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.
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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 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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(3) Filing Party:
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(4) Date Filed:
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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
MAY 29, 2002, AT 2:00 P.M.
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TO AERO SYSTEMS ENGINEERING, INC. SHAREHOLDERS:
The annual meeting of the shareholders of Aero Systems Engineering, Inc. (the
"Company") will be held on May 29, 2002 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 seven.
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 April 26, 2002 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 the
Proxy. IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN THE
ATTACHED PROXY AND DATE, SIGN AND MAIL IT AS PROMPTLY AS POSSIBLE IN ORDER TO
SAVE THE COMPANY FURTHER SOLICITATION EXPENSE.
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
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 29, 2002
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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 May 29, 2002 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. This Proxy Statement and the accompanying Proxy and Notice
of Annual Meeting of Shareholders is intended by the Company to be mailed to its
shareholders on or about May 1, 2002. The Company may reimburse brokerage firms,
banks, and other custodians, nominees, and fiduciaries 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, 2001, 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
April 26, 2002, 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 April 26, 2002, 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 seven, 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 March 1, 2002 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, he 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(3)
------------------- ----------------------- -------------------
Minnesota ASE, LLC 2,245,000 51.0%
222 South 9th Street
Suite 3000
Minneapolis, MN 55402
Celsius Inc. 1,277,073 29.0%
1800 Diagonal Road
Suite 230
Alexandria, VA 22314
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 (9 persons) 1,925,742(2) 43.8%
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* Less than one percent.
3
(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 Messr. Auth owns 20% of
Minnesota ASE, LLC. These individuals disclaim beneficial ownership of
securities held by Minnesota ASE, LLC, except to the extent of their
pecuniary interest in the securities.
(3) The percentage calculation is based on 4,401,625 shares outstanding at
March 1, 2002.
Until September 25, 2001, Celsius, Inc. owned approximately 80% of the Company's
outstanding Common Stock. Celsius, Inc. is a wholly-owned subsidiary of Celsius
AB, which is a Swedish company. Celsius AB was acquired by Saab AB in March
2000.
On September 25, 2001, Celsius sold 2,245,000 shares of the Company's Common
Stock to Minnesota ASE, LLC. Messrs. Hoel, Kowalski and Auth own 30%, 30% and
20%, respectively, of Minnesota ASE, LLC. The shares owned by Minnesota ASE, LLC
represent approximately 51% of the outstanding shares of Common Stock of the
Company. The purchase price of the shares and the contemporaneous loan of
$2,600,000 to the Company was funded by contributions from the members and loans
from the M&I Marshall & Ilsley Bank. Celsius retains an approximate 29% stock
interest in the Company.
In connection with the sale by Celsius, Inc., Celsuis loaned the Company
$1,500,000, which accrues interest at the rate of 8% per year. The Company's
obligations under this three-year Note are secured by a Security Agreement
between the Company and Celsius, Inc. and by a combination Mortgage, Assignment
of Rents, Security Agreement and Fixture Financing Statement between the Company
and Celsius, Inc. pursuant to which all of the personal and fixture assets of
the Company are pledged as collateral. In addition, Minnesota ASE, LLC pledged
2,245,000 shares of the Common Stock of the Company to Celsius, Inc. as further
collateral to secure the Company's obligations under the Note. The Company,
Minnesota ASE, LLC and Celsius, in connection with the foregoing loan and
security arrangements, are party to a Stockholders Agreement (the "Stockholders
Agreement"). The Stockholders Agreement provides, among other things, for
Celsius 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.
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 August 8, 2001, the
shareholders fixed the number of the Company's Board of Directors at five and
elected five directors.
IT IS THE RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS THAT THE NUMBER OF
DIRECTORS BE SET AT SEVEN.
Unless otherwise directed, the proxies solicited by the Board of Directors will
be voted in favor of setting the number of the Board of Directors at seven.
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 seven. 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 August 8, 2001,
the shareholders elected the following five directors: Christer Persson, Charles
H. Loux, Dr. Leon E. Ring, Richard A. Hoel, and A. L. Maxson.
On September 25, 2001, Minnesota ASE, LLC, acquired 2,245,000 shares of common
stock of Aero Systems Engineering, Inc., from Celsius Inc., a subsidiary of Saab
AB, representing 51% of the outstanding shares. Celsuis Inc. retained a 29%
stock interest in the Company. On September 27, 2001, in a special meeting of
the Board of Directors, the Board accepted the resignation of Mr. Christer
Persson as Chairman of the Board and appointed Mr. Richard A. Hoel as the new
Chairman. The Board also appointed Mr. Thomas L. Auth and Mr. James S. Kowalski,
as new members of the Board, thereby, establishing a board made up of seven
members.
On March 20, 2002, the Board officially accepted the resignation of Mr. Christer
Persson as a member of the Board, effective January 15, 2002, and the Board
appointed Mr. Mark D. Pugliese as Mr. Persson's replacement representing Saab
AB. Mr. Pugliese is Celsius, Inc.'s designee to the Company's Board of Directors
pursuant to the Shareholder's Agreement between Celsius, Inc. and Minnesota ASE,
LLC dated September 25, 2001. See "Certain Transactions."
5
IT IS THE RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS THAT THE SEVEN
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 seven 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 May 29, 2002, 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.
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 seven
nominees are as follows:
Names of Nominees Ages Director Since
----------------- ---- --------------
Richard A. Hoel 54 February 1998
Charles H. Loux 53 October 1999
A. L. Maxson 66 May 1986
Dr. Leon E. Ring 69 November 1996
James S. Kowalski 56 October 2001
Thomas L. Auth 57 October 2001
Mark D. Pugliese 49 March 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 law firm, since February 1979. Mr. Hoel serves as a member of the
board of directors of a number of privately-held companies.
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 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
6
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.
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 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.
Mark D. Pugliese was appointed as a Director of the Company on March 20, 2002.
He is Executive Vice President, General Counsel and Secretary of Saab Aircraft
of America LLC., and of Saab Aircraft Leasing, Inc., and is an officer and/or a
director of 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.
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
During 2001, Messrs. A. L. Maxson, Richard A. Hoel and Dr. Leon E. Ring received
an aggregate of $10,000, $6,000 and $6,000, respectively, (plus reimbursement of
out-of-pocket expenses in carrying out their responsibilities as a Director) for
serving on the Board of Directors of the Company and for serving on the Board's
Audit Committee. In 2001, 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 and Ring receive
compensation for serving on the Board of Directors and as committee members.
7
INFORMATION REGARDING EXECUTIVE OFFICERS
Donald N. Kamis, who is 59 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.
Grant A. Radinzel, who is 46 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 51 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 49 years old, has been the Secretary and Treasurer of
the Company since March 1998. In addition to these duties, Mr. Hedberg has been
the Company's Chief Financial Officer since January 1998. 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
During the fiscal year ended December 31, 2001, the Board of Directors held
three 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 2001 while they were directors of the Company. Board members also met
informally during the year to discuss various aspects of the business affairs of
the Company.
The Board appointed an Audit Committee in 1991 consisting of A. L. Maxson and
has annually reconfirmed the appointment of Mr. Maxson to this Committee. On
February 18, 1998, Richard A. Hoel also was appointed to the Audit Committee.
The Board reconfirmed the appointments of Messrs. Maxson and Hoel to the
Committee on April 25, 2001. In December 1999, the Securities and Exchange
Commission (SEC) adopted new rules relating to Audit Committees in response to
the Blue Ribbon Committee report and recommendations. Included in the new rules
is a recommendation that Audit Committees have a minimum of three independent
directors. Under exceptional and limited circumstances, however, one member may
be non-independent, provided that the Board determines it to be in the best
interests of the corporation. To comply with the recommendations of the Blue
Ribbon Committee, the Board appointed Dr. Leon E. Ring to the Audit Committee on
April 25, 2001 as the third member of the Audit Committee. While Dr. Ring does
not yet meet the requirements for independence, the Board believes that the
appointment of Dr. Ring satisfactorily meets the intent of the recommendations
of the Blue Ribbon Committee and is in the best interests of the Company.
8
On March 20, 2002, the Board reconfirmed the appointments of A. L. Maxson,
Richard A. Hoel, and Dr. Leon E. Ring to the Audit Committee.
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
three formal meetings during fiscal 2001.
In February 2002, the Audit Committee (which consisted of A.L. Maxson, Richard
A. Hoel, and Dr. Leon E. Ring) reviewed and discussed with management the
audited financial statements for the year ended December 31, 2001; discussed
with the independent auditors the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards, AU Section 380), as modified
or supplemented; received the written disclosures and letter from the
independent auditors required by Independence Standards Board Standard No. 1, as
may be modified or supplemented; 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, 2001, 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
Richard A. Hoel
Dr. Leon E. Ring
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, 2001, and the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q during the year 2001
were $68,100.
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, 2001.
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, 2001, were $38,265 and consisted primarily of tax
services and the audit of the Company's benefit plan. The Audit Committee has
considered whether 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, 2001, 2000 and 1999, and for other
executive officers of the Company (the "Named Executive Officers") whose total
salary and bonus for the fiscal year ended December 31, 2001 exceeded $100,000
for services in all capacities to the Company. No other executive officer in
2001 earned an annual salary and bonus totaling in excess of $100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
--------------------------- ---- -------- -------- ------------ ------------
Charles H. Loux 2001 $155,885 $ 0 $ 0 $ 1,802
Director, President and 2000 $150,000 $ 37,500(2) $ 0 $ 18,593(3)
Chief Executive Officer 1999(1) $ 40,385 $ 0 $ 0 $ 8,075(3)
Donald N. Kamis 2001 $110,854 $ 0 $ 0 $ 4,023(4)
Vice President, Wind Tunnel 2000 $107,703 $ 0 $ 0 $ 3,907(4)
Business Development 1999 $105,290 $ 0 $ 0 $ 3,817(4)
Richard Thomalla 2001 $109,913 $ 0 $ 0 $ 3,986(5)
Vice President, Test Cell 2000 $104,481 $ 0 $ 0 $ 3,786(5)
Business Development 1999 $ 94,709 $ 0 $ 0 $ 3,471(5)
(1) Mr. Loux became President and Chief Executive Officer on October 1, 1999.
(2) Of the $37,500, $15,000 was paid in 2000 and $22,500 was paid in 2001.
(3) Consists of $949, $949 and $236 group life insurance premiums paid by the
Company for Mr. Loux in 2001, 2000 and 1999, respectively and $853 and $853
additional term insurance in 2001 and 2000. Also consists of $16,791 and
$7,839 of relocation expenses paid by the Company for Mr. Loux in 2000 and
1999, respectively. See "Report of Board of Directors on Executive
Compensation."
(4) Consists of $697, $676, and $655 of group life insurance premiums paid by
the Company for Mr. Kamis in 2001, 2000, and 1999 respectively, and $3,326,
$3,231, and $3,162 of contributions made in 2001, 2000, and 1999,
respectively, by the Company on behalf of Mr. Kamis under the Company's
401(k) retirement savings plan.
(5) Consists of $689, $651 and $630 in group life insurance premiums paid by
the Company for Mr. Thomalla in 2001, 2000 and 1999 and $3,297, $3,135 and
$2,841 of contributions made in 2001, 2000 and 1999 by the Company on
behalf of Mr. Thomalla under the Company's 401(k) retirement savings plan.
SUMMARY OF PLANS
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
11
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 15%
(subject to a maximum reduction of $11,000 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. In addition, eligible
employees may elect to reduce their salary or wages from the 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) 25% 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 will be 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 on their 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, 2001, 2000, and 1999, $800,975, $494,229, and
$635,575, respectively, were distributed by the Retirement Savings Plan. In
2001, 2000, and 1999, no distributions were made to any executive officer of the
Company, including the Named Executive Officers. Benefit amounts credited during
2001, 2000, and 1999 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."
12
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Charles H. Loux dated
August 30, 1999, which provides 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 and most recently on September 30, 2001 (the "Agreement").
The Agreement provides for an annual base salary of $162,240 effective January
1, 2002. The Agreement also provides for an annual incentive bonus based on
certain performance criteria set forth in the Agreement; these criteria 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.
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.
REPORT OF BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
During the year ended December 31, 2001, the members of the Board of Directors
of the Company, with the exception of Charles H. Loux, were not executive
officers or employees of the Company or its subsidiaries. For the period from
January 1, 2001 to September 25, 2001, Mr. Christer Persson was the only member
of the Board that also served as a Director or Executive Officer of a company of
which the capital stock is owned directly or indirectly (that is, through its
subsidiaries) by the Company's ultimate parent, Saab AB. For the period after
September 25, 2001, Messrs. Richard A. Hoel, James S. Kowalski, and Thomas L.
Auth are members of Minnesota ASE, LLC, which owns 51% of the Company's stock.
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:
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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.
Determination of Compensation of Chief Executive Officer
The CEO's total annual compensation consist of two elements -- annual base
salary and annual incentive bonus. Charles Loux's annual base salary for 2001
was determined in part by comparison to the annual salaries of chief executive
officers of other companies of similar size and complexity of the Company. The
annual incentive bonus component of Charles Loux's 2001 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 2001 were determined in the
first quarter of that year by agreement between Charles Loux and Mr. Christer
Persson, the Chairman of the Board. For the year ended December 31, 2001, 80% of
Charles Loux's total available incentive bonus was based on the Company reaching
certain levels of net income in 2001 as compared to the annual budget. The
remaining 20% of Charles Loux's 2001 incentive bonus was determined in the
Board's discretion after reviewing his overall performance. For 2001, Charles
Loux did not receive an annual incentive bonus.
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
14
PERFORMANCE GRAPH
The following graph and table show changes during the period since December 31,
1996 through December 31, 2001 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 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.
[GRAPH]
FIVE YEAR CUMULATIVE TOTAL RETURNS
Value of $100 invested on December 31, 1996
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Nasdaq (U.S.) $100 $122 $173 $304 $191 $152
Industry Group 100 121 114 126 222 244
Company 100 144 208 230 230 427
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Until September 25, 2001, Celsius Inc. owned approximately 80% of the Company's
outstanding Common Stock. Prior to this date, Celsius guaranteed certain bank
lines of credit granted to the Company by Skandinaviska Enskilda Banken ("SEB").
In addition, during the same period of 2001, Celsius Inc. 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 Celsius Inc. (a wholly-owned subsidiary
of Celsius AB, a Swedish holding company owned by Saab AB) 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, Celsius Inc. 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 Celsius Inc. of such lines of credit
and to secure any other present or
15
future obligations of the Company to Celsius Inc., the Company granted security
interests to Celsius Inc. 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, Celsius Inc. 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 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 funds and
$3,000,000 of letter of credit funds. Also related to this transaction, Celsius
Inc. agreed to continue to hold until maturity certain existing back guarantees
that were previously provided to a few of the Company's customers, and Celsius
Inc. 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 Celsius Inc. The Company also provided an
indemnification agreement to Celsius Inc. to secure Celsius Inc.'s interest in
the above items. The Company's obligations under the three-year Note are secured
by a Security Agreement between the Company and Celsius, Inc. and by a
combination Mortgage, Assignment of Rents, Security Agreement and Fixture
Financing Statement between the Company and Celsius, Inc. pursuant to which all
of the personal and fixture assets of the Company are pledged as collateral. The
Company, Minnesota ASE, LLC and Celsius, in connection with the foregoing loan
and security arrangements, are party to a Stockholders Agreement (the
"Stockholders Agreement"). The Stockholders Agreement provides, among other
things, for Celsius 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.
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.
For the period of September 25, 2001 through December 31, 2001, Minnesota ASE,
LLC charged the Company as consideration for such guarantees and for certain
administrative support provided and the Company paid a fee of $60,000. The
Company presently pays no compensation to board members that are affiliated with
Minnesota ASE, LLC.
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.
16
Based upon inquiries made by the Company of its executive officers and directors
and of inquiries made of Minnesota ASE, LLC, and Celsius Inc., which are the
only persons known to the Company which own more than ten percent of the Common
Stock, the Company believes that during 2001, its officers and directors,
Minnesota ASE, LLC and Celsius Inc. met all applicable Section 16(a) filing
requirements.
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 2003.
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.
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 2003, and
17
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: April 24, 2002 Secretary
18
AERO SYSTEMS ENGINEERING, INC.
A MINNESOTA CORPORATION
358 EAST FILLMORE AVENUE
ST. PAUL, MINNESOTA 55107
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, MAY 29, 2002
AERO SYSTEMS ENGINEERING, INC. PROXY
358 EAST FILLMORE AVENUE
ST. PAUL, MINNESOTA 55107
--------------------------------------------------------------------------------
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 April 26, 2002 at the
Annual Meeting of Shareholders to be held on May 29, 2002 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 May 29, 2002 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 at seven [ ] For [ ] Against [ ] Abstain
2. ELECTION OF DIRECTORS: 01 Richard A. Hoel 05 James S. Kowalski [ ] Vote FOR [ ] Vote WITHHELD
02 Charles H. Loux 06 Thomas L. Auth all nominees from all nominees
03 A.L. Maxson 07 Mark D. Pugliese (except as marked)
04 Dr. Leon E. Ring
(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 SEVEN AND FOR THE DIRECTORS
NAMED IN THE PROXY STATEMENT.
Address Change? Mark Box [ ]
Indicate changes below: Date __________________________________
____________________________________________
____________________________________________
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).