-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NBKCOZJ6x1Snvqyxkr7QEi9TECHypQvLIaWSBX1oRDwmLsKke/sRBQYIG1rRleiY WK+bzTeCujIQlIvulU8N6g== 0000912057-96-014752.txt : 19960717 0000912057-96-014752.hdr.sgml : 19960717 ACCESSION NUMBER: 0000912057-96-014752 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960716 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTECH SYSTEMS INC CENTRAL INDEX KEY: 0000722313 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 411681094 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-00888 FILM NUMBER: 96595417 BUSINESS ADDRESS: STREET 1: 641 EAST LAKE ST STREET 2: SUITE 234 CITY: WAYZATA STATE: MN ZIP: 55391 BUSINESS PHONE: 6124734102 FORMER COMPANY: FORMER CONFORMED NAME: DSC NORTECH INC DATE OF NAME CHANGE: 19901217 FORMER COMPANY: FORMER CONFORMED NAME: DIGIGRAPHIC SYSTEMS CORP DATE OF NAME CHANGE: 19881113 S-1/A 1 S-1/A As filed with the Securities and Exchange Commission on July 16, 1996. Registration No. 333-00888 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- AMENDMENT NO. 1 TO FORM S-3 (FILED ON FORM S-1) REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- NORTECH SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) --------------- Minnesota Primary Standard Industrial 41-1681094 (State or other jurisdiction of Classification Code (I.R.S. Employer incorporation or organization) 3573 Identification No.) 641 East Lake Street, Suite 234 Wayzata, MN 55391 (612) 473-4102 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------- Quentin E. Finkelson President and Chief Executive Officer Nortech Systems Incorporated 641 East Lake Street, Suite 234 Wayzata, MN 55391 (612) 473-4102 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copy to: Bert M. Gross, Esq. Phillips & Gross, P.A. 90 South Seventh Street, Suite 5420 Minneapolis, MN 55402 (612) 349-6786 -------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. --------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- Title of Each Amount to be Proposed Proposed Amount of Class of Securities Registered Maximum Maximum Registration Fee to be Registered Offering Price Per Aggregate Share (1) Offering Price (1) - ---------------------------------------------------------------------------------------------------------- Common Stock, 111,400 shares $7.0625 $1,412,500 $487.07(2) $.01 par value - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purposes of calculating the registration fee under Rule 457(c) based on the average of the high ($7.375) and the low ($6.75) prices for such shares on the NASDAQ National Market System on January 22, 1996. (2) Paid on January 24, 1996. NORTECH SYSTEMS INCORPORATED CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K
Item No. Form S-1 Item and Caption Location in Prospectus - -------- -------------------------------------- ------------------------------------------------------------ 1 Forepart of Registration Statement and Outside Front Cover Page of Prospectus . . . Outside Front Cover Page of Prospectus 2 Inside Front and Outside Back Cover Pages of Prospectus. . . . . . . . . . . . Available Information; Outside Cover Page of Prospectus 3 Summary Information and Risk Factors . . . . Investment Considerations 4 Use of Proceeds. . . . . . . . . . . . . . . Use of Proceeds 5 Determination of Offering Price. . . . . . . Not Applicable 6 Dilution . . . . . . . . . . . . . . . . . . Not Applicable 7 Selling Security Holders . . . . . . . . . . Selling Shareholders 8 Plan of Distribution . . . . . . . . . . . . Inside Front Cover of Prospectus; Plan of Distribution 9 Description of Securities to be Registered . Description of Securities to be Registered 10 Interests of Named Experts and Counsel . . . Legal Opinions 11 Information with Respect to the Registrant . . . . . . . . . . . . . . . . . The Company; Investment Considerations; Market for Registrant's Common Equity and Related Stockholder Matters; Selected Consolidated Financial Data; Supplementary Financial Information; Management's Discussion and Analysis of Financial Condition and Results of Operations; Management; Executive Compensation; Stock Option Grants; Stock Option Exercises and Option Values; Security Ownership of Certain Beneficial Owners and Management; Shares Eligible for Future Sale; Consolidated Financial Statements 12 Disclosure of Commission Position on Indemnification for Securities Act Liabilities . . . . . . . . . . . . . . . . Disclosure of Commission Position on Indemnification for Securities Act Liabilities
SUBJECT TO COMPLETION, DATED JULY 9, 1996 111,400 Shares NORTECH SYSTEMS INCORPORATED Common Stock _____________ The 111,400 shares of Common Stock offered hereby (the "Shares") are being offered by the Selling Shareholders. Nortech Systems Incorporated (the "Company") will not receive any of the proceeds from the sale of Shares by the Selling Shareholders. See "Selling Shareholders." The Selling Shareholders have advised the Company that sales of the Shares may be made from time to time in the over-the-counter market, through negotiated transactions or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Selling Shareholders may effect such transactions by selling the Shares to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders or the purchasers of the Shares for whom such broker-dealers may act as agent or to whom they may sell as principal, or both (which compensation to a particular broker-dealer might be in excess of customary commissions). See "Selling Shareholders" and "Plan of Distribution." No period of time has been fixed within which the Shares may be offered or sold. The Company will initially pay all expenses with respect to this offering, except for brokerage fees and commissions and transfer taxes for the Selling Shareholders, which will be borne by the Selling Shareholders. The Common Stock is quoted on the NASDAQ National Market System under the symbol "NSYS." On July 8, 1996, the last sale price of the Common Stock as reported by NASDAQ was $6.75 per share. See "Market for Registrant's Common Equity." The Common Stock is being offered on a delayed or continuous basis. See "Investment Considerations" for a discussion of certain matters that should be considered by prospective purchasers of the Common Stock. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------- No dealer, salesperson or any other person has been authorized to give any information or to make any representation in connection with this offering other than those contained in this Prospectus, and if given or made, such information or representations must not be relied upon as having been authorized by the Company or any of the Underwriters. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy by anyone in any jurisdiction in which such offer to sell or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date. ---------- The date of this Prospectus is July 9, 1996 THE COMPANY DESCRIPTION OF BUSINESS Nortech Systems Incorporated (the "Company") is a Minnesota corporation organized in December 1990. Prior to December 1990, the business of the Company was operated as DSC Nortech, Inc., which in 1990 filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code. The business and assets of DSC Nortech, Inc., were transferred to the Company in December 1990. The Company's headquarters are in Wayzata, Minnesota, a suburb of Minneapolis, Minnesota. The Company's main manufacturing facility is located in Bemidji, Minnesota, with a satellite manufacturing and engineering support facility located in Augusta, Wisconsin. The Company manufactures wire harnesses, cables, and electromechanical assemblies. The Company provides a full "turnkey" contract manufacturing service to its customers. This service begins with procurement of materials and ends with the shipment of finished products to the customer. All products are built to the customer's design specifications. The Company believes it provides a high degree of manufacturing sophistication. This includes the use of statistical process control to insure product quality, state-of-the-art materials, management techniques allowing just-in-time (JIT) delivery of products, and the systems necessary to effectively manage the business. This level of sophistication enables the Company to attract major original equipment manufacturers (OEM). The strategy of the Company has been to expand its customer base, and the Company has added several new customers from various industries; including companies engaged in the production of medical products, super computers, mid-size and micro computer business systems, and industrial products. The Company strategy is to develop a customer base spanning several industry segments to avoid the effects of fluctuations within a given industry. Some of the Company's major customers are Cray Research, G.E. Medical Systems and OTC, a division of SPX Corporation. The Company believes that contract manufacturing will continue to grow and expand in the United States because contract manufacturing provides OEMs with the domestic equivalent of off-shore sourcing without the associated logistical problems. The contract manufacturer can provide an OEM with a quality product at a price well below that available in the OEM's own facility. This is due primarily to the specialization available through the contract manufacturer and the significantly lower overhead costs. In 1991 the Company acquired all of the common stock of SMR Computer Services, Inc. The Company through this subsidiary (now named Nortech Medical Services, Inc.) provides service bureau and office management services to physicians. In March of 1995, the Company acquired the assets of Monitor Technology Corporation, consisting of inventory, accounts receivable, equipment and other assets. The Company has continued the business of Monitor which is the manufacturing of large-screen, high-resolution video monitors for radar, document and medical imaging. In addition, this division provides repair services on internally and externally produced monitors. In August of 1995, the Company acquired the assets of the Aerospace Division of Communication Cable, Inc. The Company has continued the business formally conducted by Aerospace which involves the manufacturing of custom designed, high-technology electronic cable assemblies for various applications. PATENTS AND LICENSES The Company is not dependent on a proprietary product requiring licensing, patent, copyright or trademark protection. There are no revenues derived from the Company's service-related business for which patents, licenses, copyrights and trademark protection are necessary for successful operations. 2 BACKLOG. The Company's firm 90-day order backlog was approximately $3,285,000 on December 31, 1994, approximately $4,813,000 on December 31, 1995, and approximately $6,284,000 on March 31, 1996. RESEARCH AND DEVELOPMENT The Company expended $124,919 on Company-sponsored research and development in 1995 and $73,366 in the first quarter of 1996. This research is related to the development of large-screen, high-resolution video monitors for the Company's imaging division. In 1994 and 1993, no funds were expended on Company-sponsored research. COMPLIANCE WITH ENVIRONMENTAL PROVISIONS Management believes that its manufacturing facilities are currently operating under compliance with local, state, and federal environmental laws. Any environmental-oriented equipment is capitalized and depreciated over a seven-year period. The annualized depreciation expense for this type of environmental equipment on a Company-wide basis is insignificant. EMPLOYEES The Company has 288 full-time and 83 part-time employees as of March 1, 1996, consisting of 348 employees in manufacturing and manufacturing product support and 23 in general administration. PROPERTIES The Company's headquarters consist of approximately 2,900 square feet located in Wayzata, Minnesota, a western suburb of Minneapolis, Minnesota, leased on a month-to-month basis. The Company believes its Wayzata facilities are now adequate and will be adequate in the foreseeable future for its headquarters. However, should the Company need other or additional space, it believes such facilities are readily available. The Company owns its Bemidji, Minnesota facilities consisting of eight acres of land and 60,000 square feet of office and manufacturing space and leases another 8,000 square feet of manufacturing and office space in Augusta, Wisconsin. The Company's monitor construction and repair business is operated from a facility located in Plymouth, Minnesota. The building contains approximately 22,800 square feet and is leased by the Company for a term that terminates on May 31, 2000. The Company has an option to extend the lease for an additional five-year term. The Company believes that this facility is adequate for its monitor operations and will be adequate for the foreseeable future for such operations. The Company also owns three buildings which contain approximately 46,900 square feet located Fairmont, Minnesota, which are used for the manufacturing of the Company's custom designed, high-technology electronic cable assemblies. The Company believes that these buildings are adequate and will be adequate in the foreseeable future for this portion of the Company's business. INVESTMENT CONSIDERATIONS CONTROL OF THE COMPANY Upon completion of this offering, Myron Kunin, a director of the Company, will own approximately 40% of the outstanding Common Stock and will effectively remain in a position to elect the Company's Board of Directors and control the Company. 3 SHARES ELIGIBLE FOR FUTURE SALE Future sales of substantial amounts of Common Stock in the public market could adversely affect the market price of the Common Stock. Upon completion of this offering, the Company will have 2,362,263 outstanding shares of Common Stock. Of these shares, 1,279,866 shares, including the 111,400 shares sold in this offering, will be freely tradeable without restriction under the Securities Act. The remaining 1,082,397 shares of Common Stock are "restricted securities" within the meaning of Rule 144 under the Securities Act and are eligible for sale, subject to the volume and other resale restrictions imposed by Rule 144. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregate) who has beneficially owned restricted securities for at least two years is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of the Common Stock (23,622 shares immediately after completion of this offering) or (ii) the average weekly trading volume during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Commission. Sales pursuant to Rule 144 are also subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. A person who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding the sale and whose restricted securities have been fully paid for three years since the later of the date they were acquired from the Company or the date they were acquired from an affiliate of the Company may sell such restricted securities under Rule 144(k) without regard to the restrictions described above. In March 1995, the Company acquired substantially all of the assets of Monitor Technology Corporation ("Monitor"). A portion of the purchase price was paid by issuing to Monitor 250,000 shares of the Company's Common Stock. An option was granted to Monitor at closing to require the Company to repurchase all or any portion of the 250,000 shares at $6.00 per share. Of the 250,000 shares, 200,000 were issued to Monitor and 50,000 are held in escrow pending an arbitration proceeding to resolve issues relating to possible breaches of the Monitor's warranties. The 200,000 shares issued to Monitor were distributed to Monitor's shareholders. Of these shares, 88,600 shares have been redeemed by the Company at $6.00 per share. The remaining 111,400 shares are the subject of this offering. COMPETITION The contract manufacturing industry is characterized by competition among a variety of company-owned facilities and foreign competitors. The Company does not believe that the small operations are significant competitors, as they do not seem to have the capabilities required by target customers of the Company. The Company also believes that foreign competitors do not provide a substantial competitive threat because the cable and wire harness industry involves a high weight-to-cost ratio. Consequently, shipping and transportation costs decrease the ability of foreign manufacturers to compete in this market segment. Further, off-shore production cannot effectively meet the requirements of just-in-time inventory management techniques presently being implemented by many major target customers. Therefore, the Company's principal competitors are larger full-service manufacturers, many of which have substantially far greater assets and capital resources than are available to the Company and are better financed than the Company. The Company will continue to pursue marketing opportunities in the Upper Midwest. Although there presently are no dominant contract manufacturers in the wire harness and cable assembly business in the Upper Midwest, there are several established competitors. Many of these competitors specialize in molded cables or wire assemblies and have sufficient manufacturing capabilities to offer a significant competitive challenge to the Company's operations. The principal competitive factors in the contract manufacturing industry are price, quality and responsive service. The Company believes that it can compete favorably in the market segments to which it sells. 4 CONCENTRATION OF CUSTOMERS Three customers accounted for approximately 24.1%, 16.6% and 11.8% of sales, respectively, for the year ended December 31, 1995. One customer accounted for approximately 10.4% of accounts receivable at December 31, 1995. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Shares by the Selling Shareholders. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is quoted on the National Market System under the symbol "NSYS." Prior to October 11, 1995, the stock was quoted on the NASDAQ Small Cap Market System. The high and low bid quotations for the Company's Common Stock for each quarterly period within the two most recent years and for the quarterly period ended March 31, 1996, were as follows: Quarter ended: Low High - ------------- --- ---- March 31, 1994 $5.00 $5.75 June 30, 1994 $4.00 $4.75 September 30, 1994 $3.75 $4.50 December 31, 1994 $3.00 $3.75 March 31, 1995 $3.00 $4.00 June 30, 1995 $3.00 $4.25 September 30, 1995 $3.25 $6.00 December 31, 1995 $4.75 $8.50 March 31, 1996 $6.00 $9.00 As of May 1, 1996, there were approximately 1,460 holders of shares of the Company's Common Stock. The Company has never paid a cash dividend on shares of its Common Stock and does not intend to pay cash dividends in the foreseeable future. DESCRIPTION OF SECURITIES TO BE REGISTERED GENERAL The Company's authorized Common Stock consists of 9,000,000 shares, par value $.01 per share, of which 2,362,263 shares of Common Stock were outstanding as of April 30, 1996. Each holder of shares of Common Stock is entitled to one vote per share in all matters to be voted on by stockholders. There are no cumulative voting rights. The holders of Common Stock are entitled to share rateably in dividends and other distributions as and when declare by the Board of Directors out of funds legally available therefor. See "Dividend Policy." Upon the liquidation, dissolution or winding up of the Company, and after redemption of the 250,000 shares of preferred stock outstanding at a redemption price of $1.00 per share (plus accrued but unpaid dividends), the 5 holder of each share of Common Stock would be entitled to share pro rata in the distribution of all assets available for distribution. The holders of Common Stock are not entitled to preemptive rights to purchase Common Stock. The shares of Common Stock to be sold by the selling shareholder in this offering are fully paid and non-assessable. TRANSFER AGENT AND REGISTRAR American Securities Transfer, Incorporated is the transfer agent and registrar for the Common Stock. SELECTED CONSOLIDATED FINANCIAL DATA The following represents selected consolidated financial data as of December 31, 1991, 1992, 1993, 1994 and 1995. YEAR ENDED: -----------
Dec. 31, 1995(1) Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991 ---------------- ------------- ------------- ------------- ------------- Net Sales $18,305,928 $12,820,709 $11,705,833 $7,299,916 $6,052,996 Income From Continuing Operations $1,331,924 $1,183,406 $1,042,556 $636,723 $530,413 Income Per Common Share From Continuing Operations $0.55 $0.54 $0.47 $0.28 $0.24 Total Assets $13,223,064 $6,647,897 $6,553,291 $5,284.001 $2,974,806 Total Long-Term Debt $3,768,685 $746,755 $858,437 $977,635 $1,012,942 Redeemable Shares(2) $1,500,000
(1) The Company acquired Monitor Technology Corporation on March 28, 1995 and Aerospace Systems on August 23, 1995. The results of the operations of the acquired companies are included in the Company's consolidated statement of income from the dates of the acquisitions. (2) See "Shares Eligible for Future Sale." SUPPLEMENTARY FINANCIAL INFORMATION The following represents net sales, gross profit (net sales less costs and expenses associated directly with or allocated to products sold or services rendered), income before extraordinary items and cumulative effect of a change in accounting, per share data based on such income, and net income, for each full quarter within the two most recent fiscal years of the Company, and for the quarter ended March 31, 1996. 6 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA) QUARTER ENDED(1)
- ------------------------------------------------------------------------------------------------------------------------------ MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995 MARCH 31, 1996 -------------- ------------- ------------------ ----------------- -------------- Net Sales $3,625,624 $4,374,899 $5,449,175 $4,856,590 $5,574,986 Gross Profit $673,905 $964,800 $966,969 $1,159,166 $1,006,355 Net Income $244,003 $244,049 $212,588 $631,284 $189,894 Income Per Share of Common Stock $.11 $.10 $.10 $.25 $.08
QUARTER ENDED - ------------------------------------------------------------------------------------------------------------------------------ MARCH 31, 1994 JUNE 30, 1994 SEPTEMBER 30, 1994 DECEMBER 31, 1994 --------------- ------------- ------------------ ----------------- Net Sales $3,499,798 $3,235,186 $2,666,091 $3,419,634 Gross Profit $704,144 $614,024 $566,570 $713,831 Net Income $297,126 $262,564 $200,622 $423,094 Income Per Share of Common Stock $.14 $.12 $.09 $.19
(1) The Company acquired Monitor Technology Corporation on March 28, 1995 and Aerospace Systems on August 23, 1995. The results of the operations of the acquired companies are included in the Company's consolidated statement of income from the dates of the acquisitions. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REVENUES For the years ended December 31, 1995 and 1994 the Company had sales of $18,305,928 and $12,820,709, respectively. The increase of $5,485,219, or 42.8%, resulted primarily from increased sales to the medical and automotive industries offset by the reduced sales to the mid-sized computer industries as well as increased revenues from the newly acquired divisions. For the year ended December 31, 1993 the Company had sales of $11,705,833. The approximate 9.5% increase in sales in 1994 was attributable to an increase in sales in the mid-sized computer industries. For the quarter ended March 31, 1996, the Company had revenues of $5,574,986 compared to revenues of $3,625,264 for the quarter ended March 31, 1995. The increase in revenues resulted primarily from the additional revenues generated by the recently acquired Aerospace Division. GROSS PROFIT The Company had gross profit of $3,764,840 in 1995, $2,598,569 in 1994 and $2,385,016 in 1993. Gross profits as a percentage of gross sales were 20.6% in 1995, 20.3% in 1994 and 20.4% in 1993. The increase in gross profit from 1994 to 1995 was due to increased sales levels and acquisition activity in 1995. 7 For the quarter ended March 31, 1996, the Company had gross profit of $1,006,355 compared to gross profit of $673,905 for the quarter ended March 31, 1995. Increased gross profit resulted from the increased revenue levels due to the recently acquired Aerospace Division. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses were $2,280,105 in 1995, $1,647,797 in 1994 and $1,546,971 in 1993. The increase from 1994 to 1995 reflects increased selling, general and administrative expenses associated with the acquisition of two additional divisions. The increase from 1993 to 1994 reflects increased selling expense due to increased revenue levels. For the quarter ended March 31, 1996, selling, general and administrative expenses were $593,108 compared to $404,447 for the same period in 1995. The increase was associated with the acquisition of the Aerospace Division which was not included in the period ended March 31, 1995. MISCELLANEOUS INCOME Miscellaneous income was $177,967 in 1995, $86,307 in 1994 and $71,030 in 1993. The miscellaneous income resulted primarily from charges for miscellaneous services. During the quarter ended March 31, 1996, the miscellaneous income was $56 compared to $25,289 for the period ended March 31, 1995. Reduced miscellaneous income was due to changes in the mix of the Company's business. INTEREST EXPENSE Interest expense was $240,562 in 1995, $117,835 in 1994 and $124,887 in 1993. The increased expense for 1995 is due to the increased debt from acquired operations. For the quarter ended March 31, 1996, interest expense was $86,745 compared to $21,441 for the period ended March 31, 1995. Increased interest expense reflects the additional debt incurred for the acquisition of Monitor Technology and the Aerospace Division. INCOME TAXES Tax expense was not recorded in 1995 because of additional net operating loss carryforwards (NOLs) of approximately $2,504,000 which were recognized because of final tax regulations. The regulations clarified that tax carryforward attributes in a Chapter 11 bankruptcy prior to December 31, 1993 where stock was issued for debt, need not be reduced by debt cancellation income. The tax benefit of approximately $851,000 created by additional NOLs was partially offset by a $300,000 increase in the deferred tax valuation allowance. Realization of the deferred tax asset is dependent upon the Company generating sufficient taxable earnings in future periods. In determining that realization of the deferred tax asset is more likely than not, the Company gave consideration to recent earnings history, its expectation for taxable earnings in the future and the expiration dates associated with tax carryforwards. Tax benefits of $245,794 and $241,206 were recorded in 1994 and 1993 due to the reduction in the deferred tax valuation allowance of $600,000 and $540,000, respectively, due to the realization of net operating loss carryforwards. During the quarter ended March 31, 1996, a tax provision of $63,300 was recorded compared to no such provision for the quarter ended March 31, 1995. No tax expense was recorded in 1995 because of the reasons 8 set forth above. NET INCOME The Company's net income in 1995 was $1,331,924, or $.55 per common share. The Company's net income in 1994 was $1,183,406, or $.54 per common share. The Company's net income in 1993 was $1,042,556, or $.47 per common share. The net income for the three months ended March 31, 1996 was $189,894 or $.08 per share, compared to a net income of $244,003 or $.11 per share, for the three months ended March 31, 1995. The net income for the quarter ended March 31, 1996 was primarily impacted by the continuing expending funds on Company-sponsored research and development of large-screen, high resolution video monitors for the imaging division and the recognition of income tax expense. The net income for the quarter ended March 31, 1995 includes expenses associated with the reconfiguration of the Bemidji Production facility. The Company believes that the effect of inflation on past operations has not been significant and anticipates that inflation will not have a significant impact on future operations. LIQUIDITY AND CAPITAL RESOURCES The Company's Working Capital improved from $2,922,773 as of December 31, 1994 to $5,279,509, as of December 31, 1995, and to $5,658,228 as of March 31, 1996. Stockholders' equity increased from $4,720,503 as of December 31, 1994 to $6,036,166 as of December 31, 1995 due to the Company's 1995 net income and the issuance of common stock due to the exercise of stock options and gain-sharing distributions. The Company's liquidity and capital resources have improved substantially, and the Company believes that its future financial requirements can be met with funds generated from the operating activities and from the Company's operating line of credit. In March 1995 the Company completed the asset purchase of Monitor Technology Corporation. This division of the Company designs and builds high and ultra-high resolution CRT monitors for radar, document and medical imaging. In addition, the division provides repair services on internally and externally produced monitors. In August 1995, the Company acquired the assets of Aerospace Systems, a division of Communication Cable, Inc. The Company has continued the business formally conducted by Aerospace which involves the manufacturing of custom designed, high-technology electronic cable assemblies for various applications. These acquisitions are expected to positively impact future operations and enhance the financial condition of the Company over time. However, there are no guarantees of future performance. RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board (the FASB) statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, will become effective for the Company in 1996. Currently, Statement No. 121 would have no impact on the Company's financial position or results of operations. In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation. The Company has elected to continue following the guidance of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, for measurement and recognition of stock-based transactions with employees. The Company will adopt the disclosure provisions of SFAS No. 123 in 1996. 9 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
EXECUTIVE OFFICER NAME AGE POSITION OR DIRECTOR SINCE - -------------- --- --------------------------------------------- ----------------- Quentin E. Finkelson 63 Chairman, President, Chief Executive Officer and Secretary 1990 Gregory D. Tweed 46 Senior Vice President and General Manager 1990 Garry Anderly 49 Vice President of Finance and Administration 1990 Peter L. Kucera 49 Vice President of Quality 1990 Myron Kunin 67 Director 1990 Richard W. Perkins 65 Director 1993
Mr. Finkelson has been President and Chief Executive Officer, Treasurer, Secretary and Director since November 30, 1990. Prior thereto, Mr. Finkelson was President, Secretary and Treasurer of DSC Nortech, Inc., the Company's predecessor, and a director of that Company since 1988. Mr. Tweed has been Senior Vice President and General Manager of the Company since November 30, 1990. Mr. Anderly has been Vice President of Finance and Administration of the Company since November 30, 1990. Mr. Kucera has been Vice President of Quality of the Company since November 30, 1990. Mr. Kunin has served as Chairman of the Board of Directors and Chief Executive Officer of Regis Corporation since 1983. He is also a director of The Cerplex Group. He has been a director of the Company since November 30, 1990. Mr. Perkins is President, Chief Executive Officer and a director of Perkins Capital Management, Inc., where he has held those positions since January 1985. He is also a director of Bio-Vascular, Inc., Childrens Broadcasting Corporation, Lifecore Biomedical, Inc., Garment Graphics, Inc., CNS, Inc., Eagle Pacific Industries, Quantech, Ltd. and Discus Acquisition Corporation. Directors of the Company are elected at the annual shareholders meeting and serve until their successors are duly elected and qualified. Executive officers of the Company are elected by the Board of Directors and serve until their successors are duly elected and qualified. EXECUTIVE COMPENSATION The following table shows, for 1995, 1994 and 1993, the cash compensation paid by the Company, as well as certain other compensation paid or accrued for those years, to the Company's President/Chief Executive Officer, the only executive officer whose total annual compensation exceeded $100,000: 10
LONG-TERM COMPENSATION AWARDS NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) - ------------------------------------------------------------------------------------- Quentin E. Finkelson 1995 122,453 0 50,000 President/Chief Executive Officer 1994 113,412 0 10,000 Secretary, and Director 1993 110,035 0 15,000
STOCK OPTION GRANTS The following table provides information on stock options granted in 1995 to the Named Executive Officer pursuant to the Company's 1992 Stock Option Plan. OPTION SHARES GRANTED IN LAST FISCAL YEAR
INDIVIDUAL GRANTS - ----------------------------------------------------------------- PERCENT OF TOTAL OPTIONS/ POTENTIAL REALIZABLE SARS VALUE AT ASSUMED OPTIONS/ GRANTED TO ANNUAL RATES OF STOCK SARS EMPLOYEES EXERCISE OR PRICE APPRECIATION GRANTED IN FISCAL BASE PRICE EXPIRATION FOR OPTION TERM NAME (#) YEAR ($/SH) DATE --------------------- 5%($)(1) 10%($)(1) (A) (B) (C) (D) (E) (F) (G) - ------------------------------------------------------------------------------------------------------ Quentin E. Finkelson 50,000 52.6% 5.25 12/1/05 165,085 418,346 - ------------------------------------------------------------------------------------------------------
(1) The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of the future Common Stock price. STOCK OPTION EXERCISES AND OPTION VALUES The following table contains information concerning stock options exercised during 1995 and stock options unexercised at the end of 1995 with respect to the Named Executive Officer: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------- Value of Number of unexercised unexercised in-the-money options/SARs at options/SARs at fiscal year-end fiscal year-end (#) ($) --------------------------------------- Shares acquired on Value Exercisable/ Exercisable Name exercise(#) Realized($) unexercisable unexercisable (a) (b) (c) (d) (e)(1) - ------------------------------------------------------------------------------------------------- Quentin E. Finkelson 0 0 25,000/50,000 139,375/137,500 - -------------------------------------------------------------------------------------------------
(1) Market value of underlying securities at year-end minus the exercise price. 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of April 1, 1996, the ownership of Common Stock of the Company by each shareholder who is known by the Company to won beneficially more than 5% of the outstanding shares of the Company, by each director and by all executive officers and directors as a group. The parties listed in the table have the voting and investment powers with respect to the shares indicated:
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS BENEFICIALLY OWNED OF CLASS - --------------------------------------------------------------------------------- Myron Kunin 958,357 40.6% 7201 Metro Boulevard Edina, MN 55439 - --------------------------------------------------------------------------------- Quentin Finkelson 137,040(1) 5.8% - --------------------------------------------------------------------------------- Richard W. Perkins 12,000 * - --------------------------------------------------------------------------------- All executive officers and directors 1,129,897(2) 47.8% as a group (six persons)
(1) Includes 25,000 shares subject to presently exercisable options granted to Mr. Finkelson pursuant to the Company's stock option plan. (2) Includes 42,500 shares subject to presently exercisable options. * Less than one percent. SELLING SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock as of May 1, 1996, and as adjusted to reflect the sale of the Common Stock offered hereby for the Selling Shareholders:
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED BEFORE THE OWNED AFTER THE OFFERING(1) OFFERING(1) -------------------- ------------------- SHARES BEING NAME NUMBER PERCENT OFFERED NUMBER PERCENT - ---------------- ------ ------- ------------ ------ ------- Jack Lehtinen 69,600 2.8% 69,600 0 0 Joseph Lloyd (2) 7,400 * 7,400 0 0 Daniel J. Jones 2,300 * 2,300 0 0 Timothy J. Kalstad 2,400 * 2,400 0 0 Thomas J. Tingo 900 * 900 0 0 Curtis S. Gustafson 9,600 * 9,600 0 0 John L. Roudebush 9,600 * 9,600 0 0 John F. Lamoureux 9,600 * 9,600 0 0
- ---------------------- (1) Excludes additional Shares that may be awarded to the Selling Shareholders pursuant to pending arbitration proceedings. See "Shares Eligible for Future Sale." The maximum number of additional 12 Shares subject to award to each Selling Shareholder is as follows: Mr. Lehtinen 17,400; Mr. Lloyd 1,850; Mr. Jones 1,200; Mr. Kalstad 600; Mr. Tingo 600; and Messrs. Gustafson, Roudebush and Lamoureux 2,400 each. (2) Mr. Lloyd is employed by the Company as the general manager of its Imaging Technologies Division. * less than one percent. PLAN OF DISTRIBUTION The Company has been advised that the Selling Shareholders may sell Shares from time to time in transactions in the over-the-counter market, through negotiated transactions or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Sales may be made pursuant to this Prospectus to or through broker-dealers who may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders or the purchasers of Common Stock for whom such broker-dealer may act as agent or to whom they may sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). The Selling Shareholders and any broker-dealers or other persons acting on their behalf in connection with the sale of Shares may be deemed to be "underwriters" within the meaning of the Securities Act, and any commissions received by them and any profit realized by them on the resale of the Shares as principals may be deemed to be underwriting commissions under the Securities Act. No period of time has been fixed within which the Shares may be offered or sold. The Company will not receive any part of the proceeds of any sales of Shares pursuant to this Prospectus. Pursuant to the agreements entered between the Company and the Selling Shareholders, the Company will initially pay all the expenses of registering the Shares, except for selling expenses incurred by the Selling Shareholders in connection with this offering, including any fees and commissions payable to broker-dealers or other persons, which will be borne by the Selling Shareholders. LEGAL OPINIONS The validity of the Common Stock being offered hereby will be passed upon for the Company and the Selling Shareholders by Phillips & Gross, P.A., Minneapolis, Minnesota. Bert Gross, a shareholder of Phillips & Gross, P.A., owns 30,000 shares of the Company's stock. EXPERTS The consolidated financial statements and financial statement schedule of the Company as of December 31, 1994 and 1995 and for the years ended December 31, 1993, 1994, and 1995 included herein and elsewhere in the Registration Statement, audited by Larson, Allen, Weishair & Co., LLP, independent auditors, as stated in their reports herein and elsewhere in the Registration Statement, are included herein in reliance on the reports of such firm, given on the authority of that firm as experts in accounting and auditing. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Section 302A.521, Minnesota Statutes, provides that a corporation shall indemnify any person who was or is made or is threatened to be made a party to any proceeding by reason of the former or present official capacity of such person against judgments, penalties and fines including, without limitation, excise taxes assessed against each person with respect to an employee benefit plan, settlements, and reasonable expenses, including 13 attorneys' fees and disbursements, incurred by such person in connection with the proceeding, if, with respect to the acts or omissions of such person complained of in the proceeding, such person (i) has not been indemnified by another organization or employee benefit plan for the same penalties, fines, taxes and expenses with respect to the same acts or omissions; (ii) acted in good faith; (iii) received no improper personal benefit and Section 302A.255 (regarding conflict of interest), if applicable, has been satisfied; (iv) in the case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful; and (v) in the case of acts or omissions by persons who were or are serving other organizations at the request of the corporation or whose duties involve or involved service for other organizations, reasonably believed that the conduct was not opposed to the best interests of the corporation. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facility maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington D.C. 20549, and at the regional offices of the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048 and the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 at prescribed rates. The Common Stock is quoted on the NASDAQ National Market System and reports, proxy statements and other information regarding the Company can also be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. This Prospectus constitutes a part of the Registration Statement on Form S-1 filed by the Company with the Commission under the Securities Act. This Prospectus does not contain all of the information set forth in the Registration Statement, certain items of which are contained in schedules and exhibits to the Registration Statement as permitted by the rules and regulations of the Commission. Reference is hereby made to the Registration Statement and to the exhibits thereto for further information with respect to the Company. Any statements contained herein concerning the provisions of any contract, agreement or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract, agreement or other document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. The Registration Statement, including the exhibits thereto, may be inspected without charge at the Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, and copies of all or any part thereof may be obtained from such office at prescribed rates. 14 - -------------------------------------------- - -------------------------------------------- TABLE OF CONTENTS PAGE The Company. . . . . . . . . . . . . . . 2 Investment Considerations. . . . . . . . 4 Use of Proceeds. . . . . . . . . . . . . 5 Market for Registrant's Common Equity and Stockholder Matters . . . . . . . . 5 Description of Securities to be Registered. . . . . . . . . . . . . . . 5 Selected Consolidated Financial Data . . 6 Supplementary Financial Information. . . 6 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 7 Management . . . . . . . . . . . . . . . 9 Executive Compensation . . . . . . . . . 10 Stock Option Grants. . . . . . . . . . . 10 Option Shares Granted in Last Fiscal Year. . . . . . . . . . . . . . . . . . 10 Stock Option Exercises and Option Values. . . . . . . . . . . . . . . . . 10 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . 11 Selling Shareholders . . . . . . . . . . 12 Plan of Distribution . . . . . . . . . . 12 Legal Opinions . . . . . . . . . . . . . 12 Experts. . . . . . . . . . . . . . . . . 12 Disclosure of Commission Position on Indemnification for Securities Act Liabilities . . . . . . . . . . . . . . 12 Available Information. . . . . . . . . . 13 Index to Consolidated Financial Statements. . . . . . . . . . . . . . . F-1 - -------------------------------------------- - -------------------------------------------- -------------------------------------------- -------------------------------------------- 111,400 Shares NORTECH SYSTEMS INCORPORATED Common Stock __________ PROSPECTUS __________ ______________, 1996 -------------------------------------------- -------------------------------------------- INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following is an itemized statement of all expenses in connection with the issuance and distribution of the securities being registered: ITEM AMOUNT ----- ------ Securities and Exchange Commission Registration Fee . . . $ 608.84* Blue Sky Fees and Expenses . . . . . . . . . . . . . . . $ 500.00* Legal Fees and Expenses . . . . . . . . .. . . . . . . $10,000.00* Accounting Fees and Expenses . . . . . . . . . . . . . . $ 4,000.00* Transfer Agent Fees and Expenses . . . . . . . . . . . . $ 200.00* Miscellaneous Expenses . . . . . . . . . . . . . . . . . $ 200.00* Total . . . . . . . . . . . . . . . . . . . . . . . $ 15,508.84 - ------------------- *Estimated Amounts. Item 14. Indemnification of Directors and Officers. Section 302A.521, Minnesota Statutes, provides that a corporation shall indemnify any person who was or is made or is threatened to be made a party to any proceeding by reason of the former or present official capacity of such person against judgments, penalties and fines including, without limitation, excise taxes assessed against each person with respect to an employee benefit plan, settlements, and reasonable expenses, including attorneys' fees and disbursements, incurred by such person in connection with the proceeding, if, with respect to the acts or omissions of such person complained of in the proceeding, such person (i) has not been indemnified by another organization or employee benefit plan for the same penalties, fines, taxes and expenses with respect to the same acts or omissions; (ii) acted in good faith; (iii) received no improper personal benefit and Section 302A.255 (regarding conflict of interest), if applicable, has been satisfied; (iv) in the case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful; and (v) in the case of acts or omissions by persons who were or are serving other organizations at the request of the corporation or whose duties involve or involved service for other organizations, reasonably believed that the conduct was not opposed to the best interests of the corporation. Item 15. Recent Sales of Unregistered Securities. The following information is furnished as to all securities of the Company sold by the Company within the past three years which were not registered under the Securities Act: On March 28, 1995 the Company acquired all of the assets of Monitor Technology Corporation in exchange for 250,000 shares of the Company's common stock. The assets of Monitor were valued for purposes of this transaction at $1,500,000. Exemption from registration was claimed under Section 4(2) of the Act. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits. II-1 REGISTRATION S-K EXHIBIT TABLE ITEM REFERENCE - ----- --------- Asset Purchase Agreement between the Registrant, Monitor Technology Corporation and the Shareholders of Monitor Technology Corporation dated February 24, 1995 (incorporated by reference to Exhibit 2 to Form 8-K Current Report filed April 5, 1995) 2.1 Asset Purchase Agreement between the Registrant and Communication Cable, Inc. dated August 23, 1995 (incorporated by reference to Exhibit 2 to Form 8-K Current Report filed August 28, 1995) 2.2 Articles of Incorporation of the Company 3.1 Bylaws of the Company 3.2 Form of Stock Certificate 4.1 Opinion of Phillips & Gross, P.A. 5 Revolving Note and Security Agreement for working capital line of credit between Company and Northern National Bank dated December 29, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.1 Promissory Note for purchase of facility in Fairmont, Minnesota between Company and Northern National Bank dated December 29, 1995 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.2 Promissory Note for purchase of capital equipment located in Fairmont, Minnesota facility between Company and Northern National Bank dated December 29, 1995 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.3 Security Agreement covering Promissory Notes in Exhibits 10.1, 10.2 and 10.3 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) 10.4 Promissory Note for working capital line of credit between the Company and Northern National Bank dated May 2, 1994 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) 10.5 Promissory Note and Loan Agreement for capital equipment line of credit between the Company and Northern National Bank dated April 29, 1994 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) 10.6 Loan Agreement for Real Estate between the Company and Northern National Bank dated March 18, 1994 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) 10.7 II-2 Update Promissory Note and Loan Agreement for NMS capital equipment between the Company and Northern National Bank dated January 15, 1995 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) 10.8 Promissory Notes and Loan Agreement for Real Estate between the Company and MMCDC and MMCDC/NNC dated March 18, 1994 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) 10.9 Promissory Note and Loan Agreement for capital equipment line of credit between the Company and Northern National Bank dated September 24, 1993 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) 10.10 Promissory Notes for capital equipment between the Company and City of Augusta, Wisconsin dated August 17, 1993 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) 10.11 Promissory Notes and Loan Agreement for capital equipment between the Company and Northern States Power Company dated November 15, 1993 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) 10.12 Nortech Medical Services, Inc. Wholly-owned subsidiary of the Company incorporated in Minnesota on August 12, 1991 21 Consent of Larson, Allen, Weishair & Co., LLP 23.1 Consent of Phillips & Gross, P.A. (included in Exhibit 5) 23.2 Powers of Attorney 24 (b) Financial Statement Schedules. Report of Independent Auditors on Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts All other schedules to the consolidated financial statements required by Article 5 of Regulation S-X are inapplicable and, therefore, have been omitted. Item 17. Undertakings The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus as filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective, and II-3 (2) for purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant further hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on the 9th day of July, 1996. NORTECH SYSTEMS INCORPORATED By /s/ Quentin E. Finkelson -------------------------------------- Quentin E. Finkelson, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to Registration Statement has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Quentin E. Finkelson Chairman of the Board of Directors, - ------------------------- President and Chief Executive Officer Quentin E. Finkelson (Principal Executive Officer) July 9, 1996 /s/ Garry M. Anderly Vice President of Finance and - ------------------------- Administration (Principal Financial Garry M. Anderly and Accounting Officer) July 9, 1996 * - ------------------------- Director July 9, 1996 Myron Kunin * - ------------------------- Director July 9, 1996 Richard W. Perkins *By /s/ Quentin E. Finkelson -------------------------- July 9, 1996 Quentin E. Finkelson (Attorney-in-Fact)
- ------------------- * Quentin E. Finkelson, pursuant to Powers of Attorney executed by each of the directors listed above whose name is marked by an "*" and filed as an exhibit hereto, by signing his name hereto does hereby sign and execute this Registration Statement on behalf of each such directors. S-1 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Independent Auditor's Report. F-2 Consolidated Balance Sheets at December 31, 1995 and 1994. F-3 Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993. F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993. F-6 Notes to Consolidated Financial Statements. F-8 Consolidated Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995. F-22 Consolidated Statements of Income for the three months ended March 31, 1996 and 1995 (unaudited). F-24 Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (unaudited). F-25 F-1 LARSON ALLEN [LOGO] WEISHAIR & CO. CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT Board of Directors Nortech Systems Incorporated and Subsidiary Bemidji, Minnesota We have audited the accompanying consolidated balance sheets of Nortech Systems Incorporated and Subsidiary as of December 31, 1995 -and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These:consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perforrn the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nortech Systems Incorporated and Subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years IN the period ervded December 31, 1995, in conformity with generally accepted accounting principles. /s/ Larson, Allen, Meishair & Co., LLP LARSON, ALLEN, MEISHAIR & CO., LLP St. Cloud, Minnesota February 16, 1996 F-2 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994
1995 1994 ----------- ----------- ASSETS CURRENT ASSETS Cash and Cash Equivalents (Including Interest Bearing Cash of $906,111 and $822,404 at December 31, 1995 and 1994) $ 924,590 $ 841,702 Accounts Receivable, Less Allowance for Uncollectible Accounts (1995 - $6,053; 1994 - $4,343) 1,856,219 1,243,599 Inventories 3,855,212 1,514,658 Prepaid Expenses and Other 131,701 43,453 Deferred Tax Asset 430,000 460,000 ----------- ----------- Total Current Assets $ 7,197,722 $ 4,103,412 ----------- ----------- PROPERTY AND EQUIPMENT (At Cost) Land $ 108,300 $ 68,300 Building and Leasehold Improvements 1,897,559 832,601 Manufacturing Equipment 2,389,201 902,916 Office and Other Equipment 1,701,640 1,583,714 ----------- ----------- Total $ 6,096,700 $ 3,387,531 Accumulated Depreciation (2,256,862) (1,844,046) ----------- ----------- Total Property and Equipment (At Depreciated Cost) $ 3,839,838 $ 1,543,485 ----------- ----------- OTHER ASSETS Goodwill and Other Intangible Assets $ 998,254 $ - Deferred Tax Asset 1,130,000 1,000,000 Other Assets 57,250 1,000 ----------- ----------- Total Other Assets $ 2,185,504 $ 1,001,000 ----------- ----------- Total Assets $13,223,064 $ 6,647,897 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Maturities of Long-Term Debt $ 283,100 $ 189,144 Accounts Payable 1,054,880 580,860 Accrued Payroll 407,016 380,267 Other Liabilities 173,217 30,368 ----------- ----------- Total Current Liabilities $ 1,918,213 $ 1,180,639 ----------- ----------- LONG-TERM DEBT Notes Payable (Net of Current Maturities Shown Above) $ 3,768,685 $ 746,755 ----------- ----------- REDEEMABLE COMMON STOCK $.01 Par Value; 250,000 Shares Issued and Outstanding Redeemable at $6 Per Share $ 1,500,000 $ - ----------- ----------- STOCKHOLDERS' EQUITY Preferred Stock, $1 Par Value; 1,000,000 Shares Authorized; 250,000 Shares Issued and Outstanding $ 250,000 $ 250,000 Common Stock $.01 Par Value; 9,000,000 Shares Authorized; 2,200,863 and 2,194,305 Shares Issued and Outstanding, Net of Redeemable Shares Reported Above, at December 31, 1995 and 1994, Respectively 22,009 21,943 Additional Paid-In Capital 11,242,672 11,229,065 Accumulated Deficit (5,478,515) (6,780,505) ----------- ----------- Total Stockholders' Equity $ 6,036,166 $ 4,720,503 ----------- ----------- Total Liabilities and Stockholders' Equity $13,223,064 $ 6,647,897 ----------- ----------- ----------- -----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-3 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------ ------------ ------------ SALES $ 18,305,928 $ 12,820,709 $ 11,705,833 COST OF SALES (14,541,088) (10,222,140) (9,320,817) ------------ ------------ ------------ GROSS PROFIT $ 3,764,840 $ 2,598,569 $ 2,385,016 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (2,280,105) (1,647,797) (1,546,971) RESEARCH AND DEVELOPMENT COSTS (124,919) - - INTEREST INCOME 34,703 18,368 17,162 MISCELLANEOUS INCOME 177,967 86,307 71,030 INTEREST EXPENSE (240,562) (117,835) (124,887) ------------ ------------ ------------ INCOME BEFORE INCOME TAX PROVISION $ 1,331,924 $ 937,612 $ 801,350 INCOME TAX BENEFIT - 245,794 241,206 ------------ ------------ ------------ NET INCOME $ 1,331,924 $ 1,183,406 $ 1,042,556 ------------ ------------ ------------ ------------ ------------ ------------ INCOME PER SHARE OF COMMON STOCK Net Income Per Share of Common Stock $ 0.55 $ 0.54 0.47 ------------ ------------ ------------ ------------ ------------ ------------ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,407,804 2,194,021 2,217,265 ------------ ------------ ------------ ------------ ------------ ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Additional Total Preferred Common Paid-In Accumulated Stockholders' Stock Stock Capital Deficit Equity ------------ ------------- ------------- ------------ -------------- BALANCE DECEMBER 31, 1992 $250,000 $22,408 $11,322,929 $(8,976,661) $2,618,676 1993 Net Income - - - 1,042,556 1,042,556 Redemption of Stock - (500) (105,750) - (106,250) Issuance of Stock - 29 9,582 - 9,611 Dividends Paid - - - (14,860) (14,860) -------- ------- ----------- ------------ ---------- BALANCE DECEMBER 31, 1993 $250,000 $21,937 $11,226,761 $(7,948,965) $3,549,733 1994 Net Income - - - 1,183,406 1,183,406 Issuance of Stock - 6 2,304 - 2,310 Dividends Paid - - - (14,946) (14,946) -------- ------- ----------- ------------ ---------- BALANCE DECEMBER 31, 1994 $250,000 $21,943 $11,229,065 $(6,780,505) $4,720,503 1995 Net Income - - - 1,331,924 1,331,924 Issuance of Stock - Stock Options - 50 8,700 - 8,750 Issuance of Stock - Other - 16 4,907 - 4,923 Dividends Paid - - - (29,934) (29,934) -------- ------- ----------- ------------ ---------- BALANCE DECEMBER 31, 1995 $250,000 $22,009 $11,242,672 $(5,478,515) $6,036,166 -------- ------- ----------- ------------ ---------- -------- ------- ----------- ------------ ----------
See accompanying Notes to Consolidated Financial Statements. F-5 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers $ 18,114,515 $ 13,307,176 $ 11,284,702 Interest Income Received 34,703 18,368 17,162 Cash Paid to Suppliers and Employees (17,379,766) (11,794,879) (11,135,177) Interest Expense Paid (239,809) (117,927) (126,521) Income Taxes Paid (19,016) (34,206) (7,546) ------------ ------------ ------------ Net Cash Provided by Operating Activities $ 510,627 $ 1,378,532 $ 32,620 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of Businesses $ (2,930,696) $ - $ - Acquisition of Property and Equipment (458,359) (224,096) (422,821) Acquisition of Intangible Assets (82,059) - - Purchase of Investments (56,250) - - ------------ ------------ ------------ Net Cash Used by Investing Activities $ (3,527,364) $ (224,096) $ (422,821) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net Proceeds (Payments) Under Line of Credit $ - $ (266,533) $ 349,329 Payments on Long-Term Debt (289,294) (963,178) (278,739) Proceeds from Long-Term Debt 3,405,180 531,000 196,092 Proceeds from Sale of Stock 13,673 2,310 9,611 Redemption of Stock - - (106,250) Payment of Dividends (29,934) (14,946) (14,860) ------------ ------------ ------------ Net Cash Provided (Used) by Financing Activities $ 3,099,625 $ (711,347) $ 155,183 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 82,888 $ 443,089 $ (235,018) Cash and Cash Equivalents - Beginning 841,702 398,613 633,631 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS - ENDING $ 924,590 $ 841,702 $ 398,613 ------------ ------------ ------------ ------------ ------------ ------------
NON-CASH TRANSACTIONS During 1995 the Company issued $1,500,000 of redeemable Common Stock as part of the purchase of another corporation's net assets. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ------------ ------------ ------------ RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net Income $1,331,924 $1,183,406 $1,042,556 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 444,636 245,847 167,723 Deferred Taxes (100,000) (280,000) (250,000) (Increase) Decrease in Accounts Receivable (369,380) 365,160 (485,253) (Increase) Decrease in Accounts Receivable - Stockholder - 35,000 (6,908) (Increase) Decrease in Inventory (407,932) 173,065 (475,431) (Increase) Decrease in Prepaid Ass (79,751) 33,507 (31,618) Decrease in Accounts Payable - Stockholder - - (10,729) Increase (Decrease) in Accounts Payable 207,835 (391,788) (79,179) Increase (Decrease) in Accrued Pa (17,852) 6,077 173,111 Increase (Decrease) in Accrued Liabilities (498,853) 8,258 (11,652) ---------- ---------- ---------- Net Cash Provided by Operating Activities $ 510,627 $1,378,532 $ 32,620 ---------- ---------- ---------- ---------- ---------- ----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-7 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS DESCRIPTION Nortech Systems Incorporated (the "Company") is a Minnesota corporation with headquarters in Wayzata, Minnesota, a suburb of Minneapolis, Minnesota. The Company's main manufacturing facility is located in Bemidji, Minnesota, with additional manufacturing and engineering support locations in Fairmont, Minnesota, Plymouth, Minnesota and Augusta, Wisconsin. The Company manufactures wire harnesses, cables, and electromechanical assemblies as well as large-screen, high-resolution video monitors for radar, document and medical imaging. The Company provides a full "turnkey" contract manufacturing service to its customers. All products are built to the customer's design specifications. The Company also services the types of monitors it produces. Nortech Medical Services, Inc., its wholly owned subsidiary, provides service bureau and office management services to physicians and clinics throughout Minnesota. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market (based on the lower of replacement cost or net realizable value). PROPERTY AND EQUIPMENT The Company capitalizes the cost of purchased software, equipment, and leasehold improvements. Expenditures for maintenance and repairs and minor renewals and betterments which do not improve or extend the life of the respective assets are expensed. The assets and related depreciation accounts are adjusted for property retirements and disposals with the resulting gain or loss included in results of operations. Fully depreciated assets remain in the accounts until retired from service. DEPRECIATION Property and equipment are depreciated by the straight-line and accelerated methods of depreciation. Accelerated depreciation did not materially exceed straight-line depreciation for the years ended December 31, 1995, 1994 and 1993. Depreciation was calculated over estimated useful lives as follows: Building and Improvements 31 Years Manufacturing Equipment 5 - 7 Years Office and Other Equipment 5 - 7 Years F-8 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995,1994 AND 1993 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Sales are recorded by the Company when products are shipped to the customer. GOODWILL Goodwill representing the excess of the purchase price over the fair value of the net assets of the acquired entities (see Note 2), is being amortized on a straight-line basis over the period of expected benefit of fifteen years. Total amortization of goodwill recorded for fiscal years 1995, 1994 and 1993 was $30,724, $O, and $O, respectively. The carrying value of goodwill will be reviewed periodically based on the undiscounted cash flows of the entity acquired over the remaining amortization period. Should this review indicate that goodwill will not be recoverable, the Company's carrying value of the goodwill will be reduced by the estimated shortfall of undiscounted cash flows. INTANGIBLE ASSETS During 1995 the Company acquired other intangible assets including purchased technology and certification costs. Total costs of these assets were $82,059, which are being amortized over a period of 5 to 7 years. The related amortization expense for 1995 was $1,096. CASH AND CASH EQUIVALENTS The Company considers its investments with an original maturity of three months or less to be cash equivalents. At December 31, 1995, the Company had invested excess funds of $285,000 in repurchase agreements collateralized by government backed securities. Due to the short-term nature of the agreements, the Company does not take possession of the securities, which are instead held at the Company's principal bank from which it purchases the securities. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts for cash, short-term investments, receivables, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The fair value of long-term debt approximates its carrying value and is based on current rates at which the Company could borrow funds with similar remaining maturities. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. F-9 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Company has adopted FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Investment credits are accounted for by using the "flow-through" method whereby the benefit is reflected as a reduction of income taxes in the year utilized. EARNINGS PER SHARE Primary earnings per share of common stock is computed by dividing net income by the weighted average number of common shares outstanding during the period. The impact of outstanding warrants and options was not material and was not included in the calculation of primary earnings per share. Preferred stock issued is noncumulative and nonconvertible. NOTE 2 ACQUISITIONS In 1995 the Company acquired the two businesses described below, which have been accounted for by the purchase method of accounting. The results of the operations of the acquired Companies are included in the Company's consolidated statement of income from the dates of the acquisitions. MONITOR TECHNOLOGY CORPORATION On March 28, 1995, the Company acquired substantially all of the assets and assumed certain liabilities of Monitor Technology Corporation (MTC). Monitor Technology Corporation designs and builds high and ultra-high resolution CRT monitors for computer applications throughout the United States. In addition, they provide repair services on internally and externally produced monitors. F-10 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 2 ACQUISITIONS (CONTINUED) MONITOR TECHNOLOGY CORPORATION (CONTINUED) The purchase price of $2,232,667, which includes the assumption of liabilities of $707,887 and acquisition costs of $24,780, was paid with cash and by issuing 250,000 shares of the Company's common stock. The common stock was valued at $6, which is the redeemable price based on a repurchase agreement issued to the seller at closing. The excess of the purchase price over the estimated fair value of assets acquired is being amortized on a straight-line basis over 15 years. The agreement also allows the seller the option which requires the Company to repurchase the common stock at $6 a share commencing on March 28, 1996, and extending for a period of thirty days hereafter. The Company's obligation under the repurchase agreement is guaranteed by a director of the Company. AEROSPACE On August 23, 1995, the Company acquired the Aerospace Division of Communication Cable, Inc. The Aerospace Division manufactures and sells multi-conductor electrical cable assemblies to customer specifications for the aerospace industry throughout the United States. The purchase price was $2,950,517 consisting of a cash payment of $2,845,506, the assumption of liabilities of $44,601, and acquisition costs of $60,410. The excess of the purchase price over the estimated fair value of the net assets acquired is being amortized on a straight-line basis over 15 years. A summary of the purchase price allocation for MTC and Aerospace is as follows: Net Working Capital Items $ 1,984,359 Property, Plant and Equipment 2,250,810 Excess of Cost over Fair Value of Net Assets of Purchased Businesses 948,015 ------------ Total $ 5,183,184 ------------ ------------ F-11 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 2 ACQUISITIONS (CONTINUED) The following proforma unaudited consolidated statements of income for the Company are presented as though the acquisitions of Monitor Technology Corporation and the Aerospace Division of Communication Cable, Inc. had occurred on January 1, 1995 and 1994.
(Unaudited) 1995 1994 ------------------------------------- -------------- -------------- Revenues $22,332,054 $120,449,800 ----------- ------------ ----------- ------------ Net Income (Loss) $ 1,497,486 $ 1,281,232 ----------- ------------ ----------- ------------ Net Income Per Share of Common Stock $ .61 $ .52 ----------- ------------ ----------- ------------
The proforma financial information is presented for information purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated as of the above dates, nor are they necessarily indicative of future operating results. NOTE 3 INVENTORIES Inventories consist of the following:
1995 1994 -------------- -------------- Raw Materials $1,972,384 $ 795,272 Work in Process 1,676,949 603,932 Finished Goods 205,879 115,454 ---------- ---------- Total $3,855,212 $1,514,658 ---------- ---------- ----------- ----------
NOTE 4 SHORT-TERM LINE OF CREDIT The Company had a line of credit available at December 31, 1994, for $350,000. The line of credit was with Northern National Bank, paid interest at a variable rate, and was secured by accounts receivable and inventory. The interest rate was 8% at December 31, 1994. The maximum and average amounts outstanding on lines of credit during 1994, were $349,329 and $320,219, respectively. There was no balance outstanding as of December 31, 1994. F-12 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 5 LONG-TERM DEBT
Description 1995 1994 ---------------------------------------------- ---------- ------- Note Payable - Northern National Bank, Revolving Line of Credit, Borrowing Limit of $3,000,000, Interest at LIBOR Index PLUS 2 1/2%, Due January 1997; Secured by Accounts Receivable, Equipment, Inventory and General Intangibles $2,161,179 $ 0 Note Payable - City of Augusta, Interest at Firstar Bank of Eau Claire's Prime, Five Annual Payments Beginning August 1996, Due August 2000; Secured by Leasehold Improvements 40,000 40,000 Note Payable - Northern States Power Company, Interest at 6%, Monthly Payments of $483 Including Interest, Due December 1998; Secured by Equipment 15,483 20,199 Note Payable - Northern National Bank, Interest at Bank's Prime Plus 2%, Monthly Payments of $1,200 Including Interest, Due April 2000; Secured by Real Estate 120,754 122,876 Note Payable - Midwest Minnesota Community, Development Corporation, Interest at 9%, Monthly Payments of $2,802 Including Interest, Due January 2000; Secured by Real Estate and Equipment 115,297 135,178 Note Payable - Midwest Minnesota Community, Development Corporation, Interest at 8%, Monthly Payments of $1,654 Including Interest, Due September 2009; Secured by Real Estate and Equipment 142,185 146,279 Note Payable - Northern National Bank, Interest at 7.5%, Monthly Payments of $5,270 Including Interest, Due May 1999; Secured by Inventory, Equipment, Accounts Receivable and General Intangibles 230,608 232,796 F-13 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 311,1995, 1994 AND 1993 NOTE 5 LONG-TERM DEBT (CONTINUED) Description 1995 1994 ---------------------------------------------- ---------- ------- Note Payable - Northern National Bank, Interest at LIBOR Index Plus 2 1/2%, Monthly Payments of $13,060 Including Interest, Due January 2001; Secured by Equipment, Accounts Receivable and Inventory and General Intangibles 640,000 0 Note Payable - Northern National Bank, Interest at LIBOR Index Plus 2 1/2%, Monthly Payments of $5,000 Including Interest, Due January 2001; Secured by Equipment, Accounts Receivable, Inventory and General Intangibles 510,000 0 Note Payable - Joint Economic Development Commission, Inc., Interest at 10%, Monthly Payments of $1,652 Including Interest, Due June 1996; Secured by Building and Land 76,279 90,586 Note Payable - Northern National Bank, Interest at Bank's Prime Plus 3%, Monthly Payments of $11,638 Including Interest, Due December 1995; Secured by Certificate of Deposit, Equipment, Accounts Receivable and Inventory 0 45,119 Note Payable - Northern National Bank, Interest at Bank's Prime, Monthly Payments of $4,600 Including Interest, Due January 15, 1995; Secured by Inventory, Equipment and Accounts Receivable 0 98,570 Note Payable - Northern National Bank, Interest at Bank's Prime, Monthly Payments of $375 Including Interest, Due 0 4,296 January 15, 1996; Secured by Vehicle ---------- -------- Total Long-Term Debt $4,051,785 $935,899 Current Maturities 283,100 189,144 ---------- -------- Long-Term Debt - Net of Current Maturities $3,768,685 $746,755 ---------- -------- ---------- --------
F-14 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 5 LONG-TERM DEBT (CONTINUED) Maturity requirements by year on long-term debt are as follows: Years Ending December 31, Amount ------------------------- -------------- 1996 $ 283,100 1997 2,400,339 1998 258,046 1999 296,594 2000 314,579 Later Years 499,127 ---------- Total $4,051,785 ---------- ---------- The maximum and average amounts outstanding on the Company's revolving line of credit during 1995 were $2,161,179 and $400,000, respectively. NOTE 6 LEASE OBLIGATION The Company has entered into various operating leases for equipment and office space. Rent expense for the years ended December 31, 1995, 1994 and 1993, was $290,799, $77,516 and $118,672, respectively. The future minimum lease payments are as follows: Years Ending December 31, Amount ------------------------- -------------- 1996 $227,695 1997 184,625 1998 176,700 1999 176,700 2000 176,700 -------- Total $942,420 -------- -------- NOTE 7 RELATED PARTY TRANSACTIONS Ceridian Corporation is one of the Company's stockholders at December 31, 1995, 1994 and 1993. Transactions and balances with Ceridian Corporation are as follows: CONTRACT FOR DEED - CERIDIAN CORPORATION During 1991 the Company entered into a contract for deed with Ceridian Corporation for the purchase of the building and land. The original purchase price was $840,000. The contract was paid off in 1994. F-15 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 7 RELATED PARTY TRANSACTIONS (CONTINUED) SALES In 1995, 1994 and 1993, sales to Ceridian Corporation represented approximately 1% of total sales in each year. NOTE 8 INCOME TAXES The provision for income taxes for each of the three years in the period ended December 31, 1995, consists of the following:
1995 1994 1993 --------- --------- --------- Current Taxes - Federal $ 37,000 $ 17,183 $ 2,148 Current Taxes - State 63,000 17,023 6,646 Deferred Taxes (100,000) (280,000) (250,000) --------- --------- --------- Total $ 0 $(245,794) $(241,206) --------- --------- --------- --------- --------- ---------
Deferred tax assets at December 31, 1995 and 1994, consist of the following:
1995 1994 ----------- ----------- Net Operating Loss (NOL) Carryforwards $1,635,000 $1,240,000 Tax Credit Carryforwards 295,000 320,000 Other 30,000 0 Valuation Allowance (400,000) (100,000) ----------- ---------- Total $1,560,000 $1,460,000 ----------- ---------- ----------- ----------
The statutory rate reconciliation for each of the three years in the period ended December 31, is as follows:
1995 1994 1993 --------- --------- --------- Statutory Tax Provision $ 453,000 $319,000 $272,000 State Income Taxes 80,000 50,000 40,000 Additional NOL Carryforwards (851,000) 0 0 Increase (Reduction) in Deferred Tax Valuation Allowance 300,000 (600,000) (540,000) Other 18,000 (14,794) (13,206) --------- --------- --------- Income Tax Benefit $ 0 $(245,794) $(241,206) --------- --------- --------- --------- --------- ---------
F-16 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 8 INCOME TAXES (CONTINUED) The Company has available for Federal income tax purposes, operating loss carryforwards, unused investment credits, and unused research and development credits which may provide future tax benefits, expiring as follows:
Investment Research and Operating Loss Tax Credit Development Tax Year of Expiration Carryforward Carryforward Credit Carryforward ------------------ -------------- -------------- ------------------- 1996 $ 0 $ 12,546 $ 44,779 1997 0 4,064 43,051 1998 0 50,888 97,643 1999 3,678,800 39,965 0 2001 767,300 0 0 2002 253,200 0 0 2003 109,700 0 0 ---------- -------- -------- Totals $4,809,000 $107,463 $185,473 ---------- -------- -------- ---------- -------- --------
During 1995 the Company identified an additional $2,503,778 of net operating loss carryforwards related to final tax regulations. The regulations clarified that tax carryforward attributes in a Title 11 bankruptcy prior to December 31, 1993, where stock was issued for debt, need not be reduced by debt cancellation income. As a result of the increase in net operating loss carryforwards, which must be utilized prior to taking the benefit in tax credit carryovers, the Company has increased its valuation allowance accordingly. In 1995 the Company utilized operating loss carryforwards of $1,450,000 to offset federal taxable income and $46.000 of research and development credits to offset state tax. In 1994 the Company utilized operating loss carryforwards of $932,000 to offset federal taxable income and $126,100 to offset state taxable income. The Company also utilized $33,900 of research and development tax credits to offset state tax. In 1993 the Company utilized operating loss carryforwards of $760,000 to offset federal taxable income and $365,300 to offset state taxable income. F-17 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 9 PREFERRED STOCK TRANSACTIONS The holders of the preferred stock are entitled to a noncumulative dividend of 12% when and as declared. In liquidation, holders of preferred stock have preference to the extent of $1.00 per share plus dividends accrued but unpaid. Preferred stock dividends of $29,934, $14,946 and $14,860 were paid during the year-ended December 31, 1995, 1994 and 1993, respectively. During 1993, Nortech Systems Incorporated redeemed 50,000 shares of common stock from Ceridian Corporation. NOTE 10 MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK The Company sells its products to companies in the computer, medical, governmental and various other industries. Historically, the Company has not experienced significant losses related to receivables from customers in any particular industry or geographic area. The Company maintains its excess cash balances in checking, money market and certificate of deposit accounts at two financial institutions. These balances exceed the federally insured limit by $520,000 at December 31, 1995. The Company has not experienced any losses in any of the short-term investment instruments it has used for excess cash balances. Three customers accounted for approximately 24.1%, 16.6% and 11.8% of sales, respectively, for the year ended December 31, 1995. One customer accounts for approximately 10.4% of accounts receivable at December 31, 1995. Three customers accounted for approximately 26.8%, 24.5% and 20.2% of sales respectively, for the year ended December 31, 1994. Three customers accounted for approximately 29.8%, 20.5% and 11.3% of accounts receivable, respectively, at December 31, 1994. Two customers accounted for approximately 33.5% and 27.3% of sales, respectively, for the year ended December 31, 1993. F-18 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 11 EMPLOYEE STOCK OPTION AND AWARD PLANS In 1992, the Company approved the adoption of a stock option plan. The purpose of the Plan is to promote the interests of the Company and its shareholders by providing officers, directors and other key employees with additional incentive and the opportunity, through stock ownership, to increase their proprietary interest in the Company and their personal interest in its continued success. Through December 31, 1995, 100,000 shares have been authorized for issuance. In addition, the Company has contingently granted an additional 50,000 options to its president awaiting approval by the shareholders. Stock options may be granted for the purchase of common stock at a price not less than the fair market value on the date of the grant. Options are generally exercisable after one or more years and expire no later than 10 years from the date of grant. Changes in the stock options outstanding, including contingent options, are as follows:
Option Price Shares (Per Share) ---------- -------------- Balance as of December 31, 1992 $ 22,500 $ 1.75 Granted January 21, 1993 15,000 $ 1.625 -------- Balance as of December 31, 1993 $ 37,500 $1.625 - $1.75 Granted January 24, 1994 10,000 $ 3.625 -------- Balance as of December 31, 1994 $ 47,500 $1.625 - $3.625 Granted December 1, 1995 95,000 $ 5.25 Exercised (5,000) $ 1.75 -------- Balance as of December 31, 1995 $137,500 $1.625 - $5.25 -------- --------
During 1993, the Company adopted a gain sharing plan. The purpose of the Plan is to provide a bonus for increased output, improved quality and productivity and reduced costs. The Company has authorized 50,000 shares to be available under this Plan. In accordance with the terms of the Plan, employees can acquire newly issued shares of common stock for 90% of the current market value. 5,069 shares have been issued under this Plan through December 31, 1995. F-19 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 12 RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board (the FASB) statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, will become effective for the Company in 1996. Currently, Statement No. 121 would have no impact on the Company's financial position or results of operations. FASB issued Statement No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, which will become effective for the Company in 1996. The Company has not determined the impact of Statement No. 123 on its financial position or results of operations. F-20 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 13 SUPPLEMENTARY FINANCIAL INFORMATION
Quarter Ending Quarter Ending Quarter Ending Quarter Ending Total 3/31/95 6/30/95 9/30/95 12/31/95 1995 -------------- -------------- -------------- -------------- ------------- NET SALES $3,625,264 $4,374,899 $5,449,175 $4,856,590 $18,305,928 GROSS PROFIT 673,905 964,800 966,969 1,159,166 3,764,840 NET INCOME 244,003 244,049 212,588 631,284 1,331,924 INCOME PER SHARE OF COMMON STOCK 0.11 0.10 0.10 0.25 0.55 Quarter Ending Quarter Ending Quarter Ending Quarter Ending Total 3/31/95 6/30/95 9/30/95 12/31/95 1995 -------------- -------------- -------------- -------------- ------------- NET SALES $3,499,798 $3,235,186 $2,666,091 $3,419,634 $12,820,709 GROSS PROFIT 704,144 614,024 566,570 713,831 2,598,569 NET INCOME 297,126 262,564 200,622 423,094 1,183,406 INCOME PER SHARE OF COMMON STOCK 0.14 0.12 0.09 0.19 0.54
In the 4th quarter of 1995, the Company reduced previous quarter's tax expense of $206,388, which increased 4th quarter net income by .08 per share due to recognition of additional net operating loss carryforwards. F-21 NORTECH SYSTEMS INCORPORATED BALANCE SHEETS MARCH 31, 1996 and DECEMBER 31, 1995 MARCH 31 DECEMBER 31 ASSETS 1996 1995 (UNAUDITED) (AUDITED) ----------- ------------ Current Assets Cash and cash equivalents $ 472,605 $ 924,590 Accounts receivable, net 2,870,570 1,856,219 Inventories: Finished goods 200,705 205,879 Work in process 2,020,197 1,676,949 Raw materials 2,462,519 1,972,384 ----------- ------------ Total inventories $ 4,683,421 $ 3,855,212 Prepaid expenses and other 651,623 561,701 ----------- ------------ Total current assets $ 8,678,219 $ 7,197,722 ----------- ------------ PLANT, Property, and Equipment (at Cost) Land and Building/leaseholds $ 2,008,315 $ 2,005,859 Manufacturing equipment 2,321,675 2,389,201 Office and other equipment 1,835,097 1,701,640 ----------- ------------ $ 6,165,087 $ 6,096,700 Less accumulated depreciation and amortization (2,280,323) (2,256,862) ----------- ------------ $ 3,884,764 $ 3,839,838 ----------- ------------ Other Assets Goodwill and other intangible assets 987,732 998,254 Deferred tax asset 1,130,000 1,130,000 Other assets 57,250 57,250 ----------- ------------ Total Other Assets $ 2,174,982 2,185,504 ----------- ------------ Total Assets $14,737,965 $13,223,064 =========== ============ F-22 NORTECH SYSTEMS INCORPORATED BALANCE SHEETS MARCH 31, 1996 and DECEMBER 31, 1995 LIABILITIES AND SHAREHOLDERS' EQUITY MARCH 31 DECEMBER 31 1996 1995 (UNAUDITED) (AUDITED) ----------- ----------- Current Liabilities: Current maturities of long-term debt $ 288,748 $ 283,100 Line of credit 0 0 Accounts payable 2,140,595 1,054,880 Accured payrolls and commissions 574,793 407,016 Other 15,855 173,217 ----------- ----------- Total Current Liabilities $ 3,019,991 $ 1,918,213 ----------- ----------- Long-Term Debt Notes Payable (net of current maturities shown above) $ 3,961,730 $ 3,768,685 ----------- ----------- Redeemable Stock $ 1,500,000 $ 1,500,000 Shareholders' Equity: preferred stock, $1 par value; 1,000,000 shares authorized; 250,000 shares issued and outstanding $ 250,000 $ 250,000 common stock - $.01 par value; 9,000,000 shares authorized; 2,200,863 and 2,194,305 shares issued and outstanding, net of redeemable shares reported above, at March 31, 1996 and December 31, 1995, Respectively 22,009 22,009 additional paid-in capital 11,242,672 11,242,672 accumulated deficit (5,258,437) (5,478,515) ----------- ----------- Total Shareholders' Equity $ 6,256,244 $ 6,036,166 ----------- ----------- Total Liabilities, Redeemable Stock and Shareholders' Equity $14,737,965 $13,223,064 =========== ============ F-23 NORTECH SYSTEMS INCORPORATED STATEMENTS OF INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995 MARCH 31 MARCH 31 1996 1995 (Unaudited) (Unaudited) ----------- ----------- Sales $5,574,986 $3,625,264 Cost of Sales 4,568,631 2,951,359 ---------- ---------- Gross Profit $1,006,355 $ 673,905 18.1% 18.6% Selling, General and Admin. 593,108 404,447 Engineering/Reseach & Development 73,366 29,303 Misc. (Income) Expense, net (58) (25,289) Interest Expense 86,745 21,441 ---------- ---------- Net Income (Loss) Before Tax Provision $ 253,194 $ 244,003 Tax Provision 63,300 0 ---------- ---------- Net Income $ 189,894 $ 244,003 ========== ========== Income (Loss) per Share of Common Stock Net income $ 0.08 $ 0.11 ========== ========== Weighted Average Number of Shares Outstanding 2,450,863 2,206,398 ========== ========== F-24 NORTECH SYSTEMS INCORPORATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995 MARCH 31 MARCH 31 1996 1995 (UNAUDITED) (UNAUDITED) ----------- ----------- Cash Flows from Operating Activities Net Income $ 189,894 $ 244,003 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 65,524 61,246 Changes in Operating Assets and Liabilities: Accounts receivable (1,014,351) (468,218) Inventories (828,209) (518,928) Prepaid expenses (89,922) (113,991) Other assets 10,522 (552,707) Accounts payable 1,085,715 476,621 Accured payrolls 167,777 (86,791) Other accruals (157,362) (7,669) ------------ ------------ Net cash used by operating act. (570,412) (966,434) Cash Flows from Investing Activities: Acquistion of equipment (99,928) (42,629) Acquistion of Comp. assets 0 (697,210) Net Proceeds Under Line of Credit 0 0 Proceeds from Sale of Stock 0 1,202,198 Other activities 19,661 0 Payment of Pref. Stock Dividend 0 (14,514) ------------ ------------ Net cash provided by investing act. (80,267) 447,845 Cash Flows from Financing Activities: Net borrowing of L/T debt 225,000 300,000 Payments of long term debt (31,954) (31,415) Change in current debt 5,648 (41,260) ------------ ------------ Net cash provided by financing activities 198,694 227,325 ------------ ------------ Net (Decrease) in Cash (451,985) (291,264) Cash at Beginning of Period 924,590 841,702 ------------ ------------ Cash at End of Period $ 472,605 $ 550,438 =========== =========== F-25 INDEX TO EXHIBITS
REGISTRATION S-K EXHIBIT TABLE REFERENCE PAGE - --------- ---- 2.1 Asset Purchase Agreement between the Registrant, Monitor Technology Corporation and the Shareholders of Monitor Technology Corporation dated February 24, 1995 (incorporated by reference to Exhibit 2 to Form 8-K Current Report filed April 5, 1995) . . . . . . . . . . . . 2.2 Asset Purchase Agreement between the Registrant and Communication Cable, Inc. dated August 23, 1995 (incorporated by reference to Exhibit 2 to Form 8-K Current Report filed August 28, 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Articles of Incorporation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Bylaws of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Form of Stock Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Opinion of Phillips & Gross, P.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 Revolving Note and Security Agreement for working capital line of credit between Company and Northern National Bank dated December 29, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) . . . . . . 10.2 Promissory Note for purchase of facility in Fairmont, Minnesota between Company and Northern National Bank dated December 29, 1995 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). . . . . . . . . . 10.3 Promissory Note for purchase of capital equipment located in Fairmont, Minnesota facility between Company and Northern National Bank dated December 29, 1995 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 Security Agreement covering Promissory Notes in Exhibits 10.1, 10.2 and 10.3 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 Promissory Note for working capital line of credit between the Company and Northern National Bank dated May 2, 1994 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) . . . . . . . . . . . . . . . . . . 10.6 Promissory Note and Loan Agreement for capital equipment line of credit between the Company and Northern National Bank dated April 29, 1994 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) . . . . . .
REGISTRATION S-K EXHIBIT TABLE REFERENCE PAGE - --------- ---- 10.7 Loan Agreement for Real Estate between the Company and Northern National Bank dated March 18, 1994 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). . . . . . . . . . . . . . . . . . . . . . 10.8 Update Promissory Note and Loan Agreement for NMS capital equipment between the Company and Northern National Bank dated January 15, 1995 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) . . . . . . 10.9 Promissory Notes and Loan Agreement for Real Estate between the Company and MMCDC and MMCDC/NNC dated March 18, 1994 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994). . . . . . . . . . . . . . . 10.10 Promissory Note and Loan Agreement for capital equipment line of credit between the Company and Northern National Bank dated September 24, 1993 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11 Promissory Notes for capital equipment between the Company and City of Augusta, Wisconsin dated August 17, 1993 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993) . . . . . . . . . . . . . . . . . . 10.12 Promissory Notes and Loan Agreement for capital equipment between the Company and Northern States Power Company dated November 15, 1993 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). . . . . . . . 21 Nortech Medical Services, Inc. Wholly-owned subsidiary of the Company incorporated in Minnesota on August 12, 1991. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.1 Consent of Larson, Allen, Weishair & Co.. . . . . . . . . . . . . . . . . . . . . . . . . . . 23.2 Consent of Phillips & Gross, P.A. (included in Exhibit 5) . . . . . . . . . . . . . . . . . . 24 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EX-3.1 2 EXHIBIT 3.1 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF NORTECH SYSTEMS INCORPORATED The undersigned individual, being of full age, for the purpose of forming a corporation under and pursuant to Chapter 302A of the Minnesota Statutes, as amended, hereby adopts the following Articles of Incorporation: ARTICLE 1 - NAME 1.1) The name of the corporation shall be Nortech Systems Incorporated. ARTICLE 2 - REGISTERED OFFICE 2.1) The registered office of the corporation is located at 2350 Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402. ARTICLE 3 - CAPITAL STOCK 3.1) AUTHORIZED SHARES. The aggregate number of shares the corporation has authority to issue shall be 10 million shares, consisting of 9 million shares of Common Stock which shall have a par value of $.01 per share solely for the purpose of a statute or regulation imposing a tax or fee based upon the capitalization of the corporation, and 1 million shares of Preferred Stock, $1.00 par value. 3.2) PREFERRED STOCK RIGHTS. The Preferred Stock shall have the following rights, privileges, and limitations: (a) VOTING. Holders of Preferred Stock shall not be entitled to vote at any time or under any circumstances except as otherwise required by law. (b) DISTRIBUTIONS. The holders of record of shares of Preferred Stock shall be entitled to receive, when and as declared, distributions at the annual rate of twelve percent (12%) of par value per share, payable pro rata from the date of issue in semi-annual payments to be made on June 30 and December 31 of each year. Distributions from the Preferred Stock shall not be cumulative, and no rights shall accrue to holders of shares of Preferred Stock by reason of the fact that the corporation may fail to declare or pay dividends on the Preferred Stock in any previous fiscal year of the corporation. (c) LIQUIDATION. In the event of any liquidation, dissolution or winding up of the corporation, holders of Preferred Stock shall be entitled to receive One Dollar ($1.00) per share, plus any accrued but unpaid distributions (with any distributions payable in the then current year calculated on a pro rata basis from the beginning of that year to the effective date of the liquidation, dissolution, or winding up of the corporation), before any distribution shall be made on account of the Common Stock. Such payment with respect to the Preferred Stock shall constitute the extent of the participation of the holders of the Preferred Stock in any and all present or future distributions of the corporation or the stock, securities, or assets to be receive by holders of equity securities of the corporation. After such payment to the holders of Preferred Stock, any remaining assets of the corporation available for distribution shall be distributed solely for the ratable benefit of the holders of Common Stock. 3.3) ISSUANCE OF SHARES. The Board of Directors of the corporation is authorized from time to time to accept subscriptions for, issue, sell and deliver shares of any class or series of the corporation to such persons, at such times and upon such terms and conditions as the Board shall determine, valuing all nonmonetary consideration and establishing a price in money or other consideration, or a minimum price, or a general formula or method by which the price will be determined. 3.4) ISSUANCE OF RIGHTS TO PURCHASE SHARES. The Board of Directors is further authorized from time to time to grant and issue rights to subscribe for, purchase, exchange securities for, or convert securities into, shares of the corporation of any class or series, and to fix the terms, provisions and conditions of such rights, including the exchange or conversion basis or the price at which such shares may be purchased or subscribed for. 3.5) ISSUANCE OF SHARES TO HOLDERS OF ANOTHER CLASS OR SERIES. The Board is further authorized to issue shares of one class or series to holders of that class or series or to holders of another class or series to effectuate share dividends or splits. ARTICLE 4 - RIGHTS OF SHAREHOLDERS 4.1) NO PREEMPTIVE RIGHTS. No shares of any class or series of the corporation shall entitle the holders to any preemptive rights to subscribe for or purchase additional shares of that class or series or any other class or series of the corporation now or hereafter authorized or issued. 4.2) NO CUMULATIVE VOTING RIGHTS. There shall be no cumulative voting by the shareholders of the corporation ARTICLE 5 - DIRECTOR 5.1) NAME. The name of the person constituting the first Board of Directors is as follows: Myron Kunin 2 5.2) WRITTEN ACTION BY DIRECTORS. Any action required or permitted to be taken at a Board meeting may be taken by written action signed by all of the directors. ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION 6.1) Where approval of shareholders is required by law, the affirmative vote of the holders of at least a majority of the voting power of all shares entitled to vote shall be required to authorize the corporation (i) to merge into or with one or more other corporations, (ii) to exchange its shares for shares of one or more other corporations, (iii) to sell, lease, transfer or otherwise dispose of all or substantially all of its property and assets, including its good will, or (iv) to commence voluntary dissolution. ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION 7.1) After the issuance of shares of the corporation, any provision contained in these Articles of Incorporation may be amended, altered, changed or repealed by the affirmative vote of the holders of at least a majority of the voting power of the shares present and entitled to vote at a duly held meeting or such greater percentage as may be otherwise prescribed by the laws of the State of Minnesota. ARTICLE 8 - AMENDMENT OF BYLAWS 8.1) After the initial Bylaws of the corporation are adopted by the incorporators or first Board in the manner provided by law, and subject to the limitations and the power of the shareholders to amend the Bylaws as provided by law, the Board of Directors may adopt, amend or repeal the Bylaws. ARTICLE 9 - LIMITATION OF DIRECTOR LIABILITY 9.1) To the fullest extent permitted by Chapter 302A, Minnesota Statutes, as the same exists or may hereafter be liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director. ARTICLE 10 - INCORPORATOR 10.1) The name and mailing address of the incorporator are as follows: Myron Kunin, c/o Bert M. Gross 2350 Piper Jaffray Tower 222 South Ninth Street Minneapolis, MN 55402 3 I swear that the foregoing is true and accurate and that I have the authority to sign these Articles of Incorporation. Dated: October 30, 1990. /s/ Myron Kunin --------------------------------- Myron Kunin 4 EX-3.2 3 EXHIBIT 3.2 EXHIBIT 3.2 BYLAWS OF NORTECH SYSTEMS INCORPORATED ARTICLE I OFFICES SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the corporation shall be in the City of Wayzata, County of Hennepin, Minnesota. SECTION 2. REGISTERED OFFICE. The location and address of the registered office of the corporation is 641 East Lake Street, Suite 234, Wayzata, Minnesota 55391. The registered office need not be identical with the principal executive office of the corporation and may be changed from time to time by the Board of Directors. SECTION 3. OTHER OFFICES. The corporation may have other offices at such places within and without the State of Minnesota as the Board of Directors may determine from time to time. ARTICLE II MEETINGS OF SHAREHOLDERS SECTION 1. PLACE OF MEETING. All meetings of the shareholders of this corporation shall be held at its principal executive office unless some other place for any such meeting within or without the State of Minnesota is designated by the Board of Directors in the notice of meeting. SECTION 2. REGULAR MEETINGS. Regular meetings of the shareholders of this corporation may be held at the discretion of the Board of Directors on an annual or less frequent periodic basis on such dates and at such times and places as may be designated by the Board of Directors in the notices of meeting. At regular meetings the shareholders shall elect a Board of Directors and transact such other business as may be appropriate for action by shareholders. SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes appropriate for action by shareholders, may be called by the chief executive officer, by the acting chief executive officer in the absence of the chief executive officer, or by the Board of Directors or any two or more members thereof. Such meeting shall be held on such date and at such time and place as shall be fixed by the person or persons calling the meeting and designated in the notice of meeting. Business transacted at any special meeting of shareholders shall be limited to the purpose or purposes stated in the notice of meeting. Any business transacted at any special meeting of shareholders that is not included among the stated purposes of such meeting shall be voidable by or on behalf of the corporation unless all of the shareholders have waived notice of the meeting. SECTION 4. NOTICE OF MEETINGS. Except where a meeting of shareholders is an adjourned meeting and the date, time, and place of such meeting were announced at the time of adjournment, notice of all meetings of shareholders stating the date, time, and place thereof, and any other information required by law or desired by the Board of Directors or by such other person or persons calling the meeting, and in the case of special meetings, the purpose thereof, shall be given to each shareholder of record entitled to vote at such meeting not less than ten (10) days prior to the date of such meeting. If a plan of merger or exchange or the sale or other disposition of all or substantially all of the assets of the corporation is to be considered at a meeting of shareholders, notice of such meeting shall be given to every shareholder, whether or not entitled to vote. The notice of meeting at which there is to be considered a proposal to adopt a plan of merger or exchange or the sale or other disposition of all or substantially all of the assets of the corporation shall be given not less than ten (10) days prior to the date of such meeting, shall state the purpose of such meeting, and, where a plan of merger or exchange is to be considered, shall include a copy or a short description of the plan. Notices of meeting shall be given to each shareholder entitled thereto by oral communication, by mailing a copy thereof to such shareholder at an address designated by such shareholder or to the last known address of such shareholder, by handing a copy thereof to such shareholder, or by any other delivery that conforms to law. Notice by mail shall be deemed given when deposited in the United States mail with sufficient postage affixed. Notice shall be deemed received when it is given. Any shareholder may waive notice of any meeting of shareholders. Waiver of notice shall be effective whether given before, at, or after the meeting and whether given orally, in writing, or by attendance. Attendance by a shareholder at a meeting is a waiver of notice of that meeting, except where the shareholder objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not participate thereafter in the meeting, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of that item at the meeting. SECTION 5. RECORD DATE. For the purpose of determining shareholders entitled to notice of and to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may, but need not, fix a date as the record date for any such determination of shareholders, which record date, however, shall in no event be more than forty-five (45) days prior to any such intended action or meeting. 2 SECTION 6. QUORUM. The holders of a majority of the voting power of all shares of the corporation entitled to vote at a meeting shall constitute a quorum at a meeting of shareholders for the purpose of taking any action other than adjourning such meeting. If the holders of a majority of the voting power of all shares are not represented at a meeting, the shareholders present in person or by proxy shall constitute a quorum for the sole purpose of adjourning such meeting, and the holders of a majority of the shares so represented may adjourn the meeting to such date, time, and place as they shall announce at the time of adjournment. Any business that might have been transacted at the adjourned meeting had a quorum been present, may be transacted at the meeting held pursuant to such an adjournment and at which a quorum shall be represented. If a quorum is present when a duly called or held meeting is convened, the shareholders present may continue to transact business until adjournment, even though the withdrawal of a number of shareholders originally represented leaves less than the number otherwise required for a quorum. SECTION 7. VOTING AND PROXIES. At each meeting of the shareholders every shareholder shall be entitled to one vote in person or by proxy for each share of capital stock held by such shareholder, except as may be otherwise provided in the Articles of Incorporation or the terms of the share. Every appointment of a proxy shall be in writing (which shall include telegraphing, cabling, or telephotographic transmission), and shall be filed with the Secretary of the corporation before or at the meeting at which the appointment is to be effective. An appointment of a proxy for shares held jointly by two or more shareholders shall be valid if signed by any one of them, unless the Secretary of the corporation receives from any one of such shareholders written notice either denying the authority of another of such shareholders to appoint a proxy or appointing a different proxy. All questions regarding the qualification of voters, the validity of appointments of proxies, and the acceptance or rejection of votes shall be decided by the presiding officer of the meeting. The shareholders shall take action by the affirmative vote of the holders of a majority of the voting power of the shares present, in person or represented by proxy, and entitled to vote, except where a different vote is required by law, the Articles of Incorporation, or these Bylaws. ARTICLE III DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by or under the direction of its Board of Directors. The directors may exercise all such powers and do all such things as may be exercised or done by the corporation, subject to the provisions of applicable law, the Articles of Incorporation, and these Bylaws. 3 SECTION 2. NUMBER, TENURE, AND QUALIFICATION. The number of directors which shall constitute the whole Board of Directors shall be fixed from time to time by resolution of the shareholders, subject to increase by resolution of the Board of Directors. Each director shall be elected at a regular meeting of shareholders and shall hold office until the next regular meeting of shareholders and thereafter until a successor is duly elected and qualified, unless a prior vacancy shall occur by reason of death, resignation, or removal from office. Directors shall be natural persons, but need not be shareholders. SECTION 3. MEETINGS. Meetings of the Board of Directors shall be held immediately after, and at the same place as, regular meetings of shareholders. Other meetings of the Board of Directors may be held at such times and places as shall from time to time be determined by the Board of Directors. Meetings of the Board of Directors also may be called by the chief executive officer, by the acting chief executive officer in the absence of the chief executive officer, or by any director, in which case the person or persons calling such meeting may fix the date, time, and place thereof, either within or without the State of Minnesota, and shall cause notice of meeting to be given. SECTION 4. NOTICE OF MEETINGS. If the date, time, and place of a meeting of the Board of Directors has been announced at a previous meeting, no notice is required. In all other cases two (2) days' notice of meetings of the Board of Directors, stating the date and time thereof and any other information required by law or desired by the person or persons calling such meeting, shall be given to each director. If notice of meeting is required, and such notice does not state the place of the meeting, such meeting shall be held at the principal executive office of the corporation. Notice of meetings of the Board of Directors shall be given to directors in the manner provided in these Bylaws for giving notice to shareholders of meetings of shareholders. Any director may waive notice of any meeting. A waiver of notice by a director is effective whether given before, at, or after the meeting, and whether given orally, in writing, or by attendance. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, unless such director objects at the beginning of the meeting to the transaction of business on grounds that the meeting is not lawfully called or convened and does not participate thereafter in the meeting. SECTION 5. QUORUM AND VOTING. A majority of the directors currently holding office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. In the absence of a quorum, a majority of the directors present may adjourn the meeting from time to time until a quorum is present. If a quorum is present when a duly called or held meeting is convened, the directors present may continue to transact business 4 until adjournment, even though the withdrawal of a number of directors originally present leaves less than the number otherwise required for a quorum. The Board of Directors shall take action by the affirmative vote of a majority of the directors present at any duly held meeting, except as to any question upon which any different vote is required by law, the Articles of Incorporation, or these Bylaws. A director may give advance written consent or objection to a proposal to be acted upon at a meeting of the Board of Directors. If the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected, such consent or objection shall be counted as a vote for or against the proposal and shall be recorded in the minutes of the meeting. Such consent or objection shall not be considered in determining the existence of a quorum. SECTION 6. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the directors remaining in office, even though said remaining directors be less than a quorum. Any newly created directorship resulting from an increase in the authorized number of directors by action of the Board of Directors may be filled by a majority vote of the directors serving at the time of such increase. Any vacancy or newly created directorship may be filled by resolution of the shareholders. Unless a prior vacancy occurs by reason of death, resignation, or removal from office, any director so elected shall hold office until the next regular meeting of shareholders and until a successor is duly elected and qualified. SECTION 7. REMOVAL OF DIRECTORS. The entire Board of Directors or any director or directors may be removed from office, with or without cause, at any special meeting of the shareholders duly called for that purpose as provided in these Bylaws, by a vote of the shareholders holding a majority of the shares entitled to vote at an election of directors. At such meeting, without further notice, the shareholders may fill any vacancy or vacancies created by such removal. Any such vacancy not so filled may be filled by the directors as provided in Section 6 of this Article. Any director named by the Board of Directors to fill a vacancy may be removed at any time, with or without cause, by an affirmative vote of a majority of all remaining directors, even though said remaining directors be less than a quorum, if the shareholders have not elected directors in the interval between the appointment to fill the vacancy and the time of removal. SECTION 8. COMMITTEES. The Board of Directors, by a resolution approved by the affirmative vote of a majority of the directors then holding office, may establish one or more committees of one or more persons having the authority of the Board of Directors in the management of the business of the corporation to 5 the extent provided in such resolution. Such committees, however, shall at all times be subject to the direction and control of the Board of Directors. Committee members need not be directors and shall be appointed by the affirmative vote of a majority of the directors present. A majority of the members of any committee shall constitute a quorum for the transaction of business at a meeting of any such committee. In other matters of procedure the provisions of these Bylaws shall apply to committees and the members thereof to the same extent they apply to the Board of Directors and directors, including, without limitation, the provisions with respect to meetings and notice thereof, absent members, written actions, and valid acts. Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors. SECTION 9. ACTION IN WRITING. Any action required or permitted to be taken at a meeting of the Board of Directors or of a lawfully constituted committee thereof may be taken by written action signed by all of the directors then in office or by all of the members of such committee, as the case may be. If the action does not require shareholder approval, such action shall be effective if signed by the number of directors or members of such committee that would be required to take the same action at a meeting at which all directors or committee members were present. If any written action is taken by less than all directors, all directors shall be notified immediately of its text and effective date. The failure to provide such notice, however, shall not invalidate such written action. SECTION 10. MEETING BY MEANS OF ELECTRONIC COMMUNICATION. Members of the Board of Directors of the corporation, or any committee designated by such Board, may participate in a meeting of such Board or committee by means of conference telephone or similar means of communication by which all persons participating in the meeting can simultaneously hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE IV OFFICERS SECTION 1. NUMBER AND QUALIFICATION. The officers of the corporation shall consist of one or more natural persons elected by the Board of Directors exercising the functions of the offices, however designated, of chief executive officer and chief financial officer. The Board of Directors may also appoint such other officers and assistant officers as it may deem necessary. Except as provided in these Bylaws, the Board of Directors shall fix the powers, duties, and compensation of all officers. Officers may be, but need not be, directors of the corporation. Any number of offices may be held by the same person. 6 SECTION 2. TERM OF OFFICE. An officer shall hold office until a successor shall have been duly elected, unless prior thereto such officer shall have resigned or been removed from office as herein provided. SECTION 3. REMOVAL AND VACANCIES. Any officer or agent elected or appointed by the Board of Directors shall hold office at the pleasure of the Board of Directors and may be removed, with or without cause, at any time by the vote of a majority of the Board of Directors. Any vacancy in an office of the corporation shall be filled by action of the Board of Directors. SECTION 4. CHIEF EXECUTIVE OFFICER. Unless provided otherwise by a resolution adopted by the Board of Directors, the chief executive officer shall have general active management of the business of the corporation, in the absence of the Chairperson of the Board or if the office of Chairperson of the Board is vacant, shall preside at meetings of the shareholders and Board of Directors, shall see that all orders and resolutions of the Board of Directors are carried into effect, shall sign and deliver in the name of the corporation any deeds, mortgages, bonds, contracts, or other instruments pertaining to the business of the corporation, except in cases in which the authority to sign and deliver is required by law to be exercised by another person or is expressly delegated by the Articles of Incorporation, these Bylaws, or the Board of Directors to some other officer or agent of the corporation, may maintain records of and certify proceedings of the Board of Directors and shareholders, and shall perform such other duties as may from time to time be prescribed by the Board of Directors. SECTION 5. CHIEF FINANCIAL OFFICER. Unless provided otherwise by a resolution adopted by the Board of Directors, the chief financial officer shall keep accurate financial records for the corporation, shall deposit all monies, drafts, and checks in the name of and to the credit of the corporation in such banks and depositories as the Board of Directors shall designate from time to time, shall endorse for deposit all notes, checks, and drafts received by the corporation as ordered by the Board of Directors, making proper vouchers therefor, shall disburse corporate funds and issue checks and drafts in the name of the corporation as ordered by the Board of Directors, shall render to the chief executive officer and the Board of Directors, whenever requested, an account of all such officer's transactions as chief financial officer and of the financial condition of the corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the chief executive officer from time to time. SECTION 6. CHAIRPERSON OF THE BOARD. The Board of Directors may elect a Chairperson of the Board who, if elected, shall preside at all meetings of the shareholders and of the Board of Directors and shall perform such other duties as may be prescribed by the 7 Board of Directors from time to time. SECTION 7. PRESIDENT. Unless otherwise determined by the Board of Directors, the President shall be the chief executive officer of the corporation. If an officer other than the President is designated chief executive officer, the President shall have such powers and perform such duties as the Board of Directors or the chief executive officer may prescribe from time to time. SECTION 8. VICE PRESIDENTS. The Vice President, if any, or Vice Presidents in case there be more than one, shall have such powers and perform such duties as the chief executive officer or the Board of Directors may prescribe from time to time. In the absence of the President or in the event of the President's death, inability, or refusal to act, the Vice President, or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or, in the absence of any designation, in the order of their election, shall perform the duties of the President, and, when so acting, shall have all the powers of and be subject to all of the restrictions upon the President. SECTION 9. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and of the shareholders and shall maintain records of, and whenever necessary, certify all proceedings of the Board of Directors and of the shareholders. The Secretary shall keep the stock books of the corporation, when so directed by the Board of Directors or other person or persons authorized to call such meetings, shall give or cause to be given notice of meetings of the shareholders and of meetings of the Board of Directors, and shall also perform such other duties and have such other powers as the chief executive officer or the Board of Directors may prescribe from time to time. SECTION 10. TREASURER. Unless otherwise determined by the Board of Directors, the Treasurer shall be the chief financial officer of the corporation. If an officer other than the Treasurer is designated chief financial officer, the Treasurer shall have such powers and perform such duties as the chief executive officer or the Board of Directors may prescribe from time to time. SECTION 11. DELEGATION. Unless prohibited by a resolution approved by the affirmative vote of a majority of the directors present, an officer elected or appointed by the Board of Directors may delegate in writing some or all of the duties and powers of such person's office to other persons. ARTICLE V CERTIFICATES AND OWNERSHIP OF SHARES SECTION 1. CERTIFICATES. All shares of the corporation shall be represented by certificates. Each certificate shall contain on 8 its face (a) the name of the corporation, (b) a statement that the corporation is incorporated under the laws of the State of Minnesota, (c) the name of the person to whom it is issued, and (d) the number and class of shares, and the designation of the series, if any, that the certificate represents. Certificates shall also contain any other information required by law or desired by the Board of Directors, and shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the chief executive officer, by the chief financial officer, or, unless otherwise limited by resolution of the Board of Directors, by any other officer of the corporation. If a certificate is signed (1) by a transfer agent or (2) by a transfer clerk acting on behalf of the corporation and a registrar, the signature of any such officer of the corporation may be a facsimile. If a person signs or has a facsimile signature placed upon a certificate while an officer, transfer agent, or registrar of a corporation, the certificate may be issued by the corporation, even if the person has ceased to have that capacity before the certificate is issued, with the same effect as if the person had that capacity at the date of its issue. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued with the number of shares and date of issue shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation or the transfer agent for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed, or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by such holder's legal representative, who shall furnish proper evidence of authority to transfer, or by such holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender of such shares to the corporation or the transfer agent of the corporation. SECTION 3. OWNERSHIP. Except as otherwise provided in this Section, the person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. The Board of Directors, however, by a resolution approved by the affirmative vote of a majority of directors then in office, may establish a procedure whereby a shareholder may certify in writing to the corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of one or more beneficial owners. Upon receipt by the corporation of the writing, the persons specified as beneficial owners, rather than the actual shareholder, shall be 9 deemed the shareholders for such purposes as are permitted by the resolution of the Board of Directors and are specified in the writing. ARTICLE VI CONTRACTS, LOANS, CHECKS, AND DEPOSITS SECTION 1. CONTRACTS. The Board of Directors may authorize such officers or agents as they shall designate to enter into contracts or execute and deliver instruments in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 2. LOANS. The corporation shall not lend money to, guarantee the obligation of, become a surety for, or otherwise financially assist any person unless the transaction, or class of transactions to which the transaction belongs, has been approved by the affirmative vote of a majority of directors present, and (a) is in the usual and regular course of business of the corporation, (b) is with, or for the benefit of, a related corporation, an organization in which the corporation has a financial interest, an organization with which the corporation has a business relationship, or an organization to which the corporation has the power to make donations, or (c) is with, or for the benefit of, an officer or other employee of the corporation or a subsidiary, including an officer or employee who is a director of the corporation or a subsidiary, and may reasonably be expected, in the judgment of the Board of Directors, to benefit the corporation. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the corporation shall be signed by such officers or agents of the corporation as shall be designated and in such manner as shall be determined from time to time by resolution of the Board of Directors. SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks or other financial institutions as the Board of Directors may select. ARTICLE VII MISCELLANEOUS SECTION 1. DIVIDENDS. The Board of Directors from time to time may declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be such twelve-month period as is set by a resolution of the Board of Directors, provided, however, that the first fiscal year 10 of the corporation may be a shorter period if permitted by law and set by a resolution of the Board of Directors. SECTION 3. AMENDMENTS. Except as limited by the Articles of Incorporation, these Bylaws may be altered or amended by the Board of Directors. Such authority of the Board of Directors is subject to the power of the shareholders of this corporation to alter or repeal such Bylaws, and the Board of Directors, after adoption of the initial Bylaws, shall not make, alter, or repeal any Bylaw fixing quorum for shareholder meetings, prescribing procedures for removing directors or filling vacancies on the Board of Directors, fixing the number of directors or their classifications, qualifications or terms of office. The Board of Directors may, however, adopt or amend a bylaw to increase the number of directors. * * * * * * The undersigned, Assistant Secretary of Nortech Systems Incorporated, a Minnesota corporation, does hereby certify that the foregoing Bylaws are the Bylaws adopted for the corporation by its Board of Directors at a meeting held on the 31st day of October, 1990. /s/ Bert M. Gross ------------------- Assistant Secretary 11 EX-5 4 EXHIBIT 5 EXHIBIT 5 [LETTERHEAD] July 8, 1996 The Securities & Exchange Commission Judiciary Plaza 450 - 5th Street N.W. Washington, D.C. 20549 Ladies and Gentlemen: Re: NORTECH SYSTEMS INCORPORATED This opinion is furnished in connection with the Registration Statement on Form S-1, (the "Registration Statement") filed with the Securities and Exchange Commission by Nortech Systems Incorporated (the "Company"), covering up to 111,400 shares of the Company's common stock, par value $.01, (the "Common Stock"). We have acted as counsel to the Company and, as such, have examined the Company's Articles of Incorporation, Bylaws and such other corporate records and documents as we have considered relevant and necessary for the purposes of this opinion. We have participated in the preparation and filing of the Registration Statement. We are familiar with the proceedings taken by the Company with respect to the authorization and issuance of shares of Common Stock as described in the Registration Statement. Based on the foregoing, we are of the opinion that: 1. The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Minnesota. 2. The Company had at the time of issuance of the shares of Common Stock offered by the Selling Shareholders, and has at present, corporate authority to issue the shares of Common Stock covered by the Registration Statement. 3. The shares of Common Stock previously issued and proposed to be sold by the Selling Shareholders in the public offering as described in the Registration Statement have been duly and validly issued, and are fully paid and non-assessable. We hereby consent to the reference of our firm in the section captioned "Legal Opinions" in the Registration Statement. Sincerely, PHILLIPS & GROSS, P.A. By Bert M. Gross EX-23.1 5 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to Registration No. 333-00888 of Nortech Systems Incorporated on Form S-3 of our report dated February 16, 1996, relating to the financial statements of Nortech Systems Incorporated and Subsidiary as of December 31, 1994 and 1995 and for the years ended December 31, 1993, 1994 and 1995 appearing in the Prospectus, which is part of this Registration Statement, and our report dated February 16, 1996 relating to the financial statement schedule appearing in this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Larson, Allen, Weishair & Co., LLP LARSON, ALLEN, WEISHAIR & CO., LLP St. Cloud, Minnesota July 8, 1996 EX-24 6 EXHIBIT 24 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that NORTECH SYSTEMS INCORPORATED, a Minnesota corporation (the "Company"), and each of the undersigned directors of the Company, hereby constitutes and appoints Quentin E. Finkelson his true and lawful attorney-in-fact and agent, for him and on his behalf and his name, place and stead, in any and all capacities to sign, execute, affix his seal thereto and file a Registration Statement on Form S-1 or any other applicable form under the Securities Act of 1933, as amended, and amendments thereto, including pre-effective and post-effective amendments, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, relating to the proposed registration of up to 111,400 shares of the Company's Common Stock, par value $.01. There is hereby granted to said attorney full power and authority to do and perform each and every act and thing requisite and necessary to be done in respect of the foregoing as fully as he or himself might or could do if personally present, hereby ratifying and confirming all that said attorney-in-fact and agent, may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument and any of the undersigned directors may execute this Power of Attorney by signing any such counterpart. IN WITNESS WHEREOF, NORTECH SYSTEMS INCORPORATED has caused this Power of Attorney to be executed in its name by its Chairman of the Board of Directors and Chief Executive Officer on the 9th day of July, 1996. NORTECH SYSTEMS INCORPORATED By /s/ Quentin E. Finkelson --------------------------------- Quentin E. Finkelson, Chairman of the Board of Directors and Chief Executive Officer The undersigned, directors of NORTECH SYSTEMS INCORPORATED, have hereunto set their hands as of the 9th day of July, 1996. /s/ Myron Kunin ----------------------------------- Myron Kunin /s/ Richard W. Perkins ----------------------------------- Richard W. Perkins DIRECTORS 2 -----END PRIVACY-ENHANCED MESSAGE-----