuant to the provisions of the Company's Bylaws, the Board of
Directors has fixed the close of business on May 14, 2001 as the record date for
the determination of shareholders entitled to notice of and to vote at the
meeting or any adjournment thereof.
Financial information concerning the Company is contained in the
Annual Report for the fiscal year ended January 31, 2001, which accompanies this
Notice of Annual Meeting.
If you are unable to attend the meeting in person, please execute
the enclosed Proxy and return it in the enclosed self-addressed, stamped
envelope. If you later find that you can be present, you may, if you wish, vote
in person, or you may revoke your proxy or file a new proxy bearing a later date
with the Secretary at any time before the voting.
By Order of the Board of Directors
Andrea Korfin
Secretary
Dated: May 25, 2001
1
PRELIMINARY
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NATIONAL TECHNICAL SYSTEMS, INC.
24007 Ventura Boulevard,
Calabasas, California 91302
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PROXY STATEMENT
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SOLICITATION
The accompanying Proxy is solicited by the Board of Directors for
use at the annual meeting of shareholders to be held on Wednesday, June 27,
2001, or any adjournment thereof. A Proxy may be revoked by the person giving it
at any time before it is exercised, either by giving another proxy bearing a
later date or by notifying the Secretary of the Company in writing of such
revocation. The giving of the Proxy will not affect your right to vote in person
if you later should find it convenient to attend the meeting. The Proxy will be
voted in accordance with the specifications made.
The Company will bear the entire cost of preparing, assembling, printing,
and mailing this Proxy Statement, the Proxy, and any additional material which
may be furnished to shareholders by the Company. Copies of solicitation material
may be furnished to brokerage houses, fiduciaries, and custodians to forward to
their principals, and the Company may reimburse them for their expenses in so
doing. The Company does not expect to pay any commission or remuneration to any
person for solicitation of proxies.
This Proxy Statement and the Proxy are being mailed to shareholders on or
about May 25, 2001.
Solicitation may be made by mail, personal interview, telephone, and
telegraph by officers and regular employees of the Company.
The close of business on May 14, 2001, has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting. The outstanding voting securities of the Company at May 14,
2001, consisted of 8,470,525 shares of no par value Common Stock. Shareholders
representing a majority of outstanding Common Stock must be present in person or
by proxy to constitute a quorum at the Annual Meeting. The presence, in person
or by proxy, of the holders of a majority of the shares entitled to vote will
constitute a quorum for the transaction of business at the Annual Meeting.
In voting for the election of Directors, shareholders do not have the
right to cumulate their votes.
A plurality of the votes cast in person or by proxy and entitled to
vote at the Annual Meeting is required for the election of directors. The
affirmative vote of a majority of votes cast at the Annual Meeting is required
for ratification of Ernst & Young LLP as auditors for the year ending January
31, 2002 and the approval of such other matters as may properly come before the
Annual Meeting.
2
Abstention and broker non-votes have the same effect as votes against
proposals presented to shareholders other than the election of directors. They
have no effect on the election of directors. A broker non-vote occurs when a
nominee holding shares for a beneficial owner votes on one proposal, but does
not vote on another proposal because the nominee does not have discretionary
voting power and has not received instructions from the beneficial owner.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tabulation indicates as of May 14, 2001, those persons known
to the Company to be beneficial owners of five percent or more of the Company's
Common Stock.
Number of Shares Percent of
Name and Address of Beneficial Owner Beneficially Owned Class
- ------------------------------------ ------------------- -----
Aaron Cohen............................... 1,219,885 (1) 14.3%
24007 Ventura Boulevard
Calabasas, California 91302
Jack Lin.................................. 1,053,094 (1) 12.3%
24007 Ventura Boulevard
Calabasas, California 91302
Marvin Hoffman............................ 896,170 (1) 10.6%
24007 Ventura Boulevard
Calabasas, California 91302
Luis A. and Jacqueline E. Hernandez (2)... 430,425 5.1%
3069 Misty Harbor
Las Vegas, Nevada 89117
- -------------
(1) Includes shares covered by options that are exercisable within 60 days as
follows: Cohen 35,575, Lin 58,152 and Hoffman 19,792.
(2) This information is based on a Schedule 13D filed with the Securities and
Exchange Commission on or about November 13, 1995.
To the knowledge of management, no other person owns beneficially as much
as 5% of the outstanding stock of the Company. The tabulation under "Nomination
and Election of Directors" indicates the number of shares owned beneficially by
each nominee as of the record date. The directors and executive officers of the
Company, as a group (18 persons), owned beneficially as of the record date a
total of 4,109,043 shares, or 45.2% of the outstanding stock.
Proposal 1. ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of eleven
members, who are divided into two classes of four directors and one class of
three directors. Directors are elected for terms of three years. At the Annual
Meeting, the term of office of the Class II directors will expire and four
directors will be elected to serve for a term of three years and until their
respective successors are elected.
3
The Board intends to cause the nomination of the four persons named below
for election as Class II directors. The directors will be elected by the holders
of the Common Stock. The persons named as proxy holders in the accompanying form
of proxy have advised the Company that they intend at the Annual Meeting to vote
the shares covered by proxies held by them for the election of the nominees
named below. If any or all of such nominees should for any reason become unable
to serve or for good cause will not serve, the persons named in the accompanying
form of proxy may vote for the election of such substitute nominees, and for
such lawful term or terms, as the Board may propose. The accompanying form of
proxy contains a discretionary grant of authority with respect to this matter.
The Board of Directors has no reason to believe the nominees named, or any of
them, will be unable to serve if elected.
All of the Class II nominees, except for Donald Tringali, were elected
members of the Board of Directors by the shareholders at the 1998 annual meeting
of shareholders. Mr. Tringali was appointed to the Board on June 25, 1999, to
fill a vacancy. No arrangement or understanding exists between any of the
nominees and any other person or persons pursuant to which any nominee was or is
to be selected as a director or nominee.
On February 5, 2001, General Aloysius Casey, Chairman of the Board,
retired. The vacancy on the Board created by his retirement was filled by the
appointment of Sheldon Fechtor. Mr. Fechtor is a Class III director and he will
stand for election at the 2002 annual meeting of shareholders.
The names of the nominees for Class II directors and the Class I and Class
III directors who will continue in office after the Annual Meeting until the
expiration of their respective terms, together with certain information
regarding them, including the amount of Common Stock beneficially owned by them,
are as follows:
4
Common Stock
of the Company
Beneficially
Director Year Term Owned as of Percent
Name Age Position or Office Since Will Expire May 14, 2001 (1) of Class
- -------------------------------- --- --------------------------------- ----- ----------- ---------------- --------
Nominees for Class II Directors
- -------------------------------
Aaron Cohen 64 Vice Chairman of the Board and 1997 2004* 1,219,885 14.3%
Senior Vice President, Corporate
Development
Arthur Edelstein 63 Senior Vice President of the Company 1980 2004* 373,044 4.4%
Ralph Clements 68 President of Clements and Associates 1975 2004* 2,384 **
Donald Tringali 43 Management Consultant 1999 2004* 23,120 **
Directors Continuing in Office:
- -------------------------------
Class I Directors
- -----------------
Richard Short 58 Senior Vice President of the Company 1988 2003 130,087 1.5%
William Traw 63 Senior Vice President of the Company 1988 2003 97,262 1.1%
William McGinnis 42 President and Chief Operating Officer 1994 2003 69,816 **
of the Company
Marvin Hoffman 67 Senior Vice President and Chief 1999 2003 896,170 10.6%
Information Officer of the Company
Class III Directors
- -------------------
Jack Lin 68 Chairman of the Board and Chief 1975 2002 1,053,094 12.3%
Executive Officer of the Company
Robert Lin 43 Founder, President and Chief 1988 2002 107,755 1.3%
Executive Officer of MTI-Marketing
Techniques, Inc.
Sheldon Fechtor 68 Retired Founder and Chief Executive 2000 2002 5,000 **
Officer of Fechtor, Detwiler & Co.
* If elected at the annual meeting
** Less than 1%
(1) Includes shares covered by options exercisable within 60 days, as follows:
Clements, 1875; Edelstein, 72,950; Cohen, 35,575; Short, 62,125; Traw,
58,375; McGinnis, 41,125; J. Lin, 58,152; R. Lin, 3,750 and Hoffman,
19,792.
Mr. Clements has been President of Clements and Associates, a Sherman
Oaks, California financial and economic consulting firm, for more than five
years.
Mr. Cohen is a founder, Vice Chairman of the Board and Senior vice
President in charge of Corporate Development of the Company. He has been
associated with the Company since 1961.
5
Mr. Edelstein is Senior Vice President of the Company and has been
associated with the Company continuously since 1962.
Mr. Sheldon Fechtor is the founder and was for over 36 years Chief
Executive Officer of Fechtor, Detwiler & Co., a New England based regional
investment banking and brokerage firm. Mr. Fechtor retired in February, 2000.
Mr. Hoffman is Senior Vice President and Chief Information Officer of the
Company. He has been associated with the Company since 1998. Mr. Hoffman is the
founder and President of XXCAL, Inc. and has been associated with XXCAL, Inc.
since 1977. Mr. Hoffman currently serves on the board of directors of Rainbow
Technologies, Inc., a manufacturer of computer network security products.
Mr. Jack Lin is a founder, Chairman of the Board and Chief Executive
Officer of the Company and has been associated with the Company continuously
since 1961.
Mr. Robert Lin is the founder, and has been the President and Chief
Executive Officer of MTI-Marketing Techniques, Inc. a privately-owned
manufacturer and distributor of products for the advertising specialty and
premium markets, for more than five years. Robert Lin is the son of Jack Lin.
Mr. McGinnis is President and Chief Operating Officer of the Company. He
has been associated with the Company since 1980.
Mr. Short is Senior Vice President of the Company and has been associated
with the Company continuously since 1975.
Mr. Traw is Senior Vice President of the Company and has been associated
with the Company continuously since 1963.
Mr. Tringali is a management consultant. From June 1996 until February
2001, Mr. Tringali served as Executive Vice President of Telemundo Network
Group, LLC.
The Board of Directors of the Company held five regular meetings during
the last fiscal year.
The Company's Board of Directors has an Audit Committee consisting of
Messrs. Clements, Tringali and Fechtor. The function of the Audit Committee is
to meet with the independent certified public accountants engaged by the Company
to review (a) the scope and findings of the annual audit, (b) accounting
policies and procedures and the Company's financial reports, and (c) the
internal controls employed by the Company. The Audit Committee held two meetings
during the year.
The Compensation Committee of the Board of Directors considers and makes
recommendations to the Board of Directors on salaries, bonuses, stock options
and other forms of compensation for the Company's executive officers. The
Compensation Committee currently consists of Messrs. Clements, Tringali and
Fechtor. The Compensation Committee met twice during the year.
6
The Nominating Committee, which currently consists of Messrs. J. Lin,
Tringali and R. Lin, selects nominees for election to the Board of Directors.
The Nominating Committee met twice during the year.
Employee-directors receive no additional compensation for serving on the
Board. For fiscal year 2001, prior to his retirement in December 2000, General
Casey was paid $41,086 in his capacity as Chairman of the Board. For the portion
of fiscal 2001 during which he served as a director, Mr. Fechtor was paid an
annual retainer fee of $5,703. Each of the other directors received $11,406 in
annual retainer fees. Directors are also reimbursed for expenses which they
reasonably incur in the performance of their duties as directors of the Company.
During the fiscal year ended January 31, 2001, the Company paid $51,405 to Mr.
Clements and $12,900 to Mr. Tringali for consulting services.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR ITS NOMINEES FOR
CLASS II DIRECTORS
EXECUTIVE COMPENSATION
The following information is furnished with respect to the Chief Executive
Officer and the other most highly compensated executive officers of the Company
whose aggregate direct remuneration from the Company during the fiscal year
ended January 31, 2001 exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------------------------ ---------------------------
Name and Principal Other Annual Restricted Stock Options/ LTIP All Other
Position Year Salary ($) Bonus ($) Compensation ($)(1) Award(s) ($) SARs (#) Payouts ($) Compensation($)
- ----------------------------------------------- --------- ------------------- ------------ -------- ----------- ---------------
Jack Lin 2001 345,479 0 0 0 0 0 0
Chairman of the Board and 2000 322,512 0 0 0 0 0 0
Chief Executive Officer 1999 339,836 50,000 0 0 0 0 0
William C. McGinnis 2001 184,992 0 0 0 0 0 0
President and Chief 2000 122,508 0 0 0 0 0 0
Operating Officer 1999 110,000 21,000 0 0 0 0 0
Aaron Cohen 2001 196,720 0 0 0 0 0 0
Senior Vice President and 2000 198,076 0 0 0 0 0 0
Vice Chairman of the Board 1999 155,650 21,000 0 0 0 0 0
Arthur Edelstein 2001 195,378 0 0 0 0 0 0
Senior Vice President 2000 199,098 0 0 0 0 0 0
1999 205,961 31,000 0 0 0 0 0
Marvin Hoffman (2) (3) 2001 249,228 0 0 0 0 0 0
Senior Vice President and 2000 0 0 0 0 0 0 0
Chief Information Officer 1999 0 0 0 0 0 0 0
(1) Does not include perquisites or personal benefits which are the lesser of
$50,000 or 10% of the total annual salary and bonus reported for the named
Executive Officer.
7
(2) At January 31, 2001, the Company owed Mr. Hoffman $38,818 pursuant to a
demand note which was on the books of XXCAL, Inc. when XXCAL, Inc. was
acquired by the Company. The demand note accrues interest on the unpaid
principal balance at 9% per annum, payable monthly.
(3) Prior to its termination on March 31, 2001, Marvin Hoffman was a party to
an Employment Agreement dated April 1, 1984 and amended April 11, 1991
(the "Agreement"). The Agreement was assumed by the Company pursuant to
the acquisition of XXCAL, Inc. Pursuant to the terms of the Agreement, Mr.
Hoffman was paid an annual salary of $130,000, or such other higher figure
as the board of directors may approve based on Company performance. The
Agreement provides for an annual bonus of 60% of the total bonuses paid to
the XXCAL, Inc. key employees. No bonus was paid to Mr. Hoffman for the
year ended January 31, 2001. Under the terms of the Agreement, Mr. Hoffman
and the members of his family were entitled to participate in the
Company's medical, disability, dental and other benefit programs provided
from time to time by the Company.
REPORT OF THE COMPENSATION COMMITTEE
During the fiscal year ended January 31, 2001, the Compensation Committee
of the Board of Directors (the "Compensation Committee") was composed of Messrs.
Clements and Tringali, who are independent, non-employee directors, along with
General Casey, prior to his retirement on December 8, 2000. Mr. Fechtor, also an
independent, non-employee director, has been appointed by the Board to fill the
vacancy on the Compensation Committee created by General Casey's retirement. See
the description of the Compensation Committee functions above.
Compensation Policies. Policies governing the compensation of the
Company's executives are established and monitored by the Compensation
Committee. All decisions relating to the compensation of the Company's
executives during 2001 were made by the Compensation Committee.
In administering its compensation program, the Compensation Committee
follows its belief that compensation should reflect the value created for
shareholders while supporting the Company's strategic goals. In doing so, the
compensation programs reflect the following themes:
1. The Company's compensation programs should be effective in attracting,
motivating, and retaining key executives;
2. There should be a correlation of the compensation awarded to an
executive, the performance of the Company as a whole, and the executive's
individual performance;
3. The Company's compensation programs should provide the executives
a financial interest in the Company similar to the interests of the Company's
shareholders; and
4. The Company's compensation program should strike an appropriate
balance between short and long term performance objectives.
8
Elements of Compensation Programs
At least annually, the Committee reviews the Company's executive officer
compensation programs to ensure that pay levels and incentive opportunities are
competitive and reflect the performance of the Company. The three basic
components of the program, each of which is intended to serve the overall
compensation philosophy, are as follows:
Base Salary - Base salary levels are, in part, established through
comparisons with companies of similar size engaged in the same or similar
business as that of the Company. Actual salaries are based on individual
performance of the executive officer within the salary range reflecting job
evaluation and market comparisons. Base salary levels for executive officers are
reviewed annually and established within a range deemed by the Committee to be
reasonable and competitive. The Committee recommended increases and decreases in
base salary for the executive officers in fiscal 2001.
Annual Incentives - The Company's executive officers are eligible to
participate in the annual incentive compensation program whose awards are based
on the attainment of certain operating and individual goals. The objective of
this program is to provide competitive levels of compensation in return for the
attainment of certain financial objectives that the Committee believes are
primary factors in the enhancement of shareholder value. In particular, the
program seeks to focus the attention of executive officers towards earnings
growth. Bonuses for executive officers of the Company under this program are
intended to be consistent with targeted awards of companies of similar size and
engaged in the same or similar business as that of the Company. Actual awards
are subject to adjustment up or down, at the discretion of the Committee, based
on the Company's overall performance. For fiscal 2001, the Compensation
Committee did not award bonuses to executive officers.
Long-term Incentives - As an important element in retaining and motivating
the Company's senior management, the Committee believes that those persons who
have substantial responsibility for the management and growth of the Company
should be provided with an opportunity to increase their ownership of Company
stock. Therefore, executive officers and other key employees are eligible to
receive stock options from time to time, giving them the right to purchase
shares of Common Stock of the Company at a specified price in the future. The
number of stock options granted to executive officers is based on various
factors, including the respective scope of accountability, strategic and
operational goals and anticipated performance and contributions of the
individual executive.
Chief Executive Officer's Compensation
Mr. J. Lin's compensation is determined pursuant to the principles noted
above. The Committee, in considering his compensation for fiscal 2001, reviewed
his existing compensation arrangements, comparable compensation for chief
executive officers of other companies and the performance of both Mr. J. Lin and
the Company. The Committee made the following determinations regarding Mr.
J. Lin's compensation:
Based upon Mr. J. Lin's and the Company's fiscal 2001 performance, the
Company did not increase Mr. J. Lin's base salary.
COMPENSATION COMMITTEE
Ralph Clements
Donald Tringali
9
Policy with Respect to Internal Revenue Code Section 162(m).
In 1993, the Internal Revenue Code of 1986 (the "Code") was amended to add
Section 162(m). Section 162(m), and regulations thereunder adopted in 1995,
place a limit of $1,000,000 on the amount of compensation that may be deducted
by the Company in any year with respect to certain of the Company's most highly
compensated officers. Section 162(m) does not, however, disallow a deduction for
qualified "performance-based compensation" the material terms of which are
disclosed to and approved by shareholders. At the present time, the Company's
executive officer compensation levels are substantially below the $1,000,000 pay
limit and the Company believes that it will most likely not be affected by the
regulation in the near future. Where appropriate in light of specific
compensation objectives, the Board intends to take necessary actions in the
future to minimize the loss of tax deductions related to compensation.
INFORMATION CONCERNING STOCK OPTIONS
The following table sets forth certain information at January 31, 2001 and
for the fiscal year then ended with respect to stock options granted to the
individuals named in the Summary Compensation Table above. No stock appreciation
rights have been granted and no options have been granted at an option price
below fair market value on the date of the grant.
OPTION GRANTS IN THE LAST FISCAL YEAR
Potential Realizable Value
at Assumed Annual Rates
of Stock Appreciation
Individual Grants for the Option Term (1)
------------------------------------------------------------------ ----------------------------------
Number of
Securities % of total At 0% At 5% At 10%
Underlying Options/SAR's Exercise or Annual Annual Annual
Options/SAR's Granted to all Base Price Expiration Growth Growth Growth
Name of Executive Granted Employees Per Share Date Rate Rate Rate
- ------------------ ------------- -------------- ----------- ---------- ------ ------ --------
Jack Lin 25,000 (3) 5.11% $3.3000 09/19/2010 - $ 51,884 $131,484
William McGinnis 35,000 (2)(3) 7.15% $2.5630 12/06/2010 - $ 56,415 $142,967
25,000 (3) 5.11% $3.0000 09/19/2010 - $ 47,167 $119,531
Aaron Cohen 10,000 (3) 2.04% $3.3000 09/19/2010 - $ 20,754 $ 52,594
Arthur Edelstein 15,000 (3) 3.06% $3.0000 09/16/2010 - $ 28,300 $ 71,718
Marvin Hoffman 10,000 (3) 2.04% $3.3000 09/19/2010 - $ 20,754 $ 52,594
- -------------
(1) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any on stock option exercises or stock holdings are dependent on
the future performance of the stock and overall market conditions. There
can be no assurance that the amounts reflected in this table will be
achieved.
10
(2) Includes 25,244 non-qualified options at $2.563 per share, 9,756 incentive
stock options at $2.563 per share.
(3) All options become exercisable at 25% per year, starting nine years prior
to expiration date.
The following table sets forth information concerning the exercise of
stock options during the fiscal year ended January 31, 2001 by each of the named
executive officers and the fiscal year end spread on unexercised "in-the-money"
options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE
Number of Unexercised Value of Unexercised
In-the money In-the-money
Options/SARs Options/SARs
at FY-End at FY-End($)(1)
----------------------------- --------------------------------
Shares Acquired Value
Name on Exercise Realized
---- (#) ($) (2) Exercisable Unexercisable Exercisable Unexercisable
--------------- --------- ----------- ------------- ----------- -------------
Jack Lin - - 18,724 40,441 58,841 130,213
William McGinnis - - 24,875 65,625 70,344 182,969
Aaron Cohen - - 6,000 10,000 17,250 33,000
Art Edelstein - - 51,500 22,500 141,500 69,375
Marvin Hoffman - - 3,125 10,000 11,172 33,000
(1) Market Value of underlying securities at exercise date, minus the exercise
or base price of "in-the-money" options/SARs. "Value Realized" is on a
pre-tax basis.
(2) Represents the difference between the closing price of the Company's Stock
on January 31, 2001 and the exercise of the options.
11
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
returns on investment for the Company, the Russell 2000 Index and the S&P
Technology Sector (formerly S&P High Tech Composite) Index. The stock price
performance shown on the graph below is not necessarily indicative of future
price performance.
National Technical Sys Inc (NTSC)
Cumulative Total Return
----------------------------------------------------------------
1/96 1/97 1/98 1/99 1/00 1/01
NATIONAL TECHNICAL SYSTEMS, INC. 100 107.31 308.05 217.22 189.89 159.33
RUSSELL 2000 100 118.95 140.45 140.91 165.92 172.05
S & P TECHNOLOGY SECTOR 100 154.85 187.13 350.09 485.89 369.64
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
The Company's officers, directors and consultants are required to file
initial reports of ownership and reports of change in ownership with the
Securities and Exchange Commission. Officers and directors are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on information provided to the Company by individual
officers, directors and consultants, the Company believes that during fiscal
2001 all filing requirements applicable to officers and directors have been
complied with.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is composed of three
directors who are independent directors as defined under the rules of the
National Association of Securities Dealers, Inc. The Audit Committee operates
under a written charter adopted by the Board of Directors in 2000, a copy of
which is included as Appendix A to this Proxy Statement.
The Audit Committee recommends to the Board of Directors the appointment
of the independent auditors, reviews the scope of audits, reviews significant
changes to the Company's accounting principles and practices, reviews
significant issues encountered in the course of audit work related to the
adequacy of internal controls and reviews the scope and results of procedures
for internal auditing.
12
The Audit Committee reviewed and discussed the audited financial
statements with management of the Company and representatives of Ernst & Young
LLP. The discussions with Ernst & Young LLP included the matters required to be
discussed by Statement on Auditing Standards No. 61. In addition, the Audit
Committee received the written disclosures and the letter regarding independence
from Ernst & Young LLP as required by Independence Standards Board Standard No.
1 and discussed with Ernst & Young LLP their independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K for the fiscal year ended January 31,
2001 for filing with the Securities and Exchange Commission.
The Audit Committee also recommended to the Board, and the Board has
appointed, Ernst & Young LLP to audit the corporation's financial statements for
Fiscal 2002, subject to shareholder notification of that appointment.
AUDIT COMMITTEE
Ralph Clements
Sheldon Fechtor
Donald Tringali
Proposal 2. RATIFICATION OF AUDITORS
Based on the recommendation of the Audit Committee, the Board of Directors
has selected Ernst & Young LLP as auditors for the Company for the year ending
January 31, 2002. That firm became auditors for the Company during the fiscal
year ended January 31, 1990.
The following table sets forth the fees billed or expected to be billed
for in Fiscal 2001.
Fees Billed
-----------
Audit Fees.......................................$172,350
Financial Information Systems
Design and Implementation Fee.............. -
All Other Fees...................................$ 48,931
Representatives of Ernst & Young LLP are expected to be present at the
meeting and will be given the opportunity to make a statement if they desire to
do so. It is also expected that they will be available to respond to appropriate
questions from shareholders at the meeting.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THIS PROPOSAL
UNLESS SHAREHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES.
13
OTHER MATTERS
Management is not aware of any other matters to be presented for action at
the meeting or any adjournment thereof. However, if any matters come before the
meeting, it is intended that shares represented by Proxy will be voted in
accordance with the judgment of the persons voting them.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of shareholders intended to be presented at the next annual
meeting (to be held in June 2002) must be received by the Company at its
principal executive office located at 24007 Ventura Boulevard, Calabasas,
California 91302, not later than January 24, 2002.
14
APPENDIX A
National Technical Systems, Inc.
Audit Committee Charter
Organization
This charter governs the operations of the audit committee. The committee shall
review and reassess the charter at least annually and obtain the approval of the
board of directors. The committee shall be appointed by the board of directors
and shall comprise at least three directors, each of whom are independent of
management and the Company. Members of the committee shall be considered
independent if they have no relationship that may interfere with the exercise of
their independence from management and the Company. All committee members shall
be financially literate, or shall become financially literate within a
reasonable period of time after appointment to the committee and at least one
member shall have accounting or related financial management expertise.
Statement of Policy
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In so
doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors, the internal auditors
and management of the Company. In discharging its oversight role, the committee
is empowered to investigate any matter brought to its attention with full access
to all books, records, facilities, and personnel of the Company and the power to
retain outside counsel or other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the audit committee is to oversee the Company's
financial reporting process on behalf of the board and report the results of
their activities to the board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
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The following shall be the principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the committee may supplement them as
appropriate.
. The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of
the Company's shareholders. The committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace
the independent auditors. The committee shall discuss with the auditors
their independence from management and the Company and the matters
included in the written disclosures required by the Independence Standards
Board. Annually, the committee shall review and recommend to the board the
selection of the Company's independent auditors, subject to shareholders'
approval.
. The committee shall discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits including
the adequacy of staffing and compensation. Also, the committee shall
discuss with management, the internal auditors, and the independent
auditors the adequacy and effectiveness of the accounting and financial
controls, including the Company's system to monitor and manage business
risk, and legal and ethical compliance programs. Further, the committee
shall meet separately with the internal auditors and the independent
auditors, with and without management present to discuss the results of
their examinations.
. The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall discuss
the results of the quarterly review and any other matters required to be
communicated to the committee by the independent auditors under generally
accepted auditing standards. The chair of the committee may represent the
entire committee for the purposes of this review.
. The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including their judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the financial
statements. Also, the committee shall discuss the results of the annual
audit and any other matters required to be communicated to the committee
by the independent auditors under generally accepted auditing standards.
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16
P R O X Y
NATIONAL TECHNICAL SYSTEMS, INC.
BOARD OF DIRECTORS PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
Wednesday, June 27, 2001 at 10:00 a.m.
The undersigned hereby appoints Jack Lin and William McGinnis, and each of
them, attorneys and agents with power of substitution, to vote, as designated
below, all stock of the undersigned at the above meeting and at any adjournment
or adjournments thereof.
(1) Election of Directors
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) [ ] listed below [ ]
Aaron Cohen, Arthur Edelstein, Ralph Clements, Donald Tringali
(INSTRUCTION: to withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
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(2) To ratify the selection of Ernst & Young LLP as auditors for the fiscal
year ending January 31, 2002.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
adjournments thereof.
(OVER)
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE NOMINEES
FOR DIRECTOR AND FOR RATIFICATION OF THE SELECTION OF ERNST& YOUNG AS AUDITORS.
Dated _______________________, 2001
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Signature of Shareholder
-----------------------------------
Signature of Shareholder
Please sign exactly as your name appears
hereon. Please date, sign and return the
Proxy promptly in the enclosed envelope.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title. If the signature
is for a corporation, please sign full
corporate name by authorized officer. If
the shares are registered in more than
one name, all holders must sign