SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A
(Rule 14a-101)
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement pursuant to Section 14(a) of
The Securities Exchange Act of 1934
|X| Filed by the Registrant
|_| Filed by a party other than the Registrant
Check the appropriate box:
|X| Preliminary proxy statement
| | Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11C or Rule 14a-12
ELECSYS CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i) (4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing 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:
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(2) Form, schedule, or registration statement number.
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(3) Filing party:
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(4) Date filed:
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11
KC-861036-2
KC-861036-2
ELECSYS CORPORATION
11300 WEST 89TH STREET
OVERLAND PARK, KANSAS 66214
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 11, 2001
Notice is hereby given that the Annual Meeting of the stockholders of
Elecsys Corporation (the "Company"), will be held at the Marriott Courtyard,
1101 Woodson, Overland Park, Kansas on Tuesday, September 11, 2001,
commencing at 2:00 p.m. Kansas City time, to consider and act upon the
following matters and such other business as may properly come before the
meeting or any adjournment thereof:
1. The election of two (2) Class II Directors to serve
for a term of three years expiring in 2004;
2. To consider and act upon a proposal that the
stockholders approve an amendment to the Articles of
Incorporation of the Company to increase the number
of authorized shares of Common Stock and to authorize
the creation of Preferred Stock;
3. To consider and act upon a proposal that the
stockholders approve an amendment to the Restated
1991 Stock Option Plan to increase the number of
shares of Common Stock subject to option; and
4. The ratification of the Board of Directors'
appointment of Ernst & Young as independent public
accountants of the Company.
Holders of record of the outstanding Common Stock of the Company at the
close of business on July 24, 2001, are entitled to vote at the meeting or
any adjournment thereof.
By Order of the Board of Directors,
THOMAS C. CARGIN
Secretary
Overland Park, Kansas
August ___, 2001
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE TO WHICH NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. YOUR SHARES CANNOT
BE VOTED UNLESS YOU SIGN AND RETURN A PROXY OR VOTE BY BALLOT AT THE MEETING.
ELECSYS CORPORATION
11300 West 89th Street
Overland Park, Kansas 66214
PROXY STATEMENT
GENERAL INFORMATION
Solicitation and Revocability of Proxies
The enclosed proxy is being solicited on behalf of the Board of
Directors of Elecsys Corporation (the "Company") for use at the Annual
Meeting of the stockholders to be held on September 11, 2001 (the "Meeting"),
or at any adjournment thereof, at 2:00 p.m. Kansas City time, at the Marriott
Courtyard, 1101 Woodson, Overland Park, Kansas. Any proxy given does not
affect the right to vote in person at the Meeting and may be revoked at any
time before it is exercised by notifying Thomas C. Cargin, Secretary, by
mail, telegram or facsimile, or by appearing at the Meeting in person and
casting a ballot. This Proxy Statement and the proxy were first mailed to
stockholders on or about August ___, 2001.
All expenses of solicitation will be borne by the Company. In addition
to solicitations by mail, employees and directors of the Company may solicit
proxies in person or by telephone. The Company does not expect to pay any
compensation for the solicitation of proxies.
Voting Procedures
Shares represented by a properly signed proxy received pursuant to this
solicitation will be voted in accordance with instructions thereon. If the
proxy is properly signed and returned and no instructions are given on the
proxy with respect to the matters to be acted upon, the shares represented by
the proxy will be voted at the Meeting or any adjournment thereof: (i) for
the election, as directors of the Company, of the nominees hereinafter named,
(ii) for the approval of the amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock and
to authorize the creation of Preferred Stock, (iii) for the approval of the
amendment to the Restated 1991 Stock Option Plan (the "Plan") to increase the
number of shares of Common Stock subject to option, and (iv) for the
ratification of the appointment of Ernst & Young as independent public
accountants of the Company. If any of the nominees should unexpectedly
become unavailable for election for any reason, the shares represented by the
proxy will be voted for such substituted nominee or nominees as the Board of
Directors may name. Each of the nominees hereinafter named has indicated his
willingness to serve if elected, and it is not anticipated that either of
them will become unavailable for election.
The proxy confers discretionary authority, with respect to the voting
of the shares represented thereby, on any other business that may properly
come before the Meeting or any adjournment thereof. The Board of Directors
is not aware that any such other business, other than as set forth in this
Proxy Statement and except for matters incident to the conduct of the
Meeting, is to be presented for action at the Meeting and does not itself
intend to present any such other business. However, if any such other
business does come before the Meeting or any adjournment thereof, shares
represented by proxies properly signed and returned pursuant to this
solicitation will be voted as directed by the Board of Directors.
The two nominees for Director receiving the greatest number of votes at
the Meeting will be elected as Directors. Any shares not voted (whether by
abstention, broker non-vote, or otherwise) have no impact in the election of
directors except to the extent the failure to vote for an individual results
in another individual receiving a larger proportion of the total votes. The
amendment to the Company's Articles of Incorporation requires the affirmative
vote of a majority of shares present in person or represented by proxy and
entitled to vote on the matter. The amendment to the Plan and the
ratification of the appointment of independent public accountants requires
the affirmative vote of a majority of shares present in person or represented
by proxy and that voted on the matter. For purposes of determining the
outcome of the vote on the amendment to the Company's Articles of
Incorporation, an instruction to "abstain" from voting on a proposal will be
treated as shares present and entitled to vote, and will have the same effect
as a vote against a proposal. For purposes of determining the outcome of the
vote on the amendment to the Plan and the appointment of accountants, an
instruction to "abstain" from voting on a proposal will have no impact on the
vote. "Broker non-votes," that occur when brokers are prohibited from
exercising discretionary
voting authority for beneficial owners who have not provided voting
instructions, are not counted for the purpose of determining the number of
shares present in person or represented by proxy. Nonetheless, they will have
the same effect as a vote against the proposal to amend the Company's Articles
of Incorporation, but will have no effect on the outcome of the vote to amend
the Plan or to ratify the appointment of accountants.
Only holders of Common Stock of the Company of record as of the close
of business on July 24, 2001, are entitled to vote at the Meeting. At the
close of business on that date, 2,745,831 shares of Common Stock were
outstanding, of which 2,079,322 are entitled to vote for the reasons set
forth below. Holders of Common Stock are entitled to one (1) vote per share
standing in their names on the record date. Shares cannot be voted at the
Meeting unless the record owner is present in person or represented by proxy.
SECURITY OWNERSHIP
Stock Ownership of Principal Stockholders and Management
The following table sets forth information with respect to the
beneficial ownership of shares of the Company's Common Stock at July 31,
2001, by (i) the stockholders known by the Company to own beneficially more
than 5% of the Common Stock, (ii) each director of the Company who owns
beneficially any Common Stock, (iii) each executive officer named in the
"Summary Compensation Table," and (iv) all directors and executive officers
of the Company as a group. Unless otherwise indicated, the Company believes
that those stockholders listed below have sole voting and investment power
with respect to the Common Stock indicated as beneficially owned by them.
2
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Number of Shares Percent of
Name and Address Beneficially Owned (1) Class
- --------------------------------------------------------------------------------
Neil Gagnon.................................666,509(2) 24.2
1370 Avenue of the Americas
Suite 2002
New York, NY 10019
KCEP Ventures II, L.P.......................410,715(3) 13.9
233 West 47th Street
Kansas City, MO 64112
Keith S. Cowan..............................166,244(4) 6.0
Elecsys Corporation
11300 West 89th Street
Overland Park, KS 66214
Robert D. Taylor............................107,300(5) 3.9
1313 North Webb Rd., Suite 260
Wichita, KS 67206
Thomas C. Cargin.............................56,746(6) 2.0
Elecsys Corporation
11300 West 89th Street
Overland Park, KS 66214
John Wharton.................................43,795(7) 1.6
Airport Systems International, Inc.
11300 West 89th Street
Overland Park, KS 66214
Karl Gemperli................................37,667(8) 1.4
DCI, Inc.
15301 West 109th Street
Lenexa, KS 66219
Anthony Bommarito............................22,334(9) *
Airport Systems International, Inc.
11300 West 89th Street
Overland Park, KS 66214
*
Michael J. Meyer.............................6,500(10)
8700 Monrovia Suite 205
Lenexa, KS 66215
Walter H. Stowell............................5,000(11) *
27 Goodsell Point
Colchester, VT 05446
All directors and executive officers as a
group (9 persons)..........................445,586(12) 15.5
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* Less than one percent.
(1) Pursuant to the rules of the Securities and Exchange Commission
("SEC"), shares of Common Stock of the Company that an individual or a
group has a right to acquire within 60 days pursuant to the exercise of
options or warrants are deemed to be outstanding for the purpose of
computing the percentage of ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
3
(2) According to a Schedule 13D filed as of September 27, 2000 and
subsequent conversations with representatives of Gagnon Securities LLC,
Neil Gagnon beneficially owns 666,509 shares of Common Stock of the
Company. 367,709 of such shares are held in customer accounts over
which Gagnon Securities LLC has discretionary trading authority;
168,125 of such shares are owned by Mr. Gagnon; 110,000 shares are
owned by Lois Gagnon (Mr. Gagnon's spouse); 6,725 shares are held by
The Gagnon Foundation, Inc., of which Mr. and Mrs. Gagnon are trustees;
12,400 shares are held by the Gagnon Family Partnership II, L.P., of
which Mr. Gagnon is a general and the limited partner; and 1,550 shares
are held by the Gagnon 1999 Grandchildren's Trust, of which Mr. Gagnon
is a trustee.
(3) According to a Schedule 13G filed as of February 16, 2000, KCEP
Ventures II, L.P. ("KCEP") reported beneficial ownership as to 410,715
shares of Common Stock of the Company held as of February 16, 2000.
198,413 shares of Common Stock are owned of record by KCEP, 166,667
shares of Common Stock are issuable upon the conversion of a $500,000
principal amount Convertible Subordinated Debenture issued to KCEP and
45,635 shares of Common Stock are issuable upon the exercise of a
warrant issued to KCEP.
(4) Includes presently exercisable options to purchase 18,334 shares of
Common Stock of the Company.
(5) Includes presently exercisable options to purchase 5,000 shares of
Common Stock of the Company.
(6) Includes presently exercisable options to purchase 32,834 shares of
Common Stock of the Company.
(7) Includes presently exercisable options to purchase 31,500 shares of
Common Stock of the Company.
(8) Includes presently exercisable options to purchase 10,000 shares of
Common Stock of the Company.
(9) Includes presently exercisable options to purchase 21,334 shares of
Common Stock of the Company.
(10) Includes presently exercisable options to purchase 5,000 shares of
Common Stock of the Company.
(11) Includes presently exercisable options to purchase 5,000 shares of
Common Stock of the Company.
(12) Includes presently exercisable options to purchase 129,002 shares of
Common Stock of the Company held by executive officers and directors as
a group.
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, based solely on review of copies of reports
filed with the Securities and Exchange Commission and written representations
that no other reports were required during the fiscal year ending April 30,
2001, all Section 16(a) filing requirements applicable to the officers,
directors and beneficial owners of more than 10 percent of the Company's
equity securities were complied with on a timely basis.
Neil Gagnon Control Shares
Under the Kansas Control Share Acquisition Statute, (K.S.A. 17-1286 et
seq.), a person who acquires shares representing at least 20% of the voting
power ("Control Shares") of an issuing public corporation has only those
voting rights, with respect to the Control Shares, that are granted to such
person by resolution approved by the stockholders of the issuing public
corporation. Neil Gagnon has acknowledged his prior acquisition of
beneficial ownership of 666,509, or 24.2%, of the Company's outstanding
Common Stock, and all of such shares of Company Common Stock are Control
Shares. Based on information now available to the Company, the Company
believes Mr. Gagnon currently has no right to vote any of such shares. Mr.
Gagnon may obtain voting rights as to the Control Shares only if the
Company's stockholders vote to grant Mr. Gagnon voting rights. Mr. Gagnon
has not asked that the stockholders vote at this Meeting to restore to him
voting rights as to the Control Shares that he owns.
Stockholder Proposals for 2002 Annual Meeting
Stockholder proposals to be considered for inclusion in the Proxy
Statement and considered at the 2002 Annual Meeting of the Stockholders must
be received by the Company no later than April 19, 2002. Any such proposals
should be directed to the Secretary of the Company at 15301 West 109th
Street, Lenexa, Kansas 66219.
4
I. ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes,
with the term of office of each class ending in successive years. The terms
of the Directors of Class II expire with this Meeting. Each of the two
nominees for Class II, if elected, will serve three years until the 2004
Annual Meeting of Stockholders and until a successor has been elected and
qualified. The current Directors of Classes III and I will continue in
office until the 2002 and 2003 Annual Meetings, respectively.
NOMINEES FOR DIRECTORS
The following information is given with respect to the nominees for election.
Class II - Nominees to Serve Three Years until 2004 Annual Meeting
Michael J. Meyer, age 45, has served as a Director of the Company since its
organization in May 1991, as its Chairman until March 7, 1995, and as its
President through September 1991. Mr. Meyer is President of Merit Capital
Management, Inc., a private equity merchant banking firm engaged in financing
growth-oriented private companies and acquisitions, which he formed in May
1998. From August 1996 to May 1998, Mr. Meyer was Co-Manager of Holden
Capital Advisors, LLC, and prior to that was a Senior Vice President with
George K. Baum & Company, an investment banking firm from February, 1995.
For more than five years prior to that, Mr. Meyer was a Principal in the
general partnership of Allsop Venture Partners III L.P., a private equity
fund. He has over 20 years of experience in financing and managing growth
companies and is a Certified Public Accountant. Mr. Meyer is a member of the
Company's Audit and Stock Option Committees.
Walter H. Stowell, Jr., age 64, has served as Chairman of the Board since
March 7, 1995 and a Director of the Company since May 18, 1994. Mr. Stowell
retired from Raytheon Company on April 1, 1994, after being an employee of
Raytheon since 1960 in a variety of positions, last serving as a Senior Vice
President and General Manager of the Equipment Division. Raytheon Company is
a diversified, multi-industry, technology-based company, whose Equipment
Division develops and builds military and commercial radars, air traffic
control systems, satellite terminals, communications equipment, computers and
missile fire control systems. He is a member of the Company's Compensation
and Stock Option Committees.
The Board of Directors recommends that the stockholders vote FOR the election
of Mr. Meyer and Mr. Stowell.
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
The following information is given with respect to the Directors of Classes
III and I who will continue to serve as Directors of the Company until the
2002 and 2003 Annual Meetings of Stockholders, respectively.
Class III - Serving until 2002 Annual Meeting
Keith S. Cowan, age 47, has served as President and a Director of the Company
since September 1991, and as Chief Executive Officer of the Company since
August 1993. Prior to joining the Company, Mr. Cowan was an employee of the
Teledyne Controls Division of Teledyne, Inc. for more than five years, last
serving as Vice President, Airport and Instrumentation Products. Mr. Cowan
has over twenty-five years of system engineering, project management, and
corporate experience in the development, manufacturing and sale of electronic
systems. He is also a commercial pilot holding an instrument rating.
David J. Schulte, age 40, has served as a Director of the Company since
February 2000. Since November 1994, Mr. Schulte has been a Partner and
Managing Director of Kansas City Equity Partners, a venture capital firm.
From April 1989 to November 1994, Mr. Schulte was Vice President, Corporate
Finance Department with Fahnestock & Co. Inc., and for three years prior to
that he was an Associate Attorney with Stinson, Mag & Fizzell. Mr. Schulte
is a Certified Public Accountant and a member of the Missouri Bar
Association. He has over 14 years of experience in acquisition financing and
investment. Mr. Schulte also serves on the Board of Directors of Inergy,
L.P., Hardware Corporation of America and Taylor Holdings, Inc. Mr. Schulte
serves on the Audit Committee.
Robert D. Taylor, age 54, has served as a Director of the Company since
September 1994. In July 1998, Mr. Taylor became President and Chief
Executive Officer of Executive Aircraft Corporation, an aircraft
refurbishment and maintenance company. Mr. Taylor is also President of
Taylor Financial, a consulting and investment firm. Mr. Taylor also serves
as a Director on the Boards of Commercial Federal Corporation of Omaha,
Nebraska, and
5
Sirloin Stockade International, Inc., Hutchinson, Kansas, a 68 unit restaurant
chain. From 1991 to 1995, Mr. Taylor was Chairman and Chief Executive Officer of
Railroad Financial Corporation. Mr. Taylor also serves on the Advisory Board for
the University of Kansas Business School. Mr. Taylor serves on the Company's
Compensation and Audit Committees.
Class I - Serving until 2003 Annual Meeting
David D. Gatchell, age 47, has served as a Director of the Company since
November, 1998. Since 1997, Mr. Gatchell has served as an executive officer
of Wolfe Automotive Group, an automotive retailing organization and is
currently President and Chief Operating Officer. From 1994 to 1997, Mr.
Gatchell was a partner at the law firm of Sonneschein, Nath, and Rosenthal
and was counsel to the Company.
Thomas C. Cargin, age 46, has served as Vice President - Finance and
Administration of the Company since December 1991, as its Secretary since
March 1993, and as a Director of the Company since October 1993. From 1989
to 1993, Mr. Cargin was a partner in the accounting firm of Ifft & Barber and
prior to that was an employee of DYMON, Inc., a specialty chemical
manufacturer located in Kansas City, Kansas, last serving as Vice President
of Finance and Chief Financial Officer. Mr. Cargin is a Certified Public
Accountant with over twenty-three years of public accounting and private
industry accounting experience. He is also a licensed pilot holding an
instrument rating.
Committees and Director Meetings
The Board of Directors has established an Audit Committee, a
Compensation Committee, and a Stock Option Committee. The entire Board of
Directors acts as the nominating committee responsible for selecting
candidates for election as Directors. Stockholders wishing to submit the
name of a candidate for the Board of Directors should submit the
recommendation, along with biographical information, to the Secretary of the
Company. The Audit Committee's responsibilities include recommending to the
Board of Directors the public accounting firm to be engaged to audit the
Company and reviewing with the independent accountants quarterly results and
the plan for, and results of, the auditing engagement and the Company's
internal accounting controls. The Board of Directors adopted a written
charter for the Audit Committee in May 2000. The Audit Committee held five
formal meetings and is comprised exclusively of outside directors. The Audit
Committee's current members consist of Messrs. Taylor, Meyer and Schulte.
The Compensation Committee met once during the last fiscal year and is
comprised of Messrs. Taylor and Stowell. The Compensation Committee has been
given the responsibility of setting and administering the policies governing
the annual compensation of the Company's executive officers, as well as the
Company's benefit plans other than the Stock Option Plan. The Company's
Stock Option Plan is administered by a committee of two independent
directors. Messrs. Stowell and Meyer currently comprise the Stock Option
Committee that did not meet during the last fiscal year.
The Board of Directors held one special and four regularly scheduled
meetings during the last fiscal year ended April 30, 2001. During such
fiscal year and for the period during which each director was on the Board,
each director attended at least 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings held by
all Committees of the Board of Directors on which the Director served during
the last fiscal year.
Report of the Audit Committee
The Audit Committee has reviewed and discussed the audited financial
statements with management and has discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No.
61. The Audit Committee has received the written disclosures and letter
required by Independence Standards Board No. 1 from the independent auditor
and has discussed with the auditor the auditor's independence. Pursuant to
its review, the Audit Committee approved and authorized the Board of
Directors to include the audited financial statements in the Company's Annual
Report on Form 10-KSB for the last fiscal year for filing with the Commission.
Director Compensation
Each Director who is not a salaried employee of the Company is paid a
fee of $3,000 for each regularly scheduled Board meeting attended, up to a
maximum of $12,000 per year, plus $1,000 for each specially scheduled Board
Meeting, plus $500 for each meeting of a committee of the Board attended. No
Director who is an employee of the Company will receive compensation for
services rendered as a Director.
6
On November 1, 1999 the Company entered into a Management Advisory
Agreement with Merit Capital Management, Inc. ("Merit"). The President of
Merit is Michael J. Meyer, a Director of the Company. Pursuant to the terms
of this agreement, the Company agreed to pay Merit: (i) an advisory fee of
$18,000 on January 3, 2000 for work relating to the completion and
integration of the DCI, Inc. acquisition and associated financial
transactions, and (ii) $6,000 per month beginning on February 1, 2000 through
November 1, 2001. The agreement further provided that Merit's President, Mr.
Meyer, will be enrolled in the Company's life and health insurance at the
Company's expense.
Executive Compensation
The following table sets forth information concerning cash and non-cash
compensation paid to or accrued for the benefit of the Company's Chief
Executive Officer and certain other executive officers of the Company ("Named
Executive Officers") for all services rendered in all capacities to the
Company for the fiscal periods ended April 30, 2001, 2000 and 1999.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
Shares
Annual Compensation Underlying
Name and ----------------------------------------- Options All Other
Principal Position Year Salary Bonus Other (#) Compensation(1)
- ------------------ ---- ------ ----- ----- --- ---------------
Keith S. Cowan 2001 $192,358 $ -- $ 1,814(2) $ -- $ 2,866
President and CEO 2000 185,807 -- 1,133(2) -- 4,910
1999 184,156 -- 663(2) -- 4,012
Karl Gemperli(3) 2001 $137,280 $ -- $ -- $ -- $ 726
President 2000 17,002 10,000 -- -- --
DCI, Inc.
Thomas C. Cargin 2001 $113,662 $ -- $ -- $ -- $ 1,191
Vice President-Administration 2000 110,569 -- -- -- --
1999 110,040 -- -- -- 2,026
Anthony Bommarito 2001 $113,971 -- -- -- $ 3,419
Vice President 2000 110,502 -- -- -- 3,302
Engineering and Manufacturing-ASII 1999 96,621 -- -- -- 888
John R. Wharton 2001 $106,078 $ -- $ -- $ -- $ 1,832
Vice President-Sales-ASII 2000 104,201 6,000 -- -- 1,898
1999 102,966 -- -- -- 2,249
- --------------------
(1) Consists of Company matching contributions made on behalf of Named
Executive Officers under the Company's 401(k) Savings Plan.
(2) Consists of monthly dues paid on a Company-owned membership at a golf and
country club of which Mr. Cowan presently is the Company's designated
member.
(3) Mr. Gemperli was not employed by the Company during the fiscal year 1999.
7
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth for each director and, for each of the
Named Executive Officers in the Summary Compensation Table above, the fiscal
year-end number and value of unexercised options. No options were exercised
by the Named Executive Officers during the fiscal year ended April 30, 2001.
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at April 30, 2001 At April 30, 2001(1)
------------------------- --------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Keith S. Cowan.........................18,834 2,666 $ --- $ ---
Karl Gemperli..........................10,000 40,000 --- ---
Thomas C. Cargin.......................32,834 2,666 22,914 ---
John Wharton...........................31,500 --- 22,914 ---
Anthony Bommarito......................21,334 2,666 --- ---
Walter H. Stowell.......................5,000 --- --- ---
Michael J. Meyer........................5,000 --- --- ---
Robert D. Taylor........................5,000 --- --- ---
(1) The value of unexercised in-the-money options is the difference between
the exercise price of the options and the fair market value of the
Company's Common Stock at April 30, 2001 ($1.35 per share).
Employment Arrangements with Named Executive Officers
The Company entered into a written employment agreement effective
June 22, 1993, with Keith S. Cowan. The agreement provides for Mr. Cowan to
be employed by the Company for a minimum period of three years following its
effective date. The Company recently amended Mr. Cowan's employment
agreement to extend the minimum employment period to August 31, 2002. The
amended employment agreement also provides that Mr. Cowan will not compete,
directly or indirectly, with the business activities of: (i) DCI, Inc. for a
period of one year from the date of termination of Mr. Cowan's employment
with the Company, and (ii) Airport Systems International, Inc. ("ASII") for a
period of three years from the date of closing the sale of substantially all
of the assets of ASII to Alenia Marconi Systems (ASI), Inc. (the
"Transaction"). Furthermore, as compensation for services rendered to the
Company, the amended agreement provides for Mr. Cowan to receive (i) a base
annual salary of $192,400 that may be adjusted above such base amount from
time to time by action of the Board of Directors, and (ii) a bonus in the
amount of $50,000 upon the closing of the Transaction, in exchange for an
enhancement of Mr. Cowan's non-compete obligations that was required by
Alenia Marconi Systems (ASI), Inc. as part of the Transaction. Mr. Cowan may
also receive a performance-based bonus, the amount of which is determined by
reference to such criteria as may be established by the Board of Directors.
The Company also entered into a substantially similar written
employment agreement effective October 11, 1993, with Thomas C. Cargin. The
agreement provides for Mr. Cargin to be employed by the Company for a minimum
period of three years following its effective date. The Company has since
extended the minimum employment period in Mr. Cargin's employment agreement
to November 30, 2001.
As compensation for services rendered to the Company, the agreement
provides for Mr. Cargin to receive (i) a base salary of $114,660 that may be
adjusted above such base amount from time to time by action of the Board of
Directors, and (ii) a performance-based bonus, the amount of which is
determined by reference to such criteria as may be established by the Board
of Directors. Recently, the Company agreed to pay Mr. Cargin $25,000 in
exchange for an enhancement of Mr. Cargin's non-compete obligations that was
required by Alenia Marconi Systems (ASI), Inc. as part of the Transaction (as
set forth in Mr. Cargin's employment agreement and a letter agreement dated
July 16, 2001).
Each of Mr. Cowan's and Mr. Cargin's employment may be terminated by
the Company for cause (as defined in the agreements) or without cause. If
Mr. Cowan's or Mr. Cargin's employment is terminated for cause or if one
resigns, any unearned salary and bonus rights will cease on the date of such
termination or resignation. If the Company terminates Mr. Cowan or Mr.
Cargin without cause, all compensation payments will continue through the
remainder of the agreement term of the relevant agreement, or 12 months,
whichever is greater. Pursuant to the agreements, Mr. Cowan and Mr. Cargin
have agreed to refrain from disclosing the Company's confidential information.
8
II. PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK AND TO AUTHORIZE THE CREATION OF PREFERRED STOCK OF
THE COMPANY
At the Meeting, the stockholders of the Company will consider and vote
upon an amendment to the Company's Articles of Incorporation to (i) increase
the number of authorized shares of Common Stock of the Company from 5,000,000
to 10,000,000, and (ii) authorize the creation of 5,000,000 shares of
Preferred Stock of the Company.
If this proposal is approved by the stockholders, the additional shares
of authorized Common Stock will become part of the existing class of Common
Stock. The additional shares, when issued, will have the same rights and
privileges as the shares of Common Stock now issued. There are no
pre-emptive rights relating to the Common Stock. Upon the creation of
Preferred Stock, the Articles of Incorporation will be amended to authorize
the Board of Directors to establish the preferences and rights of the
Preferred Stock.
The increase in the number of authorized shares of Common Stock will
not have any immediate effect on the rights of existing stockholders.
However, the Board of Directors will have the authority to issue the
newly-authorized Common Stock and Preferred Stock without requiring future
stockholder approval of such issuances, except as may be required by
applicable law or AMEX regulations. To the extent that the additional
authorized shares are issued in the future, they will decrease existing
stockholders' percentage equity ownership and, depending upon the price at
which they are issued, could be dilutive to existing stockholders.
If this proposal is approved by the stockholders, the additional shares
of authorized Common Stock and the Preferred Stock will become effective upon
the filing of a Certificate of Amendment as required by the General
Corporation Law of the State of Kansas. The Company intends to file and
record the Certificate of Amendment as promptly as practicable after the
Meeting. The Board of Directors may make any and all changes to the form of
amendment that it deems necessary in order to file the Certificate of
Amendment with the Secretary of State of the State of Kansas. The Board of
Directors may also abandon or delay the amendment at any time before or after
the Meeting and prior to the effective date of the amendment if for any
reason the Board of Directors deems it advisable to do so.
The purpose of the proposal to increase the number of authorized shares
of Common Stock and to authorize the issuance of Preferred Stock is to
provide to the Board of Directors of the Company the flexibility to issue
Common Stock and Preferred Stock in connection with raising additional equity
capital and in connection with acquisitions, mergers and other financing
transactions involving the issuance of securities. Currently, the Company
has authorized the issuance of 5,000,000 shares of Common Stock, of which
2,745,831 shares are issued and outstanding. Furthermore, upon the approval
of the amendment, the additional Common Stock and the Preferred Stock may be
issued without the expense and delay of a special meeting of the stockholders
as otherwise required by applicable law.
The increase in the authorized number of shares of Common Stock and the
creation of the Preferred Stock and the subsequent issuance of such shares
could also have the effect of delaying or preventing a change in control of
the Company without further action by the stockholders. Shares of authorized
and unissued Common Stock or Preferred Stock could (within the limits imposed
by applicable law) be issued in one or more transactions that would make a
change in control of the Company more difficult, and therefore less likely.
Any such issuance of additional stock could have the effect of diluting the
earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership
or voting rights of a person seeking to obtain control of the Company.
The Board of Directors believes that it is in the best interest of the
Company to authorize and make available the additional shares of Common Stock
and to authorize the Preferred Stock. These additional shares provide the
Company with sufficient authorized but unissued and unreserved shares,
allowing the Company greater flexibility and providing suitable alternatives
in connection with possible future transactions and other programs to
facilitate expansion and growth of the Company.
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock and to authorize the
Preferred Stock.
9
III. PROPOSAL TO AMEND THE RESTATED 1991 STOCK OPTION PLAN
At the Meeting, the stockholders of the Company will consider and vote
upon an amendment to the Plan to increase the number of shares of Common
Stock subject to option thereunder from 475,000 to 675,000. Capitalized
terms used but not defined herein shall have the meanings set forth in the
Plan. As of July 24, 2001, only 67,750 shares of Common Stock remain
available for option grants under the Plan. The amendment increases the
number of shares of Common Stock available for options under the Plan by
200,000 shares. The Board of Directors of the Company believes that
increasing the number of shares of Common Stock available for option grants
under the Plan will further facilitate the Company's objectives of attracting
and retaining new management, including management of acquisitions, providing
additional incentives to employees, directors and consultants of the Company,
and promoting the success of the Company's business by granting incentive
stock options and non-qualified stock options.
RESTATED 1991 STOCK OPTION PLAN
The Plan provides for the grant of both non-qualified stock options and
options that qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The Plan is
administered by the Board. Officers, directors, employees, and consultants of
the Company and its affiliates generally are eligible to participate in the
Plan.
The purposes of the Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to the Company's employees, directors and consultants, and to
promote the success of the Company's business. To accomplish these
objectives, the Plan authorizes the grant of incentive stock options and
non-qualified stock options.
The Plan is to continue in effect for a term of ten years, unless
sooner terminated by the Board, that may, from time to time, amend the Plan
as it deems advisable. However, approval by the Company's stockholders is
required for any revision or amendment to the Plan that provides for (i) any
increase in the number of Shares subject to the Plan (except for adjustments
upon changes in capitalization or merger), (ii) any change in the designation
of the class of persons eligible to be granted options, or (iii) any material
increase in the benefit accruing to participants under the Plan. The term of
each incentive stock option shall be ten years from the date of grant
thereof, or such shorter term as may be provided in the Incentive Stock
Option Agreement. The term of each option that is not an incentive stock
option shall be as determined by the Board and set forth in the Option
Agreement. The term of any incentive stock option that is granted to a
holder of 10% of the Common Stock of the Company shall be five years from the
date of grant or such shorter time as may be provided in the Stock Option
Agreement.
The maximum aggregate number of shares of Common Stock that may be
optioned and sold under the Plan is currently 475,000. Common Stock optioned
and sold under the Plan may be authorized, but unissued, or reacquired Common
Stock.
The exercise price of an incentive stock option shall be at least 100%
of the fair market value of the Common Stock at the time the option is
granted; provided, however, that the exercise price will be 110% of the fair
market value of the Common Stock in the case of an Employee owning 10% or
more of the Company's Common Stock. The exercise price of any non-qualified
stock options will be as determined by the Board. The consideration to be
paid for the Shares to be issued upon exercise of an option, including the
method of payment, shall be determined by the Board and may consist entirely
of cash, check, other shares of Common Stock or other legally permissible
methods of exercise, all as set forth in the Plan.
Under the Plan, the Board may grant options that qualify as "incentive
stock options" ("ISO") as defined in Section 422 of the Code. The grantee of
an ISO will not recognize taxable income by reason of the grant or the
exercise of an ISO. Under Code Section 422, if an Optionee exercises an ISO
and retains the acquired shares for at least one year after the date of
transfer and for at least two years after the date of grant, any gain or loss
realized upon disposition will be taxable to the grantee as a capital gain or
loss at a rate depending upon the period the grantee held the shares, and the
Company will not be entitled to any tax deduction. As a general rule,
however, if the grantee does not satisfy the applicable holding periods, the
difference between the option price and the lesser of the fair market value
of the shares on the date of exercise or the price received upon disposition
of the shares generally will be treated as compensation taxable to the
grantee as ordinary income. Any additional gain upon such disposition will
be taxed as capital gain. As a general rule, the Company will then be
entitled to a deduction in the amount constituting ordinary income to the
grantee. At the time of exercise, the difference between the price paid
10
and the market value of the stock, is treated as an "adjustment" in the
calculation of "alternative taxable income" and may result in the imposition of
the "alternative minimum tax."
The grantee of a non-qualified stock option ("NQSO") will not recognize
taxable income when the NQSO is granted. At the time of exercise, the grantee
will recognize ordinary income, subject to withholding, and the Company will
be entitled to a corresponding deduction in the amount by which the market
value of the purchased shares at the time of exercise exceeds the exercise
price for such shares. If an Optionee thereafter sells such shares, the gain
or loss, if any, realized upon such disposition will constitute capital gain
or loss to the Optionee.
The closing market price of the Company's Common Stock on AMEX was
$_________ per share on July 24, 2001.
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the Plan to increase the number of shares of
Common Stock subject to option.
IV. RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has appointed Ernst & Young as
independent public accountants to audit and certify the Company's financial
statements for the fiscal year ending April 30, 2002, subject to ratification
and approval by the stockholders at the Meeting.
Ernst & Young has examined the financial statements of the Company
since its organization in 1991. Representatives of Ernst & Young are
expected to be present at the Meeting, will be given the opportunity to make
a statement if they desire to do so, and are expected to be available to
respond to appropriate questions. The affirmative vote of a majority of the
shares present and entitled to vote at the Meeting is required for the
approval of this proposal to ratify the appointment. If the stockholders do
not ratify the appointment of Ernst & Young, the selection of independent
public accountants will be reconsidered by the Board of Directors.
The Board of Directors recommends that the stockholders vote FOR the
approval of the appointment of Ernst & Young.
By Order of the Board of Directors,
THOMAS C. CARGIN
Secretary