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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
Aero Systems Engineering Inc.
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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)(1) 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 computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
AERO SYSTEMS ENGINEERING, INC.
A MINNESOTA CORPORATION
358 EAST FILLMORE AVENUE
ST. PAUL, MINNESOTA 55107
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 3, 2003, AT 2:00 P.M.
---------------------------------------
TO AERO SYSTEMS ENGINEERING, INC. SHAREHOLDERS:
The annual meeting of the shareholders of Aero Systems Engineering, Inc. (the
"Company") will be held on September 3, 2003, at 2:00 p.m., C.D.T., at the
Company's headquarters at 358 East Fillmore Avenue, St. Paul, Minnesota 55107,
for the following purposes:
1. To consider and act upon the Board of Directors'
recommendation to fix the number of directors of the Company
at eight.
2. To elect a Board of Directors.
3. To transact such other business as may properly come before
the meeting or any adjournments thereof.
The stock transfer books of the Company will not be closed. In lieu thereof, and
in accordance with the Bylaws, the Board of Directors has set the close of
business on August 1, 2003,as the record date for the determination of the
shareholders entitled to notice of and to vote at the meeting or any
adjournments thereof.
Your attention is respectfully directed to the attached Proxy Statement and
Proxy. IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE THE
ATTACHED PROXY AND DATE, SIGN AND MAIL IT AS PROMPTLY AS POSSIBLE IN ORDER TO
SAVE THE COMPANY FURTHER SOLICITATION EXPENSE.
Dated: July 29, 2003 By order of the Board of Directors
/s/ Steven R. Hedberg
-------------------------------
Steven R. Hedberg
Secretary
AERO SYSTEMS ENGINEERING, INC.
A MINNESOTA CORPORATION
358 EAST FILLMORE AVENUE
ST. PAUL, MINNESOTA 55107
651-227-7515
------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 3, 2003
------------------------------------
GENERAL
This Proxy Statement is submitted in support of the solicitation of the attached
proxy by the Board of Directors of Aero Systems Engineering, Inc., a Minnesota
corporation ("Company"), for the Annual Meeting of the shareholders of the
Company to be held on September 3, 2003 at 2:00 o'clock p.m. at the Company's
headquarters, 358 East Fillmore Avenue, St. Paul, Minnesota 55107, and at any
adjournments thereof (the "Annual Meeting"). The cost of solicitation will be
borne by the Company. The Company intends to mail this Proxy Statement and the
accompanying Proxy and Notice of Annual Meeting of Shareholders to shareholders
on or about August 7, 2003. The Company may reimburse brokerage firms, banks,
and other custodians, nominees, and fiduciaries in an amount not to exceed
$5,000 for expenses reasonably incurred in forwarding solicitation materials to
beneficial owners of shares.
The Annual Meeting is being held for the purposes of fixing the number of and
electing the Company's Board of Directors and to transact such other business as
may properly come before the Annual Meeting.
The annual report of the Company for the year ended December 31, 2002, including
financial statements, is being mailed to shareholders simultaneously herewith,
but the annual report is not to be considered part of the proxy soliciting
materials.
Only holders of shares of the Company's Common Stock at the close of business on
August 1, 2003, the record date for the Annual Meeting, will be entitled to
notice of and to vote at the Annual Meeting. The securities of the Company
outstanding as of August 1, 2003, and which are entitled to vote at the Annual
Meeting, consist of 4,401,625 shares of Common Stock, each share being entitled
to one vote. Shareholders do not have the right to cumulate votes for the
election of directors.
The enclosed Board of Directors' proxy, when properly signed and returned to the
Company, will be voted at the Annual Meeting as directed therein. Proxies in
which no direction is given with respect to the various matters of business to
be transacted at the Annual Meeting will be voted to set the number of the Board
of Directors at eight, in favor of the nominees for directors proposed by the
Board of Directors, and, as to any other matters that may properly come before
the Annual Meeting, in the best judgment of the proxy holders named in the
enclosed proxy.
The enclosed proxy may be revoked at any time prior to its exercise before or at
the Annual Meeting by the execution and exercise of a proxy bearing a later date
and notification in writing given to the Secretary of the Company prior to the
Annual Meeting. The authority of the proxy holders named in the enclosed proxy
will be suspended if the shareholder executing the proxy is present at the
meeting and elects to vote in person.
The Company may have one or more of its officers or employees communicate by
telephone, telegraph, facsimile, or mail with some of the shareholders who may
have omitted to return proxies.
A quorum, consisting of a majority of the shares of Common Stock entitled to
vote at the Annual Meeting, must be present in person or by proxy before action
may be taken at the Annual Meeting. In general, the shareholders of the Company
may take action by the affirmative vote of the holders of the greater of (i) a
majority of the voting power of the shares present and entitled to vote on a
particular item of business or (ii) a majority of the voting power of the
minimum number of shares entitled to vote that would constitute a quorum. If an
executed proxy is returned and the shareholder has abstained from voting on any
matter, the shares represented by such proxy will be considered present at the
Annual Meeting for purposes of determining a quorum and for purposes of
calculating the vote, but they will not be considered to have been voted in
favor of such matter. If an executed proxy is returned by a broker or other
entity holding shares in "street name" which indicates that the broker does not
have discretionary authority as to certain shares to vote on one or more
matters, such shares will be considered present at the Annual Meeting for
purposes of determining a quorum, but they will not be considered to be
represented at the Annual Meeting for purposes of calculating the vote with
respect to such matter.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company as of July 15, 2003 by
each shareholder who is known by the Company to own beneficially more than 5% of
the outstanding Common Stock, by each director and by each nominee director, by
each executive officer named in the Summary Compensation Table, and by all
executive officers and directors as a group. If the name of a director, nominee
director or executive officer named in the Summary Compensation Table is not
shown, that person beneficially owns no Common Stock. Except as may be disclosed
in the footnotes to the following table, none of the shareholders listed below
beneficially owns Common Stock of the Company's parent(s) or subsidiaries other
than through their ownership of the Company's Common Stock.
2
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership (1) Percent of Class (4)
------------------- ------------------------ --------------------
Minnesota ASE, LLC 2,245,000 51.0%
222 South 9th Street
Suite 3000
Minneapolis, MN 55402
Saab Holdings, U.S., Inc. 1,277,073 29.0%
21300 Ridgetop Circle
Sterling, VA 20166
Richard A. Hoel 673,500(2) 15.3%
60 South Sixth Street
Suite 3000
Minneapolis, MN 55402
James S. Kowalski 673,500(2) 15.3%
4716 Bouleau
White Bear Lake, MN 55110
Thomas L. Auth 449,000(2) 10.2%
8 Evergreen Road
North Oaks, MN 55127
A. L. Maxson 106,950 2.4%
5848 Long Brake Trail
Edina, MN 55438
Donald N. Kamis 19,492 *
920 Brockton Lane
Plymouth, MN 55447
Dr. Leon E. Ring 2,300 *
2025 Shoreline Drive
Mt. Juliet, TN 37122
All executive officers
and directors
as a group (12 persons) 1,925,742(3) 43.8%
-------------------------
* Less than one percent.
(1) Except as otherwise noted, each person or group has sole voting and
investment power with respect to, and directly owns, all outstanding
shares.
(2) Reflects shares of Company Common Stock held indirectly by the named
directors as a result of their interest in Minnesota ASE, LLC. Messrs.
Hoel and Kowalski each own 30% of Minnesota ASE, LLC and Mr. Auth owns
20% of Minnesota ASE, LLC. These
3
individuals disclaim beneficial ownership of securities held by
Minnesota ASE, LLC, except to the extent of their pecuniary interest in
the securities. The shares identified for these three individuals are
included in the 2,245,000 shares held by Minnesota ASE, LLC.
(3) This amount includes 1,796,000 of shares identified with Messrs Hoel,
Kowalski and Auth which are included in the identified Minnesota ASE,
LLC shares. The amount of shares held by executive officers and
directors other than the shares associated with Minnesota ASE, LLC is
129,742.
(4) The percentage calculation is based on 4,401,625 shares outstanding at
July 15, 2003.
4
PROPOSAL TO FIX NUMBER OF DIRECTORS
(Item 1)
The Bylaws of the Company provide that the number of directors may be set by the
shareholders (subject to the right of the Board of Directors to increase or
decrease the number of directors as otherwise permitted by law). At the most
recent annual meeting of the Company's shareholders held on May 29, 2002, the
shareholders fixed the number of the Company's Board of Directors at seven and
elected seven directors.
IT IS THE RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS THAT THE NUMBER OF
DIRECTORS BE SET AT EIGHT.
Unless otherwise directed, the proxies solicited by the Board of Directors will
be voted in favor of setting the number of members of the Board of Directors at
eight.
The affirmative vote of a majority of the shares of Common Stock of the Company
represented at the Annual Meeting at which a quorum is present either in person
or by proxy is required to fix the number of the Board of Directors at eight. A
quorum consists of a majority of the shares of Common Stock entitled to vote at
the Annual Meeting.
ELECTION OF DIRECTORS
(Item 2)
The Board of Directors manages the business of the Company. The Bylaws of the
Company provide that the shareholders shall elect the Board of Directors. At the
most recent annual meeting of the Company's shareholders held on May 29, 2002,
the shareholders elected the following seven directors: Richard A. Hoel, Charles
H. Loux, A. L. Maxson, Dr. Leon E. Ring, James S. Kowalski, Thomas L. Auth, and
Mark D. Pugliese.
On September 18, 2002, the Board elected Mr. Patrick J. Donovan as an
independent member of the Board and as an independent member of the Audit
Committee.
IT IS THE RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS THAT THE EIGHT
NOMINEES NAMED BELOW BE ELECTED AS DIRECTORS, TO SERVE AS DIRECTORS UNTIL THE
NEXT ANNUAL MEETING OF THE SHAREHOLDERS AND UNTIL THEIR SUCCESSORS SHALL BE DULY
ELECTED AND QUALIFIED AS DIRECTORS.
Unless otherwise directed, the proxies solicited by the Board of Directors will
be voted in favor of electing the eight nominees named below to the Board of
Directors. However, in the event of the inability or unwillingness of one or
more of these nominees to serve as a director at the time of the Annual Meeting
on September 3, 2003, or any adjournments thereof, the shares represented by the
proxies will be voted in favor of the remainder of such nominees and may also
(at the discretion of the holders of said proxies) be voted for other nominees
not named herein, in lieu of those unable or unwilling to serve. As of the date
hereof, the Board of Directors knows of no nominee who is unwilling or unable to
serve.
The affirmative vote of a majority of the shares of Common Stock of the Company
represented at the Annual Meeting at which a quorum is present either in person
or by proxy is required to elect each director. A quorum consists of a majority
of the shares of Common Stock entitled to vote at the Annual Meeting.
5
INFORMATION ABOUT NOMINEES FOR ELECTION AS DIRECTORS
All of the nominees of the Board of Directors are presently serving as directors
of the Company. The names, ages and biographical information of all eight
nominees are as follows:
Names of Nominees Ages Director Since
----------------- ---- --------------
Richard A. Hoel 55 February 1998
Charles H. Loux 55 October 1999
A. L. Maxson 67 May 1986
Dr. Leon E. Ring 70 November 1996
James S. Kowalski 57 October 2001
Thomas L. Auth 58 October 2001
Mark D. Pugliese 50 March 2002
Patrick J. Donovan 49 September 2002
Richard A. Hoel was appointed as a Director of the Company on February 18, 1998,
and on September 27, 2001, he was appointed Chairman of the Board. He was a
founder and has been a senior shareholder of Winthrop & Weinstine, P.A., the
Company's primary law firm, since February 1979. Mr. Hoel serves as a member of
the board of directors of a number of privately held companies. Mr. Hoel is a
governor and member of Minnesota ASE, LLC, the Company's majority shareholder.
Charles H. Loux has been the President and Chief Executive Officer of the
Company since October 1, 1999. He was appointed to the Company's Board of
Directors effective October 1, 1999. Prior to joining the Company, Mr. Loux was
employed for 15 years at GE Aircraft Engines where his most recent position was
Manager of Customer Facility Support.
A. L. Maxson was elected to the Company's Board of Directors effective May 7,
1986. He has been a financial consultant since August 1997. From January 1, 1994
to July 1997, he was the Executive Vice President - Finance and Chief Financial
Officer and Director of Great Lakes Aviation, Ltd. Mr. Maxson was a financial
consultant from March 1991 until December 1993. From August 1986 until March
1991, he was Vice President, Financial Planning, for Northwest Airlines, Inc.
Dr. Leon E. Ring has been retired since October 1999 and has been a Director of
the Company since November 1996. From September 23, 1996 until October 1, 1999,
he was President and Chief Executive Officer of the Company.
James S. Kowalski was appointed as a Director of the Company on September 27,
2001. For more than the last five years, he has been the principal shareholder
of Kowalski's Markets, a supermarket chain in Minnesota. Mr. Kowalski is a
governor and member of Minnesota ASE, LLC, the Company's majority shareholder.
Thomas L. Auth became a Director of the Company on September 27, 2001. Mr. Auth
is a private investor. Mr. Auth was the Chief Executive Officer and a Director
of ITI Technologies, Inc., a publicly held company, from 1981 until May 2000.
ITI was a leading designer and manufacturer of electronic security products. In
May 2000, ITI merged with
6
SLC Technologies, Inc. to form a new publicly held company, Interlogix, Inc. and
Mr. Auth served as Chairman of the Board of Directors of Interlogix until
February 2002 when Interlogix was acquired by the General Electric Company. Mr.
Auth serves on the Board of Medamicus, Inc., a publicly held company, and on the
Boards of several privately held companies. He also owns Vomela Specialty
Company, a graphics design and manufacturing company. Mr. Auth is also a
certified public accountant. Mr. Auth is a governor and member of Minnesota ASE,
LLC, the Company's majority shareholder.
Mark D. Pugliese was appointed as a Director of the Company on March 20, 2002.
He is Vice President, General Counsel and Secretary of Saab Holdings U.S., Inc.
("Saab Holdings"-a direct subsidiary of Saab AB that was formerly named Celsius
Inc.), and is also an officer and/or a director of Saab Aircraft of America, LLC
and several other indirect, wholly-owned subsidiaries of Saab AB in the United
States. Prior to joining Saab Aircraft of America in 1992, Mr. Pugliese was an
Associate General Counsel of USAir, Inc. The Company, Minnesota ASE, LLC and
Saab Holdings are party to a Stockholders Agreement (the "Stockholders
Agreement") that provides, among other things, for Saab Holdings, to have a
designee on the Company's Board of Directors so long as it holds at least 10% of
the outstanding common shares. Mr. Pugliese is the designated director for Saab
Holdings.
Patrick J. Donovan was appointed as a Director of the Company on September 18,
2002. He is currently a Managing Partner in the firm Drullen McKennessey
Management Company. Prior to his current position, Mr. Donovan was the President
of the Midwest Area Operations for Wells Fargo Bank.
Other than as indicated above, no nominee for the Board of Directors is a
director of another company (that is, other than the Company) with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934 or subject to Section 15(d) of that Act. None of the director nominees is a
director of a company registered as an investment company under the Investment
Company Act of 1940.
COMPENSATION OF DIRECTORS
Non-employee outside Directors who are not affiliated with Minnesota ASE, Inc.,
or Saab AB receive $2,000 for each Board or Audit Committee meeting attended to
a maximum of $10,000 per year, plus reimbursement of out-of-pocket expenses.
During 2002, Messrs. A. L. Maxson, Dr. Leon E. Ring, and Patrick J. Donovan
received an aggregate of $10,000, $10,000 and $4,000, respectively. In 2002, the
other members of the Board of Directors received no compensation for serving as
Directors but received reimbursement of out-of-pocket expenses incurred in
carrying out their responsibilities as Directors of the Company. At this time,
only Messrs. Maxson, Ring, and Donovan receive compensation for serving on the
Board of Directors and as committee members.
INFORMATION REGARDING EXECUTIVE OFFICERS
Donald N. Kamis, who is 60 years old, has been a Vice President of the Company
since September 1992. Prior to September 1992, Mr. Kamis was the Vice President
of Engineering for FluiDyne and held that position for more than five years.
7
Grant A. Radinzel, who is 47 years old, has been a Vice President of the Company
since June 1995. From 1985 until June 1995, Mr. Radinzel held engineering
management and project management positions with the Company.
Richard L. Thomalla, who is 52 years old, has been a Vice President of the
Company since March 1998. From September 1996 until March 1998, Mr. Thomalla
served the Company as Director of Business Development for Test Cells. Prior to
September 1996, Mr. Thomalla served the Company for over 21 years in various
positions, including mechanical engineering, engineering management, sales and
marketing, and project management.
Steven R. Hedberg, who is 50 years old, has been the Chief Financial Officer of
the Company since January 1998. In addition to these duties, Mr. Hedberg has
been the Company's Secretary and Treasurer since March 1998, and a Vice
President since June 1993. Prior to joining the Company on January 19, 1998, Mr.
Hedberg was employed for more than 20 years with Control Data Systems, Inc.
INFORMATION CONCERNING BOARD OF DIRECTORS/COMMITTEES
The Company has an Audit Committee. The Company does not have a nominating
committee or a compensation committee.
During the fiscal year ended December 31, 2002, the Board of Directors held four
formal meetings. All of the nominees who were Directors of the Company attended
in person or by teleconference all of the board and committee meetings held in
2002 while they were directors of the Company with the following exceptions: Mr.
Thomas L. Auth was not available for the March 20, 2002, meeting and the
November 25, 2002, meeting. Mr. James S. Kowalski was not available for the June
19, 2002 meeting and the September 15, 2002, meeting. Board members also met
informally during the year to discuss various aspects of the business affairs of
the Company.
On September 18, 2002, Mr. Richard A. Hoel resigned as a member of the Audit
Committee due to his affiliation with Minnesota ASE, LLC. This Audit Committee
structure change was made to ensure the Company's Audit Committee structure was
in compliance with the independence requirements of NASDAQ.
On March 19, 2003, the Board reconfirmed the appointments of A. L. Maxson, Dr.
Leon E. Ring, and Patrick J. Donovan to the Audit Committee.
8
During the fiscal year ended December 31, 2002, the Audit Committee held five
formal meetings. All of the members of the Audit Committee of the Board of
Directors of the Company attended in person or by teleconference all of the
Audit Committee meetings held in 2002 while they were directors of the Company.
The duties of the Audit Committee are to establish and maintain direct contact
with the Company's independent auditors to review the adequacy of the Company's
accounting and financial reporting procedures, the adequacy and effectiveness of
the Company's system of internal accounting controls, the scope and results of
the annual audit, and any other matters relative to the audit of the Company's
accounting and financial affairs that the Audit Committee or the independent
auditors deem necessary or appropriate.
AUDIT COMMITTEE CHARTER
During 2000, the Board of Directors of the Company approved a written Audit
Committee charter, a copy of which has previously been filed with the Securities
and Exchange Commission.
AUDIT COMMITTEE REPORT
The Audit Committee oversees the Company's financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process, including the system of internal
control. In fulfilling its oversight responsibilities, the Audit Committee
reviewed the audited financial statements in the Annual Report with management,
including a discussion of the quality, not just the acceptability, of the
accounting principles; the reasonableness of significant judgments; and the
clarity of disclosures in the financial statements. The Audit Committee held
five formal meetings during fiscal 2002.
In February 2003, the Audit Committee (which consisted of A.L. Maxson, Dr. Leon
E. Ring, and Patrick J. Donovan) reviewed and discussed with management the
audited financial statements for the year ended December 31, 2002; discussed
with the independent auditors the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards, AU ss. 380), as modified or
supplemented; received the written disclosures and letter from the independent
auditors required by Independence Standards Board Standard No. 1; and discussed
with the independent auditors the auditors' independence. Based on such review
and discussions, the Audit Committee recommended to the Board of Directors that
the audited financial statements for the year ended December 31, 2002, be
included in the Company's Annual Report on Form 10-K for filing with the
Securities and Exchange Commission.
By the Audit Committee:
A. L. Maxson
Dr. Leon E. Ring
Patrick J. Donovan
9
AUDIT FEES
The aggregate fees billed the Company by Ernst & Young LLP for professional
services rendered for the audit of the Company's annual financial statements for
the year ended December 31, 2002, and the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q during the year 2002
were $77,500.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No fees were billed and no services rendered to the Company by Ernst & Young LLP
for financial information systems design and implementation as described in
paragraph (c) (4) (ii) of Rule 2-01 of Regulation S-X during the year ended
December 31, 2002.
ALL OTHER FEES
The aggregate fees billed to the Company by Ernst & Young LLP for all services,
other than those described under the preceding captions, rendered during the
year ended December 31, 2002, were $40,364 and consisted primarily of tax
services and the audit of the Company's benefit plans. The Audit Committee
determined that the provision of such services is compatible with maintaining
the independence of Ernst & Young LLP.
10
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the compensation of the
Chief Executive Officer of the Company for services rendered in all capacities
during each of the years ended December 31, 2002, 2001 and 2000, and for other
executive officers of the Company (the "Named Executive Officers") whose total
salary and bonus for the fiscal year ended December 31, 2002 exceeded $100,000
for services in all capacities to the Company.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
--------------------------- ---- ------ ----- ------------ ------------
Charles H. Loux 2002 $162,240 $106,120 $ 0 $ 2,023(4)
Director, President and 2001 $155,885 $ 0 $ 0 $ 1,802(4)
Chief Executive Officer 2000 $150,000 $ 37,500(1) $ 0 $ 18,593(4)
Donald N. Kamis 2002 $115,550 $ 13,072(2) $ 0 $ 3,919(5)
Vice President, Wind Tunnel 2001 $110,854 $ 0 $ 0 $ 4,023(5)
Business Development 2000 $107,703 $ 0 $ 0 $ 3,907(5)
Richard L. Thomalla 2002 $114,569 $ 17,054(2) $ 0 $ 3,882(6)
Vice President, Test Cell 2001 $109,913 $ 0 $ 0 $ 3,986(6)
Business Development 2000 $104,481 $ 0 $ 0 $ 3,786(6)
Steven R. Hedberg, Vice President, 2002 $ 95,024 $ 26,540(3) $ 0 $ 3,443(7)
Chief Financial Officer, 2001 $ 90,486 $ 0 $ 0 $ 3,286(7)
Secretary and Treasurer 2000 $ 85,154 $ 0 $ 0 $ 3,085(7)
Grant Radinzel 2002 $101,560 $ 14,820(2) $ 0 $ 3,673(8)
Vice President 2001 $ 95,506 $ 0 $ 0 $ 3,466(8)
Business Development 2000 $ 91,154 $ 0 $ 0 $ 3,306(8)
(1) Of the $37,500, $15,000 was paid in 2000 and $22,500 was paid in 2001.
(2) These bonus amounts for 2002 performance were paid in 2003.
(3) Of the $26,540, $12,500 was paid in 2002 and $14,040 was paid in 2003.
(4) Consists of $983, $949 and $949 group life insurance premiums paid by
the Company for Mr. Loux in 2002, 2001 and 2000, respectively and $853
and $853 additional term insurance in 2002 and 2001, and $187 of
contributions made in 2002 by the Company on behalf of Mr. Loux under
the Company's 401(k) retirement savings plan.
(5) Consists of $727, $697 and $676 of group life insurance premiums paid
by the Company for Mr. Kamis in 2002, 2001, and 2000 respectively, and
$3,192, $3,326 and $3,231 of contributions made in 2002, 2001, and
2000, respectively, by the Company on behalf of Mr. Kamis under the
Company's 401(k) retirement savings plan.
(6) Consists of $718, $689 and $651 in group life insurance premiums paid
by the Company for Mr. Thomalla in 2002, 2001 and 2000 and $3,164,
$3,297 and $3,135 of contributions made in 2002, 2001 and 2000 by the
Company on behalf of Mr. Thomalla under the Company's 401(k) retirement
savings plan.
(7) Consists of $592, $571 and $530 in group life insurance premiums paid
by the Company for Mr. Hedberg in 2002, 2001 and 2000 and $2,851,
$2,715 and $2,555 of contributions made in 2002, 2001 and 2000 by the
Company on behalf of Mr. Hedberg under the Company's 401(k) retirement
savings plan.
(8) Consists of $626, $601 and $571 in group life insurance premiums paid
by the Company for Mr. Radinzel in 2002, 2001 and 2000 and $3,047,
$2,865 and $2,735 of contributions made in 2002, 2001 and 2000 by the
Company on behalf of Mr. Radinzel under the Company's 401(k) retirement
savings plan. (9)
11
SUMMARY OF PLANS
Equity Compensation Plans
The Company has no stock option plans and no other equity-based compensation
plans.
Plan Category Number of Securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available
of outstanding options, outstanding options, for future issuance
warrants and rights warrants and rights under equity
compensation plans
(excluding securities
reflected in column
(a))
(a) (b) (c)
Equity compensation plans
approved by security holders Not Applicable Not Applicable Not Applicable
Equity compensation plans not
approved by security holders Not Applicable Not Applicable Not Applicable
Total
Group Life Insurance
The Company provides group life insurance to all of its full-time employees. The
amount of group life insurance on each full-time employee is equal to 150% of
the employee's base salary, which excludes any bonus paid to an employee
pursuant to any bonus plan adopted by the Company. To the extent that such
insurance coverage exceeds $50,000 for any employee, such employee recognizes
the cost of such excess insurance as taxable income. The group life insurance
premiums paid on behalf of the Named Executive Officers are in the Summary
Compensation Table therein under the heading "All Other Compensation."
401(k) Profit Sharing Plan
The Company's ASE, Inc. Retirement Savings Plan ("Retirement Savings Plan") is a
retirement savings plan under Sections 401(a) and 401(k) of the Internal Revenue
Code of 1986, as amended ("Code"). Under the present plan, eligible employees
may choose to reduce their salary or wages from the Company from 1% to 100%
(subject to a maximum reduction of $12,000 per year) and have such amounts
contributed to MetLife Defined Contribution Group ("MDCG") under the terms of
the Retirement Savings Plan; these amounts are not taxed to the employee at the
time of contribution to the Retirement Savings Plan. Eligible employees turning
age 50+ during the current calendar year may also be eligible to make a catch-up
contribution of up to $2,000. In addition, eligible employees may elect to
reduce their salary or wages from the
12
Company by not less than 1% nor more than 10% and have such amounts contributed
to MDCG under the terms of the Retirement Savings Plan; these amounts are taxed
to the employee at the time of contribution to the Retirement Savings Plan.
Contributions up to 6% of the employee's compensation are matched at a rate of
50% by the Company ("Matching Contributions"). In addition, the Company may, but
is not obligated to, make additional contributions to the Retirement Savings
Plan. Both the Matching Contributions and the additional discretionary
contributions are limited to the Company's accumulated net profits (prior to any
deduction of contributions to the Retirement Savings Plan and any federal, state
or local income taxes). The maximum annual allocation to an employee's account
(including earnings, losses and forfeitures) is the lesser of (i) 100% of their
salary or wages, or (ii) $40,000. All contributions under the Retirement Savings
Plan are invested (pursuant to several investment choices) by the trustee for
the Retirement Savings Plan. The current plan was amended during 2002 to comply
with the 2001 tax law changes. The Company's trustee for the Retirement Savings
Plan is JP Morgan Chase Manhattan Bank Trust. MDCG is agent to Chase Manhattan
Bank Trust.
Distributions of the vested portions of an employee's account balance will
typically occur upon employment termination, retirement, death, or disability.
Distributions can be made in the form of a lump sum, annuity or installment
method of payment, at the discretion of the employee. During the years ending
December 31, 2002, 2001, and 2000, $498,480, $800,975, and $494,229,
respectively, were distributed by the Retirement Savings Plan. In 2002, 2001,
and 2000, no distributions were made to any executive officer of the Company,
including the Named Executive Officers. Benefit amounts credited during 2002,
2001, and 2000 pursuant to the Retirement Savings Plan for the Named Executive
Officers, the distribution or unconditional vesting of which are not subject to
future events, are included in the Summary Compensation Table under the heading
"All Other Compensation."
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Charles H. Loux dated
August 30, 1999, which provided for a term of one year, commencing on September
20, 1999 and ending September 30, 2000. That agreement was amended and renewed
on September 30, 2000, 2001, and most recently on September 30, 2002 (the
"Agreement"). The Agreement provides for an annual base salary of $171,000
effective January 1, 2003. The Agreement also provides for an annual incentive
bonus based on certain performance guidelines contained in the Agreement; these
guidelines may be adjusted from time to time by the Board in its sole
discretion, but upon consultation with Mr. Loux. The maximum incentive bonus
that may be paid with respect to any year cannot exceed 50% of the base salary
paid during that year without Board of Directors' approval. Under the Agreement,
Mr. Loux is entitled to participate in any retirement savings plan, life
insurance, health insurance, dental insurance, disability insurance or any other
fringe benefit which the Company may from time to time make available to its
salaried or executive employees; however, the Company agreed under the Agreement
to provide Mr. Loux with term life insurance equal to two and one-half (2-1/2)
times his annual base salary. Under the Agreement, if Mr. Loux's employment is
terminated by the Board of Directors for reasons other than "cause" (as that
term is defined in the Agreement), Mr. Loux is to receive a cash severance
payment equal to 12 months' base salary in effect at the time of the termination
and a pro-rated bonus. In the Agreement, should Mr. Loux's employment terminate
for any reason, he is bound to a covenant not to compete or disclose
confidential or secret information for a period of two years after the
termination date.
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REPORT OF BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
During the year ended December 31, 2002, none of the members of the Board of
Directors of the Company, with the exception of Charles H. Loux, were executive
officers or employees of the Company or its subsidiaries. For the period after
September 25, 2001, Messrs. Richard A. Hoel, James S. Kowalski, and Thomas L.
Auth are Governors and members of Minnesota ASE, LLC, which owns 51% of the
Company's stock. In addition, Mr. Pugliese is the designated member of Saab
Holdings U.S., Inc., which is a 29% shareholder. The Company's Board of
Directors is responsible for ensuring that compensation for executives is
consistent with the Company's compensation philosophy. The Board believes that
the Company's executive compensation is reasonable given its financial
performance and as compared to other similar companies in the industry.
The Board annually evaluates the performance and compensation of the Company's
Chief Executive Officer ("CEO"). The Board's deliberations regarding annual
salary and incentive bonus are made without the presence of the CEO. Annual base
salary for the CEO is established on the basis of a number of factors, including
general performance of the Company and competitive standards. Although the Board
takes into account corporate performance generally in determining annual base
salary, there is no specific formula relating corporate performance to annual
salary.
The Company's policy with respect to the compensation of its executive officers,
including its CEO, includes the following beliefs:
1. The Company believes that its compensation system should attract and
retain experienced, highly qualified executive officers.
2. The Company believes in pay for performance based on specific written
goals and objectives and that executive compensation should have a
substantial component of incentive compensation based on performance.
3. The Company believes that its executive compensation level should be
measured by comparison to similar companies as well as other factors,
such as an individual's contributions and performance.
4. The Company believes that the overall compensation level of the
Company's executive officers should take into account the overall
performance of the Company as compared to similar companies.
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Determination of Compensation of Chief Executive Officer
The CEO's total annual compensation consists of two elements -- annual base
salary and annual incentive bonus. Charles Loux's annual base salary for 2002
was determined in part by comparison to the annual salaries of chief executive
officers of other companies of similar size and complexity as the Company. The
annual incentive bonus component of Charles Loux's 2002 compensation plan was
determined by establishing certain levels of financial performance of the
Company as compared to the pre-determined annual budget and certain other
factors. The factors and performance thresholds for 2002 were determined in the
first quarter of that year by agreement between Charles Loux and Mr. Richard A.
Hoel, the Chairman of the Board. For the year ended December 31, 2002, 80% of
Charles Loux's total available incentive bonus was based on the Company reaching
certain levels of net income in 2002 as compared to the annual budget. The
remaining 20% of Charles Loux's 2002 incentive bonus was determined in the
Board's discretion after reviewing his overall performance. For 2002, The Board
of Directors approved the full annual incentive bonus of $81,120 for Mr. Loux.
In addition, in March 2002, the Board of Directors approved a $25,000 bonus for
Mr. Loux for 2002.
The Board believes that its current compensation philosophy and approach has
served the Company's shareholders fairly, and it plans to continue the same
compensation philosophy and approach for the foreseeable future.
By the Board of Directors:
Richard A. Hoel, Chairman
Charles H. Loux
A. L. Maxson
Dr. Leon E. Ring
James S. Kowalski
Thomas L. Auth
Mark D. Pugliese
Patrick J. Donovan
PERFORMANCE GRAPH
The following graph and table show changes during the period since December 31,
1997 through December 31, 2002 in the value of $100 invested in: (1) the
Company's Common Stock; (2) The Nasdaq Stock Market (U.S.); and (3) a group of
28 companies (including the Company) in a published SIC code grouping for the
engineering services industry. The year-end values of each investment are based
on share price appreciation plus any dividends paid in cash, with the dividends
reinvested on the date they were paid. The calculations exclude trading
commissions and taxes.
15
(PERFORMANCE GRAPH)
FIVE YEAR CUMULATIVE TOTAL RETURNS
Value of $100 invested on December 31, 1997
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
Nasdaq (U.S.) $100 $141 $249 $156 $125 $86
Industry Group 100 94 104 183 201 131
Company 100 144 159 159 295 541
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 2003, Celsius Inc., a direct subsidiary of Saab AB, changed its name
to Saab Holdings U.S., Inc. ("Saab Holdings"). Until September 25, 2001, Saab
Holdings had owned approximately 80% of the Company's outstanding Common Stock.
Prior to this date, Saab Holdings guaranteed certain bank lines of credit
granted to the Company by Skandinaviska Enskilda Banken ("SEB"). In addition,
during the same period of 2001, Saab Holdings provided customer assistance and
consulting services to the Company. As consideration for such guarantees,
customer assistance and consulting services, the Company incurred and paid
interest charges (or fees) to Saab Holdings in the amount of $140,000 for the
period of January 1, 2001 to September 25, 2001. During this same period up to
September 25, 2001, the bank lines of credit to the Company from SEB were in the
amount of $6,000,000. Although the line of credit had a $6,000,000 limit, Saab
Holdings allowed the Company to exceed this limit for short periods of time. The
portion over $6,000,000 was assessed a higher interest rate. To secure the
guarantees by Saab Holdings of such lines of credit and to secure any other
present or future obligations of the Company to Saab Holdings, the Company
granted security interests to Saab Holdings in substantially all of the
Company's assets. This line of credit was paid off and terminated on September
25, 2001, as part of the transaction of Minnesota ASE, LLC acquiring 51% of the
outstanding shares of common stock of the Company.
On September 25, 2001, Saab Holdings sold 2,245,000 shares of the Company's
Common Stock, or 51% of the total outstanding shares of common stock of ASE, to
Minnesota ASE, LLC. Related to this transaction, the Company secured new bank
financing agreements with M&I Marshall & Ilsley for operating funds and future
letter of credit needs. These new agreements are asset-based collateral
agreements, with the funds available under these agreements determined by the
available securable assets at any point in time, up to a maximum of $6,000,000
of operating
16
funds and $3,000,000 of letter of credit funds. Also related to this
transaction, Saab Holdings agreed to continue to hold until maturity certain
existing bank guarantees that were previously provided to a few of the Company's
customers, and Saab Holdings provided a three-year $1,500,000 loan to the
Company at 8% per year, which is subordinated debt to the new bank agreement.
This loan is collateralized by a third party pledge by Minnesota ASE, LLC, of
the shares of ASE purchased by Minnesota ASE, LLC, from Saab Holdings. The
Company also provided an indemnification agreement to Saab Holdings to secure
Saab Holdings' interest in the above items. The Company's obligations under the
three-year Note are secured by a Security Agreement between the Company and Saab
Holdings and by a combination Mortgage, Assignment of Rents, Security Agreement
and Fixture Financing Statement between the Company and Saab Holdings pursuant
to which all of the personal and fixture assets of the Company are pledged as
collateral. The Company, Minnesota ASE, LLC and Saab Holdings in connection with
the foregoing loan and security arrangements, are party to a Stockholders
Agreement (the "Stockholders Agreement") which provides, among other things, for
Saab Holdings to have a designee on the Company's Board of Directors so long as
it holds at least 10% of the outstanding common shares, a right of first refusal
in certain circumstances with respect to any sale of shares by a shareholder to
a third party, tag-along rights with respect to sales of stock to third parties,
and certain registration rights of shareholders in the event of any public
offering of the stock of the Company. In March of 2003, in connection with Saab
Holdings providing an extension to a down payment letter of credit to one of the
Company's customers, the Company repaid to Saab Holdings $500,000 of the
$1,500,000 three-year note. Also, in March 2003, M&I Marshall & Ilsley notified
the Company of its authorization increasing the maximum of $3,000,000 of letter
credit funds to $4,000,000.
On September 25, 2001, Minnesota ASE, LLC, loaned the Company $2,600,000 in
order to supplement bank financing, and $2,300,000 of the balance was repaid
prior to year end, leaving an outstanding balance of $300,000. The remaining
$300,000 has been converted to a note bearing interest at 8% and does not have a
stated due date. During 2002, Minnesota ASE, LLC. loaned the Company an
additional $200,000, leaving an outstanding balance of $500,000 at December 31,
2002.
For the period of January 1, 2002 through December 31, 2002, Minnesota ASE, LLC
charged the Company as consideration for such guarantees and for certain
administrative support provided and the Company paid a fee of $180,000. The
Company presently pays no compensation to board members that are affiliated with
Minnesota ASE, LLC.
The Company's Chairman is a senior shareholder and founder of Winthrop &
Weinstine, P.A., the Company's general counsel. Winthrop & Weinstine, P.A. has
acted as general counsel to the Company since 1977. The Company has paid
Winthrop & Weinstine, P.A. $266,916 for legal services and reimbursement of
costs incurred during the period from January 1, 2002 to December 31, 2002.
17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of the
Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. Based upon inquiries made by the
Company of its executive officers and directors and of inquiries made of
Minnesota ASE, LLC, and Saab Holdings which are the only persons known to the
Company which own more than ten percent of the Common Stock, the Company
believes that during 2002, its officers and directors, Minnesota ASE, LLC and
Saab Holdings met all applicable Section 16(a) filing requirements, except for a
Form 3 filing for Mr. Mark D. Pugliese that was not filed until March 28, 2003
due to an oversight.
OTHER BUSINESS
All items of business intended by management to be brought before the Annual
Meeting are set forth in this Proxy Statement, and management knows of no other
business to be presented. If other matters of business not presently known to
the Board of Directors shall be properly raised at the Annual Meeting, the
person named as the proxies will vote on such matters in accordance with their
best judgment.
FUTURE SHAREHOLDER PROPOSALS
Under the Securities Exchange Act of 1934 (the "Exchange Act"), the shareholders
of the Company have certain rights to have shareholder proposals included within
the Proxy Statement of the Company for the Company's Annual Shareholders Meeting
in 2004.
Rule 14a-8 under the Securities Exchange Act of 1934 ("Exchange Act") sets forth
the procedure and requirements for requesting that the Company include these
proposals in its Proxy Statement. Under that Rule, the deadline for submitting
proposals under Rule 14a-8 is a reasonable time before the Company begins to
print and mail its proxy materials.
Shareholders also may submit proposals to be voted on at an annual meeting
without having the proposals included in the Company's proxy statement. These
proposals are known as "non-Rule 14a-8 proposals". Rule 14a-4(c)(1) under the
Exchange Act explains when the proxies named by a company to vote at an annual
meeting may exercise their discretionary voting powers for proposals not
included in the company's proxy statement, including non-Rule 14a-8 proposals.
Rule 14a-4(c)(1) provides that proxies named by a company to vote at an annual
meeting may be given discretionary authority to vote all proxies with respect to
any non-Rule 14a-8 proposals that properly come before the annual meeting for a
vote of the shareholders if (i) in case of a company such as the Company that
has changed the date of its annual meeting by more than 30 days from the date of
the previous year's meeting, the company has not received advance notice of the
proposal a reasonable time before it mails its proxy materials, and (ii)
shareholders have been notified of this advance notice requirement.
You are hereby notified that, for the annual meeting of shareholders to be held
later this year, the Company's proxies will be able to exercise their
discretionary voting authority with respect to any non-Rule 14a-8 proposal not
submitted to the Company a reasonable time before the Company mails its proxy
materials.
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Any Rule 14a-8 proposal that a shareholder wishes to have considered for
inclusion in the Company's proxy solicitation materials for the annual meeting
of shareholders in 2004, and notice of any non-Rule 14a-8 shareholder proposals,
should be given in writing to the Secretary of the Company at the Company's
executive offices. Due to the technical nature of the rights of shareholders and
the Company in this area, a shareholder desiring to make a shareholder proposal
should consider consulting his or her personal legal counsel with respect to
such rights.
By Order of the Board of Directors
/s/ Steven R. Hedberg
------------------------------------
Steven R. Hedberg
Dated: July 29, 2003 Secretary
19
AERO SYSTEMS ENGINEERING, INC.
A MINNESOTA CORPORATION
358 EAST FILLMORE AVENUE
ST. PAUL, MINNESOTA 55107
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, SEPTEMBER 3, 2003
AERO SYSTEMS ENGINEERING, INC.
358 EAST FILLMORE AVENUE
ST. PAUL, MINNESOTA 55107 PROXY
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
A. L. Maxson and Gary Sommerland, and each of them, are hereby appointed
Proxies, each with the power to appoint his substitute, to represent and to
vote, as designated below, all shares of common stock of Aero Systems
Engineering, Inc. held of record by the undersigned on August 1, 2003 at the
Annual Meeting of Shareholders to be held on September 3, 2003 or any
adjournment thereof.
In the event of the inability or unwillingness of one or more of these nominees
to serve as a director at the time of the Annual Meeting on September 3, 2003 or
of any adjournments thereof, the shares represented by the proxies will be voted
in favor of the remainder of such nominees and may also, at the discretion of
the holders of said proxies, be voted for other nominees not named herein, in
lieu of those unable or unwilling to serve. As of the date hereof, the Board of
Directors knows of no nominee who is unwilling or unable to serve.
At their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting; management is not presently
aware of any such matters to be presented for action at the Annual Meeting.
The undersigned hereby ratifies and confirms all that the proxies shall lawfully
do or cause to be done by virtue hereof and hereby revokes all proxies
previously given to vote such shares.
See reverse for voting instructions.
- Please detach here -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
1. Proposal to fix number of Directors [ ] For [ ] Against [ ]Abstain
at eight
2. ELECTION OF 01 Richard A. Hoel [ ] Vote FOR [ ] Vote WITHHELD
DIRECTORS: 02 Charles H. Loux all nominees from all nominees
03 A.L. Maxson (except as marked)
04 Dr. Leon E. Ring
05 James S. Kowalski
06 Thomas L. Auth
07 Mark D. Pugliese
08 Patrick J. Donovan
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY INDICATED NOMINEE, WRITE ------------------------------------
THE NUMBER(S) OF THE NOMINEE(S) IN THE | |
BOX PROVIDED TO THE RIGHT.) ------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, SHALL BE VOTED IN THE MANNER INDICATED BY
THE UNDERSIGNED SHAREHOLDER, BUT IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED IN FAVOR OF FIXING THE NUMBER OF DIRECTORS AT EIGHT AND FOR THE DIRECTORS
NAMED IN THE PROXY STATEMENT.
Address Change? Mark Box [ ]
Indicate changes below:
Date
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| |
| |
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Signature(s) in Box
Please sign exactly as name appears at
left. When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian, or
in some other fiduciary capacity,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer(s). If a
partnership, please sign in
partnership name by authorized
person(s).