COMARCO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held
July 12, 1995
To the Shareholders of COMARCO, Inc.:
The Annual Meeting of the Shareholders of COMARCO, Inc., a California
corporation (the "Company") will be held at the Company's Offices, 5 Jenner,
Suite 100, Irvine, California on July 12, 1995 at 10:00 A.M. Pacific Daylight
time for the following purposes:
1. To elect six Directors.
2. To consider and act upon a proposal to institute a new Employee Stock
Option Plan.
3. To transact such other business as may properly come before the
meeting, or any adjournment thereof.
Only holders of record of the Company's Common Stock at the close of
business on May 15, 1995, are entitled to notice of and to vote at the Annual
Meeting.
Each shareholder is cordially invited to be present and to vote in person
at the meeting. TO ASSURE REPRESENTATION AT THE MEETING, HOWEVER, SHAREHOLDERS
ARE URGED TO SIGN AND RETURN THE PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
ENVELOPE. Shareholders who attend the meeting may still vote in person, even if
they have previously mailed a proxy, by notifying the Secretary of their
intention to do so.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT L. O'LEARY, Secretary
Yorba Linda, California
May 15, 1995
<PAGE>
COMARCO, INC.
PROXY STATEMENT
For Annual Meeting of Shareholders
To Be Held
July 12, 1995
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of COMARCO, Inc. (the "Company") for use at
the Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Wednesday July 12, 1995 at 10:00 A.M. Pacific Daylight time at the Company's
Offices, 5 Jenner, Suite 100, Irvine, California, 92718, or any adjournment
thereof, for the purposes set forth in the accompanying notice of meeting. This
Proxy Statement and the accompanying form of proxy were first mailed to
shareholders on or about May 15, 1995.
A shareholder giving a proxy has the power to revoke it at any time before
it is exercised by (1) filing with the Secretary of the Company a notice of
revocation; (2) filing with the Secretary of the Company a duly executed proxy
bearing a later date; or (3) attending the Annual Meeting and expressing his or
her intention to vote the shares in person. In the absence of such revocation,
all shares represented by a properly executed proxy received in time for the
Annual Meeting will be voted as specified therein.
The cost of preparing, assembling, printing and mailing this Proxy
Statement and the accompanying form of proxy and the cost of soliciting proxies
will be borne by the Company. The Company may make arrangements with various
brokerage houses or other nominees to send proxy materials to the beneficial
owners of stock and may reimburse them for their reasonable expenses in
connection therewith.
VOTING RIGHTS
The only voting securities of the Company consist of Common Stock. Only
shareholders of record at the close of business on May 15, 1995 will be entitled
to vote at the Annual Meeting. As of said date there were outstanding 4,605,959
shares of Common Stock, which are entitled to one vote per share except that
each shareholder is entitled to cumulate his shares in the election of
Directors, provided that at least one shareholder has given notice, prior to the
voting, of his intention to do so. If cumulative voting is in effect, each
shareholder may give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares held by him, or he
may distribute his votes on the same principle among as many candidates as he
thinks fit. The candidates receiving the largest number of votes, up to the
number of directors to be elected, shall be elected.
<PAGE>
Item 1 on Proxy Card
ELECTION OF DIRECTORS
Six Directors will be elected at the Annual Meeting. Each Director elected
at the Annual Meeting will hold office until the next annual meeting of
shareholders and until his successor is duly elected and qualified. It is
intended that the shares represented by the enclosed proxy will be voted, unless
otherwise instructed, for the election of the six nominees named below. While
the Company has no reason to believe that any of the nominees will be unable to
serve as Director, it is intended that if such an event should occur, such
shares will be voted for the remainder of the nominees and for such substitute
nominee or nominees as may be selected by the Board of Directors. Subject to the
foregoing, and unless a shareholder withholds authority to vote his shares (i)
for all of the nominees by so indicating on the enclosed proxy card or (ii) for
any one or more of the nominees by checking their names in the space provided on
such card, in which case his shares will not be voted for such nominee or
nominees. The proxies will have the discretion to cumulate votes as provided by
California law (see "VOTING RIGHTS") and to distribute such votes among all the
nominees (or, if authority to vote for any nominee or nominees has been
withheld) among the remaining nominees in whatever manner they deem appropriate.
All the nominees except Mr. Yovovich, who is a first-time nominee, are
currently serving as Directors of the Company. The term of office of each of the
current Directors expires on the date of the Annual Meeting. All the Directors
were elected at the last annual meeting except Mr. Yovovich. Mr. Arrison, a
Director in the Fiscal Year just completed, resigned effective May 8, 1995 and
therefore is not a nominee.
The table immediately below contains pertinent information concerning the
nominees and is followed by a brief biography of each nominee.
<TABLE>
<CAPTION>
Year First
Principal Elected Other
Name Age Occupation Director Directorships
---- --- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Don M. Bailey 49 President and Chief 1991 None
Executive Officer of the
Company
Gen. Wilbur L. Creech 68 Executive Consultant 1985 Tech-Sym
(Ret) (1) (3) Corporation, and
ESEA, Inc.
Gerald D. Griffin 60 Executive Consultant 1986 None
(1) (3)
Adm. Wesley L. McDonald 71 Executive Consultant 1986 Precision Standard, Inc.
(Ret) (1) (2) (3)
Walter V. Sterling 75 Management of Personal 1971 None
(1) (2) Investments
Paul G. Yovovich 41 President and Chief -- Advance Ross Corporation,
Operating Officer of Illinois Superconductor
Advance Ross Corporation Corporation, U.S. Robotics,
Inc.
<FN>
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
</FN>
</TABLE>
Mr. Bailey has been President and Chief Executive Officer of the Company
since June 1990. Prior to that, since November of 1988, he served as Senior Vice
President of the Company and, since January 1986, as Vice President, Corporate
Development. He has been employed by Comarco since May 1980.
General Creech was Commander of the Tactical Air Command headquartered at
Langley Air Force Base, Virginia from 1978 until his retirement in November
1984. He is presently an executive consultant.
Mr. Griffin is presently an executive consultant in Hunt, Texas. Previously
he was Managing Director of the Houston Office of Korn/Ferry International. From
1986 to 1988 he was President and Chief Executive Officer of the Houston Chamber
of Commerce. Between 1981 and 1986 he was Director of NASA's Johnson Space
Center in Houston, Texas.
Admiral McDonald served in various capacities with the United States Navy
from 1946 until his retirement in December 1985. In his last assignment he
served for more than three years as Supreme Allied Commander, Atlantic; U.S.
Commander in Chief, Atlantic; and Commander in Chief, U.S. Atlantic Fleet. He is
presently an executive consultant.
Mr. Sterling served as Chairman of the Board of the Company from 1977 until
September 1982. Between 1970 and 1973 Mr. Sterling served as Secretary of the
Company. On August 4, 1987 Mr. Sterling assumed the position of Chairman,
President and Chief Executive Officer of the Company, which positions he held
until his resignation on July 29, 1988.
Mr. Yovovich serves as a Director and as President and Chief Operating
Officer of Advance Ross Corporation, which positions he has held since 1993. He
served as President of Central Telephone Company from January 1990 through
December 1992.
During the fiscal year ended January 31, 1995, the Company's Board of
Directors had four regular meetings, and one telephone meeting. Each member of
the Board other than Mr. Griffin and Mr. Bailey (who serves as an officer and
employee) receives a daily Director's Fee of $1,500 per meeting, $200 per
telephone meeting, and a monthly retainer of $1,500. Mr. Griffin receives a
monthly payment of $6,250 in lieu of meeting fees and retainers. Mr. Griffin
also received an additional fee related to the Company's performance of $47,000.
Each Director was reimbursed for reasonable lodging and expenses incurred to
attend meetings of the Board of Directors.
The Company has an Audit Committee which meets periodically to review the
operations of the Company. In addition, the Audit Committee reviews the
engagement of the Company's independent auditors and reviews with such
accountants the scope and results of their annual audit of the Company. The
Audit Committee also reviews the Company's systems of internal control. During
the Company's Fiscal Year 1995 the Audit Committee met three times. Members of
the Audit Committee receive the same daily meeting fee as for meetings of the
full Board, except that the Chairman receives an additional $750 a day if a full
day meeting is held. The members are reimbursed reasonable lodging and expenses
incurred to attend meetings of the Audit Committee.
The Company has a Compensation Committee which meets periodically to review
the compensation of officers and key employees, and to make awards under the
Company's 1982 Employee Stock Option Plan. The Compensation Committee met two
times during the fiscal year. Members of the committee received a $750 meeting
fee, except that the Chairman received an additional $750 per meeting.
The Company has a Nominating Committee, which was convened once during the
year.
The Company has a Director Stock Option Plan which, as amended, provides
for automatic annual grants of non-qualified options to purchase 5,000 shares of
the Company's Common Stock, which vest in four annual increments commencing one
year from the date of grant.
Each of the Company's Directors, attended at least 75% of the total number
of meetings of the Board of Directors and meetings of the Committees on which he
served (during the periods within which he was a Director or Member of such
Committee) during the Company's last fiscal year.
COMPLIANCE WITH REPORTING REQUIREMENTS
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the
Rules issued thereunder, the Company's executive officers and directors are
required to file with the Securities and Exchange Commission reports of
ownership and changes in ownership of the Common Stock. Based solely on its
review of the copies of such reports furnished to the Company, or written
representations that no reports were required, the Company believes that, during
Fiscal Year 1995, its executive officers and directors complied with the Section
16(a) requirements.
Item 2 on Proxy Card
AUTHORIZATION TO INSTITUTE A NEW EMPLOYEE STOCK OPTION PLAN
At the Annual Meeting, the shareholders will be asked to authorize the
Company to institute an Employee Stock Option Plan (the "Plan") to replace the
present plan, which was adopted by the Board of Directors on November 12, 1982,
and approved by the shareholders on June 22, 1983. While the terms of the
earlier plan are substantially the same, the earlier plan is complicated by
having been amended several times since its adoption.
It is proposed that the number of shares of Common Stock which may be
purchased under the Plan pursuant to the grant of options, shall not exceed
350,000 shares.
The purpose of the Plan is to make awards to officers, directors who are
also employees, and other key employees of the Company and of the Company's
subsidiaries, and thereby, to further the growth and prosperity of the Company,
by providing incentives and identity of interests with the Company's
shareholders. The Company operates in a highly specialized field in which its
success is highly dependent upon the expertise of highly qualified and motivated
key personnel.
The Plan will be administered and options granted by a committee (the
"Option Committee") of at least two disinterested members of the Board of
Directors. The Option Committee will determine which key employees will receive
options, the number of shares with respect to which options will be granted, the
date on which the options will be exercisable and the installment provisions and
other terms of the options. The Option Committee is empowered to prescribe,
amend and rescind rules relating to the Plan and in certain circumstances to
authorize the repurchase of the options from the holders thereof. The Option
Committee may, with respect to any shares at the time not subject to options,
suspend or discontinue the Plan or revise or amend it in any respect whatsoever,
except that without approval of the shareholders of the Company, no such
revisions or amendment may increase the number of shares subject to the Plan,
decrease the price at which options may be granted to less than 100% of the Fair
Market Value on the date the option is granted, change the class of persons
eligible to receive options under the Plan, modify certain limits regarding the
value of Common Stock for which an optionee may be granted options, or
materially increase the benefits accruing to participants under the Plan.
The Plan provides for the acceleration of the exercisability of outstanding
in the event of a Change of Control. In the event of a Change of Control, each
outstanding option becomes exercisable in full, regardless of any provisions to
the contrary contained in any agreement evidencing the options, for a period of
thirty days from and after the date of the Change of Control. No option granted
to an Executive Officer of the Company is exercisable as a result of
acceleration within months of the date of its grant.
The full text of the Plan is attached hereto as Exhibit A.
Approval requires the affirmative vote of the holders of a majority of the
shares of Common Stock that are present or represented at the Annual Meeting. If
this plan is approved, the Company will continue to grant options under the 1982
plan, previously granted options will continue to vest in accordance with their
terms and will continue to be exercisable in accordance with their vesting
schedule, but no more shares will be added to the 1982 Plan. Under California
law, abstentions and broker non-votes are counted to determine the presence of a
quorum, but are not counted for determining whether a proposal has been
approved. For SEC Rule 16b-3, abstentions are treated as votes against and
broker non-votes do not count as votes for or against.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" ADOPTION OF THE
PLAN.
OWNERSHIP OF SECURITIES
The following table sets forth information concerning the ownership of the
Company's outstanding common stock as of March 1, 1995, except as otherwise
noted, by persons who are Directors, nominees or persons known to the Company as
beneficial owners of five percent or more of its outstanding common stock. The
table also includes the stock ownership of all Directors and Executive Officers
of the Company as a group. Unless otherwise indicated, the Company believes that
each of the persons listed in the table (subject to applicable community
property laws) has the sole power to vote and to dispose of the shares listed
opposite his name.
<TABLE>
<CAPTION>
Name and Address Office, Number of Shares Percent
of Beneficial Owner If Any Beneficially Owned Of Class Notes
------------------- ------- ------------------ -------- -----
<S> <C> <C> <C> <C>
Clement R. Arrison Director 12,100 *
Don M. Bailey Director, President 109,731 2.4 (1) (2)
Chief Executive Officer
Gen. Wilbur L. Creech (Ret.) Director 2,500 * (3)
Gerald D. Griffin Chairman of 58,250 1.3 (4)
The Board
Adm. Wesley L. McDonald (Ret.) Director 34,250 * (5)
Walter V. Sterling Director 173,356 3.8 (6) (7)
Paul G. Yovovich Director 0 *
Thomas A. Franza Sr. Vice President 27,500 * (8)
Richard C. Loomis Sr. Vice President 21,300 * (9)
Robert L. O'Leary Vice President, Secretary 12,750 * (10)
Thomas P. Baird Vice President, 16,478 * (11)
Chief Financial Officer
Evelyn M. Evans Vice President 16,425 * (12)
Gerald W. Durbin Vice President 0 *
John C. Hillis Sr. Vice President 6,000 * (13)
Directors and Officers 490,640 10.7
As a Group (14 persons)
COMARCO, Inc. 473,231 10.3 (14)
Employee Benefit Trusts
Alan S. Parsow 471,100 10.2 (15)
Parsow Partnership, Ltd.
222 Skyline Drive
Elkhorn, NE 68022
T. Rowe Price Associates 313,487 6.8 (16)
100 East Pratt Street
Baltimore, MD 21202
Gary Kohler 437,000 9.5 (17)
Okabena Company
5140 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Wellington Management Co. 265,600 5.8 (18)
75 State Street
Boston, MA 02109
<FN>
* Indicates less than one percent
(1) Dispositive and voting rights shared with spouse.
(2) Includes 87,500 shares which Mr. Bailey has the right to acquire within 60
days after March 1, 1995, by stock option exercise.
(3) Includes 1,500 shares which General Creech has a right to acquire within 60
days after March 1, 1995, by stock option exercise.
(4) Includes 55,750 shares which Mr. Griffin has the right to acquire within 60
days after March 1, 1995, by stock option exercise.
(5) Includes 33,250 shares which Admiral McDonald has the right to acquire
within 60 days after March 1, 1995, by stock option exercise.
(6) Includes 24,674 shares which Mr. Sterling holds as executor of the estate of
Virginia Sterling and 9,400 shares which he holds as trustee for Helen W.
Papastively.
(7) Includes 33,250 shares which Mr. Sterling has the right to acquire within 60
days after March 1, 1995, by stock option exercise.
(8) Includes 27,500 shares which Mr. Franza has the right to acquire within 60
days after March 1, 1995, by stock option exercise.
(9) Includes 20,300 shares which Mr. Loomis has the right to acquire within 60
days after March 1, 1995, by stock option exercise.
(10) Includes 8,750 shares which Mr. O'Leary has the right to acquire within 60
days after March 1, 1995, by stock option exercise.
(11) Includes 15,625 shares which Mr. Baird has the right to acquire within 60
days after March 1, 1995, by stock option exercise.
(12) Includes 15,625 shares which Ms. Evans has the right to acquire within 60
days after March 1, 1995, by stock option exercise.
(13) Includes 6,000 shares which Mr. Hillis has the right to acquire within 60
days after March 1, 1995, by stock option exercise.
(14) Includes shares held in the Employee Savings and Retirement Trust, of which
the Company is the administrator. Under the beneficial ownership rules
promulgated by the Securities and Exchange Commission, the Company could be
deemed to be a beneficial owner of such shares. All such shares are allocated to
the accounts of Plan participants and are subject to and voted in accordance
with the direction of the participants. These shares were transferred to the
Plan upon the termination of the Employee Stock Ownership Plan. Also includes
shares held by the Savings and Retirement Plan, not formerly held by the ESOP.
Under the beneficial ownership rules promulgated by the Securities and Exchange
Commission, the Company could be deemed to be a beneficial owner of such shares.
These shares are also voted in accordance with the direction of the participant.
The assets of both trusts are under the trusteeship of Smith Barney Corporate
Trust Company. The number of shares listed is as of the end of the Plan Quarter
on September 30, 1994.
(15) Taken from Amendment No. 8 to Schedule 13D filed with the Securities and
Exchange Commission on January 14, 1992.
(16) Taken from Schedule 13G filed with the Securities and Exchange Commission
on February 14, 1995. These securities are owned by various individual and
institutional investors which T. Rowe Price Associates, Inc. (Price Associates)
serves as investment adviser with power to direct investments and/or sole power
to vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a beneficial
owner of such securities; however, Price Associates expressly disclaims that it
is, in fact, the beneficial owner of such securities.
(17) Taken from Schedule 13D filed with the Securities and Exchange Commission
on behalf of The Okabena Company, a Minnesota General Partnership, on March 19,
1993, and Amendment No. 1 filed with the Securities and Exchange Commission on
May 13. 1993, and verbally modified by Okabena in February 1995.
(18) Taken from Schedule 13G filed with the Securities and Exchange Commission
behalf of the Wellington Management Company on February 3, 1995.
</FN>
</TABLE>
EXECUTIVE COMPENSATION
The Company's executive compensation structure consists of salaries, cash
incentive awards and stock option awards. This structure is administered by a
committee of the Board of Directors (the Compensation Committee) consisting
solely of outside directors who are "disinterested" within the meaning of the
rules and regulations of the Securities and Exchange Commission. The Company's
CEO recommends compensation levels for the Company's officers, except for
himself, to the Compensation Committee. The Committee adjusts these
recommendations and approves final compensation levels for these officers. In
addition the Committee sets the compensation level for the CEO and the Chairman
of the Board. Incentive compensation is based upon pre-established quantitative
goals, typically stock price, profitability and new business bookings and
qualitative goals, such as customer satisfaction.
The information on cash compensation set forth below is furnished for the
Fiscal Year ended January 31,1995 for the Chief Executive Officer and four most
highly compensated executive officers whose cash compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------------------- --------------------------------------------------
Name and Other Restricted Long Term
Principal Annual Stock Options Incentive All Other
Position Year Salary ($) Bonus ($) Compensation Number Options # Payouts ($) Compensation ($)
- -------- ---- ---------- --------- ------------ ------------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Don M. Bailey 1995 191,797 150,000 0 0 0 0 4,500
President & CEO 1994 176,022 95,000 0 0 25,000 0 7,075
1993 165,641 125,000 0 0 25,000 0 6,866
Thomas P. Franza 1995 131,000 150,000 0 0 0 0 4,500
Sr. Vice President 1994 177,596 100,000 0 0 0 0 5,608
1993 123,466 100,000 0 0 10,000 0 8,197
Richard C. Loomis 1995 132,764 40,000 0 0 0 0 4,011
Sr. Vice President 1994 115,904 35,000 0 0 0 0 5,397
1993 130,845 90,000 0 0 10,500 0 5,417
Thomas P. Baird 1995 117,280 28,000 0 0 0 0 4,500
Vice President 1994 110,718 30,000 0 0 7,500 0 4,252
Chief Financial 1993 104,231 25,000 0 0 0 0 3,969
Officer
Evelyn M. Evans 1995 111,242 28,000 0 0 0 0 4,177
Vice President 1994 99,348 30,000 0 0 7,500 0 3,732
1993 90,280 20,000 0 0 5,000 0 3,351
<FN>
Notes:
(1) "Other Annual Compensation" amounts were below reporting thresholds.
(2) "All Other Compensation" amounts are Company contributions to the Company's
Savings and Retirement Plan.
(3) Mr. Bailey has an agreement with the Company to the effect that his
termination or constructive termination following a change in control of the
Company entitles him to two years of base salary and incentive compensation of
the planned level for that year or the amount paid in the year before the change
of control, whichever is greater.
(4) "Salary" includes compensation deferred from prior years and cashed out
vested vacation payments.
</FN>
</TABLE>
STOCK OPTIONS
The following tables set forth for each person and group named in the
executive compensation table above, information concerning (i) options granted
by the Company during the period from February 1, 1994 to January 31, 1995 and
(ii) options exercised during such period.
<TABLE>
<CAPTION>
OPTION GRANTS FOR FISCAL YEAR ENDED 1/31/95
Options Percent of Total/ Exercise Expiration Potential Value
Name Granted Options Granted Price Date @ 5% @10%
- ---- ------- --------------- ------------ --------------- ---- ----
<S> <C>
Don M. Bailey 0
Thomas A. Franza 0
Richard C. Loomis 0
Thomas P. Baird 0
Evelyn M. Evans 0
Notes:
<FN>
(1) There were no options granted, due to the awards having been made in
February, after the end of the Fiscal Year. (2) Mr. Franza was granted 6,000
share options in Comarco Wireless Technologies, Inc. (CWT), a subsidiary of
COMARCO. Three other executives of Comarco Wireless Technologies, Inc. also
received 6,000 share options each. In total these awards are equal to 8% of the
outstanding shares of CWT, all of which are held by COMARCO. The stock option
exercise price of $25.33 a share was established by the COMARCO Board of
Directors Compensation Committee. The options have a life of ten years and one
week.
</FN>
</TABLE>
<TABLE>
<CAPTION>
OPTION EXERCISES FOR FISCAL YEAR ENDED 1/31/95
Shares Acquired Value Number of Unexercised Value of Unexercised(1)
Name on Exercise Realized Vested Unvested Vested Unvested
- ---- ----------- -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Don M. Bailey 0 0 87,500 37,500 $454,912 $140,062
Thomas A. Franza 0 0 27,500 10,000 $104,487 $29,350
Richard C. Loomis 0 0 20,000 8,250 $92,205 $25,139
Thomas P. Baird 0 0 15,625 5,625 $100,669 $23,569
Evelyn M. Evans 0 0 15,625 8,125 $92,219 $31,994
<FN>
Notes:
(1) Value at the end of the Company's Fiscal Year, which was $8.75 a share,
minus the average grant price for each officer.
</FN>
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
To: The Board of Directors
As members of the Compensation Committee, it is our duty to establish the salary
and incentive compensation of the President and Chief Executive Officer and to
review, to revise as appropriate, and to approve the President's recommendations
for the salaries and incentive compensation of the Company's executive officers.
Since 1985, the Compensation Committee of the Board of Directors, composed
exclusively of outside directors, has received a comprehensive written and oral
corporate performance review from the company's Chief Executive Officer. This
report presents corporate performance against predetermined quantitative and
qualitative performance objectives. The report summarizes the results for each
of the Company's operations and provides explanation for each compensation
request made by the Chief Executive Officer. The Committee, after appropriate
inquiry modifies and approves compensation decisions and establishes appropriate
compensation for the Chief Executive Officer, and for the Chairman of the Board.
Performance objectives and incentives goals are established at the outset of
each year, together with salary levels. Incentive awards are made after the
close of each fiscal year. Incentive compensation is based on quantitative
performance factors (stock price, profit and new business) as well as a number
of qualitative factors related to long-term performance. For the Chief Executive
Officer, the Chairman, and other Executive Officers, for fiscal year 1995;
quantitative factors were considered more important than qualitative factors.
Profit was considered slightly more important than stock price.
The Committee adheres to the following philosophy regarding compensation of the
Company's executive officers:
- - to provide competitive total pay opportunities in order to attract and retain
high quality executive talent critical to the Company's success.
- - to pay for performance through a compensation mix that emphasizes very
competitive cash incentives and merit- based salary increases and de-emphasizes
entitlements and perquisites.
- - to create a mutuality of interest between executives and shareholders through
a stock option program.
Consistent with these criteria, President and CEO Don M. Bailey received a
salary of $191,797 (an increase of 9%) in the Fiscal Year ended January 31, 1995
and his incentive compensation award of $150,000 was $55,000 more than in the
previous Company fiscal year. This increase in incentive compensation reflected
the achievement of greater goals than in the prior fiscal year. The Committee
also took into account that the Company's financial results continue to be well
above the average of its peer group in Return on Shareholder's Equity and Return
on Assets. The Company continues to achieve success in its efforts to diversify
its business base and decrease dependence on Department of Defense work. The
price of the Company's Common Stock increased in the year from $4.88 to $8.75 a
share. This was the most significant achievement in Mr. Bailey's favor.
Performance awards for the other executive officers are also tied to the
achievement of specific, similar, pre-established objectives as to division or
corporate performance, as appropriate to each officer's role in the Company.
Stock option awards to officers and employees were not made in this fiscal year.
The Compensation Committee is in the process of considering any revisions to the
company's executive compensation policy or plans which may be necessary due to
provisions of the Omnibus Budget Reconciliation Act of 1993. This legislation
amended Section 162 of the Code by limiting to $1,000,000 the deductibility of
compensation paid to certain executives. It is the current policy of the
Compensation Committee to preserve, to the extent reasonably possible, the
Company's ability to obtain a corporate tax deduction for compensation paid to
executive officers of the Company to the extent consistent with the best
interests of the company and its stockholders.
No member of this Committee is an officer or employee of the Company.
Submitted by the Committee:
General Wilbur L. Creech, Chairman
Admiral Wesley L. McDonald
Gerald D. Griffin Walter V. Sterling
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following Directors served on the Company's Compensation Committee during
the Company Fiscal Year ended January 31, 1995.
Gen. Wilbur L. Creech, Chairman
Gerald D. Griffin
Adm. Wesley L. McDonald
Walter V. Sterling
None of the members of the Compensation Committee served as an officer or
employee of the Company or its subsidiaries during this fiscal year.
Mr. Walter V. Sterling served as President and Chief Executive Officer of the
Company from August 4, 1987 to July 29, 1988.
None of the members had any relationship with the Company requiring disclosure
under Item 404 of SEC Regulation S-K.
No executive officer of the Company served as a member of the compensation
committee (or other board committee performing an equivalent function) of
another entity, one of whose executive officers served on the compensation
committee of the Company.
No executive officer of the Company served as a director of another entity, one
of whose executive officers served on the compensation committee of the Company.
No executive officer of the Company served as a member of the compensation
committee (or other committee performing an equivalent function) of another
entity, one of whose executive officers served as a director of the Company.
PERFORMANCE COMPARISON
The following graphical presentation provides an indication of total shareholder
returns for COMARCO as compared to the Russell 2000 Stock Index and a peer group
of companies. The presentation assumes $100 invested on January 31, 1990 in
COMARCO Common Stock, the Russell 2000 Stock Index, and the Common Stock of a
Peer Group of Companies. The Russell 2000 Stock Index is a broad index of 2000
small capitalization common stocks (the 1001st through 3000th largest public
companies). While investors cannot invest in the Russell 2000 Stock Index
directly, they may construct a synthetic position equivalent to an investment in
the index using derivative securities traded on the Chicago Board Options
Exchange (CBOE). The Peer Group comprises seven companies of similar size (in
terms of assets and revenue) and business focus as COMARCO. While none of the
selected peers offer a fully comparable range of products and services to
COMARCO, they are recognized as providers of high technology electronic,
computer, and communications systems engineering services primarily in U.S.
government markets with a presence outside of the government sector. The returns
of each company have been weighted according to their respective stock market
capitalization for the purposes of arriving at a peer group average. Dividends
paid by those peer companies that pay dividends are assumed to be reinvested at
the end of the ex-dividend month without any transaction cost. The members of
the peer group are as follows: Analysis & Technology (AATI), CACI International
(CACI), Dynamics Research (DRCO), ECC International (ECC), GeoDynamics (GDYN),
Halifax (HX), and VSE (VSEC). This is the same group of peer companies which was
used for a comparison in the previous year. In addition, a comparison was made
with an Expanded Peer Group adding two additional professional services
companies of similar size and business focus as COMARCO, Nichols Research (NRES)
and National Technical Systems (NTSC). The broadened base for the calculation of
peer performance may provide a less volatile and thus more meaningful basis of
comparison for future years, but was entered into the graph as a separate line
in order to provide also a stable base for comparison with the peer group used
in earlier years.
As noted on the graph shown on page 14, an investment of $100 in COMARCO
Common Stock on January 31, 1990 would have grown in value to $280 as of January
31, 1995. For the five year period ending January 31, 1995, the total cumulative
return for holders of COMARCO common stock amounted to 180%, or the equivalent
of 22.9% per year compounded annually. By comparison, $100 invested in the peer
group composite would have grown in value to $303, assuming the reinvestment of
dividends from those companies which paid dividends. For the five year period
ending January 31, 1995, the total cumulative return for the peer group
composite was 202%, or the equivalent of 24.8% per year compounded annually. A
like sum invested in the Expanded Peer Group would have grown to $266, assuming
the reinvestment of dividends from those companies which pay dividends. For the
five year period ending January 31, 1995, the total cumulative return for the
Expanded Peer Group was 166%, or the equivalent of 21.6% per year compounded
annually. The returns of COMARCO and both the Peer Group and Expanded Peer
exceeded the comparable return of the Russell 2000 Stock Index.
[Graph omitted: "Five-Year Performance Comparison Comarco vs. Russell 2000
Index and Both an Established Peer Group and an Expanded Peer Group]
<TABLE>
<CAPTION>
Last Year's
Date COMARCO Peers Expanded Peers Russell 2000
---- ------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Q4 1990 100 100 100 100
Q1 1991 96 104 104 103
Q2 1991 88 116 110 106
Q3 1991 60 103 98 78
Q4 1991 76 123 126 82
Q1 1992 156 127 134 112
Q2 1992 144 127 128 110
Q3 1992 148 127 128 116
Q4 1992 200 142 144 124
Q1 1993 172 152 151 126
Q2 1993 152 136 147 122
Q3 1993 160 137 153 122
Q4 1993 172 142 174 144
Q1 1994 168 150 159 144
Q2 1994 152 154 159 153
Q3 1994 168 183 178 166
Q4 1994 156 197 189 168
Q1 1995 164 306 267 159
Q2 1995 160 262 231 158
Q3 1995 224 344 298 164
Q4 1995 280 303 266 162
</TABLE>
The following table displays a summary of the relative performance on an annual
basis. The accompanying graph depicts the relative performance of COMARCO in
relation to the Peer Group and to the Russell 2000 Stock Index.
<TABLE>
<CAPTION>
1/31/90 1/31/91 1/31/92 1/31/93 1/31/94 1/31/95
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Comarco 100 76 200 172 156 280
Peer Group 100 123 142 142 197 303
Expanded Peer Group 100 126 132 174 189 266
Russell 2000 Index 100 82 124 144 168 162
</TABLE>
EXECUTIVE OFFICERS
The following table sets forth pertinent information concerning the persons
who are the current executive officers (who are not Directors) of the Company.
<TABLE>
<CAPTION>
Name Age Capacity
---- --- --------
<S> <C> <C>
Thomas P. Baird 41 Vice President and Chief Financial Officer of the
Company; Vice President, CFO and Assistant Secretary of
International Business Services, Inc.; Vice President,
CFO and Assistant Secretary of Decisions and
Designs, Inc.; Vice President and CFO of Comarco
Wireless Technologies, Inc.; Vice President and CFO of
LCTI, Inc.
Gerald W. Durbin 54 Vice President
Evelyn M. Evans 39 Vice President, Administration; Assistant Secretary
Thomas A. Franza 52 Sr. Vice President of the Company; President of Comarco
Wireless Technologies, Inc.
John C. Hillis 49 Sr. Vice President of the Company; President of
International Business Services, Inc.; General Manager of
Comarco Systems
Richard C. Loomis 46 Sr. Vice President of the Company; Vice President of
International Business Services, Inc.; General Manager
of Facilities Management Division
Robert L. O'Leary 63 Vice President and Secretary of the Company; Vice
President and Secretary of International Business Services,
Inc.; Vice President and Secretary of Decisions and
Designs, Inc.; Vice President and Secretary of Comarco
Wireless Technologies, Inc.; Vice President and Secretary
of LCTI, Inc.
</TABLE>
Mr. Baird has served as Chief Financial Officer of the Company since
September 1992, and Vice President and Controller of the Company since November
1988. From December 1987 to November 1988 he served as Vice President, Treasurer
and Assistant Secretary of International Business Services, Inc. From September
to December 1987 he served as Assistant to the Company's Chief Financial
Officer. Prior to joining the company, he was a Division Controller for Western
Gear Corporation from November 1985 to September 1987. Prior to that time, he
served in various financial and accounting positions at Becor Western, Inc.
Mr. Durbin joined the Company in December 1994 and was appointed Vice
President. Mr. Durbin's prior employment was with the Federal Government as a
Senior Executive in the field of Strategic Planning.
Ms. Evans joined the Company in January 1986 in the field of contracts
administration. Subsequently, she designed budget models for the Company in her
capacity as Manager of Plans and Analysis. Ms. Evans was promoted to Vice
President in March 1989. Prior to joining the Company, Ms. Evans served for six
years as an Officer in the United States Army.
Mr. Franza is President of Comarco Wireless Technologies Inc. and a Sr.
Vice President of this Company. Previously, Mr. Franza was General Manager of
the Company's Advanced Technologies Division since January 1986, and has been a
Vice President of the Company since July 1990. In October 1992 he was appointed
Sr. Vice President.
Mr. Hillis has served as Manager of Engineering Services Business
Development and as a Vice President of International Business Services prior to
his appointment as Vice President of the Company in August 1991. Mr. Hillis was
named Sr. Vice President in December 1994. He also served as President of
International Business Services, Inc.
Mr. Loomis has been a Vice President of the Company since November 1989. He
is also General Manager of the Company's Facilities Management Division. In
October 1992 he was appointed Sr. Vice President. His prior management positions
with the Company include Project Manager and Division Manager at the Facilities
Management Division. Mr. Loomis joined the Company in April 1986.
Mr. O'Leary has served as Vice President and Secretary of the Company since
November 1988 and as Corporate Counsel since April 1986. He served as Assistant
Secretary of the Company from July 1987 to November 1988. Prior to joining the
Company, Mr. O'Leary was Vice President and Director of Contracts for Decisions
and Designs, Inc.
SELECTION OF AUDITORS
KPMG Peat Marwick has been selected as the Company's independent certified
public accountants for the fiscal year ending January 31, 1996. Representatives
of KPMG Peat Marwick are expected to be present at the Annual Meeting and will
have an opportunity to make a statement if they so desire and to respond to
appropriate questions from shareholders.
PROPOSALS FOR SUBMISSION AT NEXT ANNUAL MEETING
If a shareholder desires to submit a proposal to his fellow shareholders at
the Company's 1996 Annual Meeting, such proposal must be received by the Company
at its corporate office no later than January 15, 1996 and otherwise comply with
applicable regulations in order to be included in the Proxy Statement for that
meeting.
OTHER MATTERS
The Board of Directors of the Company does not know of any matter to be
acted upon at the meeting other than the matters described above. If other
matters properly come before the meeting, the holders of the proxies will vote
on such matters in accordance with their judgment.
The Company's 1995 Annual Report to Shareholders is enclosed with this
Proxy Statement.
IN ORDER TO AVOID ADDED EXPENSE OR ADDITIONAL SOLICITATION OF PROXIES, YOU
ARE URGED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, TO WHICH NO POSTAGE NEED BE AFFIXED.
By ORDER OF THE BOARD OF DIRECTORS
Robert L. O'Leary, Secretary
May 15, 1995
<PAGE>
PROXY COMARCO, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS CALLED FOR JULY 12, 1995
The undersigned shareholder(s) of COMARCO, Inc. a California corporation,
having received the Notice of Annual Meeting of Shareholders and Proxy Statement
dated May 15, 1995, hereby appoints Gerald D. Griffin and Robert L. O'Leary as
Proxies, each with the power to appoint a substitute, and hereby authorizes them
to represent the undersigned at the Annual Meeting of Shareholders of COMARCO,
Inc. to be held on July 12, 1995 at 10:00 AM at the Company's Offices at 5
Jenner, Suite 100; Irvine California, and at any adjournments thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to vote
thereat on all matters set forth below, as described in the accompanying Proxy
Statement:
1.ELECTION OF DIRECTORS: [] FOR all nominees listed below [] WITHHELD AUTHORITY
to vote for
any nominees
(INSTRUCTION: To withhold authority to vote for any individual nominee,
mark the box next to the nominee's name below.)
[] Wilbur L. Creech [] Wesley L. McDonald [] Paul G. Yovovich
[] Gerald D. Griffin [] Walter V. Sterling [] Don M. Bailey
2. PROPOSAL TO AUTHORIZE A NEW EMPLOYEE STOCK OPTION PLAN
[] FOR [] AGAINST [] ABSTAIN
IMPORTANT - PLEASE SIGN ON THE OTHER SIDE
<PAGE>
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
In the event the Directors are to be elected by cumulative voting, the
Proxies will have the discretion to cumulate votes and to distribute such votes
among all nominees (or if authority to vote for any nominee or nominees has been
withheld, among the remaining nominees, if any) in whatever manner they deem
appropriate.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL OF THE DIRECTORS NOMINATED BY THE BOARD.
Dated: -----------------------------------, 1995
------------------------------------------------
(Signature)
------------------------------------------------
(Signature)
(Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator
trustee or guardian, please set forth your full title. If signer is a
corporation, please sign the full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ACCOMPANYING PREPAID
ENVELOPE.
<PAGE>
COMARCO, INC.
1995 EMPLOYEE STOCK OPTION PLAN
PLAN DOCUMENT
May 1995
<PAGE>
COMARCO, INC.
1995 EMPLOYEE STOCK OPTION PLAN
Section 1. Description of Plan.
This is the Employee Stock Option Plan, dated May 15, 1995, (the "Plan") of
Comarco, Inc., a California corporation (the "Company"). Under this Plan, key
employees of the Company or of any present or future subsidiaries of the Company
and employee directors, to be selected as set forth below, may be granted
options ("Options" ) to purchase shares of the common stock of the Company
("Common Stock"). For the purposes of the Plan the term "subsidiary" means any
corporation 50% or more of the voting stock of which is owned by the Company or
by a subsidiary (as so defined) of the Company. It is intended that the Options
under the Plan will either qualify for treatment as incentive stock options
under Section 422 of the Internal Revenue Code of 1986 as amended (the "Code"),
and be designated Incentive Stock Options, or not qualify for such treatment and
be designated Nonqualified Stock Options.
Section 2. Purpose of Plan.
The purpose of the Plan and of granting Options to specified employees is to
further the growth, development, and financial success of the Company by
providing additional incentives to certain key employees holding responsible
positions by assisting them to acquire shares of Common Stock and to benefit
directly from the Company's growth, development, and financial success.
Section 3. Eligibility.
Officers and key employees of the Company or any of its subsidiaries and those
directors who are also key employees, shall be eligible to receive grants of
Options under the Plan. A person who holds an Option is herein referred to as an
"Optionee". More than one Option may be granted to any one Optionee.
For incentive stock options, the aggregate fair market value (determined at the
time the option is granted) of the stock with respect to which incentive stock
options are exercisable for the first time by such individuals during any
calendar year (under all such plans of the individual's employer corporation and
its parent and subsidiary corporations) shall not exceed $100,000 plus any
"unused limit carryover" to such year as such term is defined in Section 422 of
the Code. Under the Plan, the maximum number of Options that may be granted to
any one Optionee shall be 350,000 shares.
Section 4. Administration.
The Plan shall be administered by a committee (the "Committee") to be composed
of at least two "disinterested" (as such term is used in Rule 16b-3 promulgated
under the Securities Exchange Act of 1934) members of the Board of Directors of
the Company (the "Board"). Members of the Committee shall be appointed, both
initially and as vacancies occur, by the Board, to serve at the pleasure of the
Board. The Board may serve as the Committee, if by the terms of the Plan all
Board members are otherwise eligible to serve on the Committee. The Committee
shall meet at such times and places as it determines and may meet through a
telephone conference call. A majority of its members shall constitute a quorum,
and the decision of a majority of those present at any meeting at which a quorum
is present shall constitute the decision of the Committee. A memorandum signed
by all of its members shall constitute the decision of the Committee without
necessity, in such event, for holding an actual meeting.
The Committee is authorized and empowered to administer the Plan and, subject to
the provisions of the Plan (a) to select the Optionees, to specify the number of
shares of Common Stock with respect to which Options are granted to each
Optionee, to specify the grant date, Option Price and the terms and conditions
of the Options, which terms and conditions need not be identical as to the
various Options granted; (b) to interpret the Plan; (c) to prescribe, amend, and
rescind rules relating to the Plan; (d) to accelerate the time during which an
Option may be exercised, notwithstanding the provisions in the Option Agreement
(as defined in Section 12) stating the time during which it may be exercised;
(e) to determine, subject to Sections 3 and 6 hereof, whether Options will be
Incentive Stock Options or Nonqualified Stock Options; and (f) to determine the
rights and obligations of Optionees under the Plan. All questions of
interpretation of the terms and provisions of the Plan or of any Options granted
under the Plan shall be determined by the Committee, and such determinations and
decisions shall be final, conclusive, and binding upon all persons having an
interest in the Plan and/or any Options. No member of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option granted under it.
Section 5. Shares Subject to the Plan.
The number of shares of Common Stock which may be purchased pursuant to the
exercise of Options granted under the Plan shall not exceed 350,000 shares,
subject to adjustment under Section 10 hereof to reflect all stock splits, stock
dividends or similar capital changes. Upon the expiration or termination for any
reason of an outstanding Option which shall not have been exercised in full, any
shares of Common Stock then remaining unissued which shall have been reserved
for issuance upon such exercise shall again become available for the granting of
additional Options under the Plan.
Section 6. Option Price.
Except as provided in Section 11, the purchase price per share (the "Option
Price") of the shares of Common Stock underlying each Option shall not be less
than the fair market value of such shares on the date the Option is granted;
provided, however, that if an Incentive Stock Option is granted to an Optionee
who is a 10-percent shareholder of the Company as defined in Code Section
422(b)(6) at the time such Incentive Stock Option is granted, the Option Price
shall be not less than 110 percent of said fair market value. Such fair market
value shall be determined by the Committee on the basis of the average of the
reported closing bid and asked prices on such date. In the absence of reported
bid and asked prices, the Committee shall determine such fair market value on
the basis of the best available evidence.
Section 7. Exercise of Options.
Subject to all other provisions of the Plan, each Option shall be exercisable
for the full number of shares of Common Stock subject thereto, or any part
thereof, in such installments and at such intervals as the Committee may
determine in granting such an Option, provided that no Option may be exercisable
(a) in the case of Optionees subject to Section 16 of the Securities Exchange
Act of 1934, prior to six months following the grant of the Option (except in
the case of an exercise or surrender of such Option pursuant to Section 10
hereof) or (b) subsequent to its termination date. To the extent it is then
vested, an Option, or any exercisable portion thereof, shall be exercised by
delivery to the Company of all of the following prior to the time when such
Option becomes unexercisable.
(a) Notice in writing signed by the Optionee or other person
entitled to exercise such Option, stating that such Option or
portion thereof is exercised, such notice complying with all
applicable rules established by the Committee;
(b) Payment in full for the Shares with respect to which such
Option or portion is thereby exercised either (i) in cash
(including check, bank draft or money order) or (ii), without
limitation and at the sole discretion of the Board, by
delivering shares of the Company's Common Stock already owned
by the Optionee, or by a combination of cash and Common Stock;
or in such other lawful means as the Committee in its sole
discretion may permit; and
(c) Such representations and documents (including, without
limitation, those contemplated by Section 8 hereof) as the
Committee shall, in its absolute discretion deem necessary.
Section 8. Issuance of Common Stock.
The Company's obligation to issue shares of its Common Stock upon exercise of an
Option is expressly conditioned upon the completion by the Company of any
registration or other qualification of such shares under any state and/or
federal law or rulings and regulations of any government regulatory body or the
making of such investment representations or other representations and
undertakings by the Optionee (or his legal representative, heir or legatee, as
the case may be), and the taking of such actions by the Company as may be
necessary, in order to comply with the requirements of any exemption from any
such registration or other qualification of such shares which the Company in its
sole discretion shall deem necessary or advisable. Such required representations
and undertakings may include representations and agreements that such Optionee
(or his legal representative, heir or legatee): (a) is purchasing such shares
for investment and not with any present intention of selling or otherwise
disposing thereof; and (b) agrees to have a legend placed upon the face and
reverse of any certificates evidencing such shares ( or, if applicable, an
appropriate entry made in the ownership records of the Company) setting forth
(i) any representations and undertakings which such Optionee has given to the
Company or a reference thereto, and (ii) that, prior to effecting any sale or
other disposition of any such shares, the Optionee must furnish to the Company
an opinion of counsel, satisfactory to the Company and its counsel, to the
effect that such sale or disposition will not violate the applicable
requirements of state and federal laws and regulatory agencies. The inability of
the Company to obtain, from any regulatory body having jurisdiction,
registration, qualification or other necessary authorization, or the
unavailability of any exemption from registration or qualification obligation,
deemed by the Company's counsel to be necessary for the lawful issuance and sale
of any shares hereunder shall suspend the Company's obligation to permit the
exercise of any affected Option or to issue any shares thereupon and shall
relieve the Company of any liability with respect to the non-issuance or sale of
such shares as to which such requisite authority or exemption shall not have
been obtained. In the event that exercisability of an Option shall be suspended
as provided in this Section, the term of such Option shall be extended until the
thirtieth day after the date on which the Company shall have given notice that
such Option may be exercised; provided that in no event may an Incentive Stock
Option be exercised after (i) the expiration, if applicable of the
post-employment exercise period specified in Section 14 of the Plan, or (ii) the
tenth anniversary of the date of its grant.
Section 9. Nontransferability.
No Option shall be assignable or transferable, except that an Option may be
transferable by will or by the applicable laws of descent and distribution
provided such Option Agreement (as contemplated in Section 12 hereof) explicitly
so provides. During the lifetime of an Optionee, only he may exercise an Option
granted to him, or any portion thereof. After the death of the Optionee, any
exercisable portion may be exercised prior to its termination as provided in
Section 14(b) only by his legal representative, his legatee, or by a person
empowered to do so under the deceased Optionee's will or under the then
applicable laws of descent and distribution.
Section 10. Recapitalization, Reorganization, Merger or Consolidation.
If the outstanding shares of Common Stock are increased, decreased or exchanged
for different securities through a reorganization, merger, consolidation,
recapitalization, reclassification, stock split, stock dividend, or like capital
adjustment, a proportionate adjustment shall be made by the Committee (a) in the
aggregate number of shares of Common Stock which may be purchased pursuant to
the exercise of Options granted under the Plan, as provided in Section 5, and,
(b) in the number, price, and kind of shares subject to any outstanding Option
granted under the Plan; provided that no fractional shares (or cash in lieu
thereof) will be issuable upon exercise of any Option as so adjusted.
Upon (i) the dissolution, liquidation or sale of all or substantially all of the
assets of the Company or (ii) upon any reorganization, merger or consolidation
in which the Company does not survive, or (iii) upon any reorganization, merger,
or consolidation in which the Company does survive and in which the stockholders
of the Company have the opportunity to receive cash, securities of another
entity or other property in exchange for their shares in the Company, the Plan
and each outstanding Option shall terminate; provided that in such event: (a)
each Optionee who is not tendered a substitute Option in accordance with all the
terms of provision (b) immediately below shall have the right until five days
before the effective date of such dissolution, liquidation, sale,
reorganization, merger or to exercise any unexpired Option or Options issued to
him to the extent that such Options are then exercisable pursuant to the
installment provisions of said Option and of Section 7 above; provided, however,
that should the Committee so elect in its sole and absolute discretion said
Optionee may be given (i) the option to exercise, in whole or in part, any
unexpired Option, without regard to said installment provisions or (ii) the
option to surrender such Option or Options to the Company for a price (which may
be payable, in the sole discretion of the Committee, in cash or in securities of
the Company, or in a combination thereof), equal to the difference between the
aggregate exercise price of the Option or Options without regard to said
installment provisions, and the aggregate fair market value (as determined in
the manner provided in Section 6 above) of the shares subject to such Option or
Options on the date one day before the effective date of such dissolution,
liquidation, reorganization, merger or consolidation, or (b), in its sole and
absolute discretion, the surviving entity (which may be the Company) or the
entity that has acquired all or substantially all the Company's assets may, but
shall not be so obligated, tender to any Optionee an option or options to
purchase shares at equity interests in such entity, and such new option or
options shall contain such terms and provisions as shall be required to
substantially preserve the rights and benefits of any Option then outstanding
under the Plan with any reasonable changes to take into account the
circumstances of the surviving entity.
To the extent that the foregoing adjustments relate to stock or securities of
the Company, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding, and conclusive. Except as
expressly provided in this Section 10, the Optionee shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class or
the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class, and the number or price of shares of
Common Stock subject to any Option shall not be affected by, and no adjustment
shall be made by reason of, dissolution, liquidation, reorganization, merger or
consolidation or any issuance by the Company of shares of stock of any class, or
rights to purchase or subscribe for stock of any class, or securities
convertible into shares of stock of any class.
The grant of any Option under the Plan shall not affect in any way the right or
power of the Company to make adjustments, reclassifications or changes in its
capital or business structures or to merge, consolidate, dissolve, or liquidate
or to sell or transfer all or any part of their business or assets.
Section 11. Substitute Options.
If the Company at any time should succeed to the business of another enterprise
through a merger or consolidation, or through the acquisition of stock, equity
interests, or assets of such enterprise, Options may be granted under the Plan
to those employees of such enterprise or its subsidiaries who, in connection
with such succession, become employees of the Company or its subsidiaries, in
substitution for options to purchase stock or equity interests of such
enterprise held by them at the time of succession. The Committee, in its sole
and absolute discretion, shall determine the extent to which such substitute
Options shall be granted (if at all), the person or persons to receive such
substitute Options (who need not be all Optionees of such enterprise), the
number and type of such Options to be received by each such person, the Option
Price of such Option (which may be determined without regard to Section 6) and
the terms and conditions of such substitute Options; provided, however, that the
Option Price of each such substituted Option shall be an amount such that, in
the sole and absolute judgment of the Committee (and with respect to a
substitute Option that is an Incentive Stock Option, in compliance with Section
424(a) of the Code), the economic benefit provided by such Option is not greater
than the economic benefit represented by the option in the acquired enterprise
as of the date of the Company's acquisition of such enterprise. Notwithstanding
anything to the contrary herein, no Option shall be granted, nor any action
taken, permitted, or omitted, which would cause the Plan, or any Options granted
hereunder as to which Rule 16b-3 under the Securities Exchange Act of 1934 may
apply, not to comply with such Rule.
Section 12. Option Agreement.
Each Option granted under the Plan shall be evidenced by a written stock option
agreement ("Option Agreement") executed by the Company and accepted by the
Optionee, which (a) shall contain each of the provisions and agreements herein
specifically required to be contained therein, (b) shall indicate whether such
Option is to be an Incentive Stock Option or a Nonqualified Stock Option, and if
it is to be an Incentive Stock Option such Option Agreement shall contain terms
and conditions permitting such Option to qualify for treatment as an incentive
stock option under Section 422 of the Code, (c) may contain the agreement of the
Optionee to remain in the employ of, and render services to, the company or any
of its subsidiaries for a period of time to be determined by the Committee, and
(d) may contain such other terms and conditions as the Committee deems desirable
and which are not inconsistent with the Plan.
Section 13. Rights as a Shareholder.
An Optionee or a transferee of an Option shall have no rights as a shareholder
with respect to any shares covered by this Option until exercise thereof;
provided, however, that no Optionee or transferee of an Option shall be able to
vote any shares covered by this Option until the issuance of a stock
certificate(s) to him for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the exercise
date, except as expressly provided in Section 10.
Section 14. Termination of Options.
Each Option Agreement representing an Option granted under the Plan shall set
forth a termination date thereof, which shall be not later than ten years from
the date such Option is granted, except that in the case of an Incentive Stock
Option grant to a 10-percent stockholder of the Company, the expiration date
shall not be more than five years from the date of the grant. In any event, all
Options shall terminate and expire upon the first to occur of the following
events:
(a) the expiration of one year from the date of an Optionee's termination of
employment if an Optionee is disabled (within the meaning of Section 22(e)(3) of
the Code) on the date of termination; or
(b) the expiration of one year from the date of the death of an Optionee if his
death occurs while he is, or not later than three months after he ceases to be
employed by the Company or any of its subsidiaries; or
(c) the termination of the Option pursuant to Section 10 of the Plan; or
(d) the termination date set forth in the Option Agreement; or
(e) the expiration of three months from the date of termination of employment
other than by reason of death or disability.
Except as provided for above, the termination of employment of an Optionee by
death or otherwise shall not accelerate or otherwise affect the number of shares
with respect to which an Option may be exercised, and the Option may only be
exercised with respect to that number of shares which could have been purchased
under the Option had the Option been exercised by the Optionee on the date of
such termination. In no event shall the post employment exercise periods
provided in this Section 14 extend the time during which any Option may be
exercised in whole or in part beyond the termination date that would otherwise
be applicable thereto pursuant to the Option Agreement or the Plan.
Section 15. Withholding of Taxes.
The Company may deduct and withhold from the wages, salary, bonus and other
compensation paid by the Company to the Optionee the requisite tax upon the
amount of taxable income, if any, recognized by the Optionee in connection with
the exercise in whole or in part of any Option or the sale of Common Stock
issued to the Optionee upon exercise of the Option, as may be required from time
to time under any federal or state laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other income to the Optionee or by payment to the Company by the
Optionee of the required withholding tax, as the Committee may determine.
Section 16. Effectiveness and Termination of the Plan.
The Plan shall be effective on the date on which it is adopted by the Committee
and the Board, provided however that no Option shall be exercised pursuant to
the Plan until the Plan has been approved by the shareholders of the Company;
and provided further that no Option shall be granted hereunder on or after the
tenth anniversary of the effective date of the Plan. The Plan shall terminate
when all Options granted hereunder either have been fully exercised, and all
shares of Common Stock which may be purchased pursuant to the exercise of such
Options have been so purchased, or have expired; provided, however, that the
Board may in its absolute discretion terminate the Plan at any time. No such
termination, other than as provided for in Section 10 hereof, shall in any way
adversely affect any Option then outstanding except as specifically provided for
in the Plan.
Section 17. Time of Granting Options.
Except with respect to the provisions of Section 21, the date of grant of an
Option shall, for all purposes, be the date on which the Committee makes the
determination granting such an Option. Notice of the determination shall be
given to each Optionee to whom an Option is so granted within a reasonable time
after the date of such grant.
Section 18. Amendment of Plan.
The Board or the Committee may make such amendments to the Plan and, with the
consent of each Optionee affected, make such changes in the terms and conditions
of granted Options as it shall deem advisable; provided that such amendments and
changes may not, without the written consent or approval of the holders of a
majority of the voting stock of the Company which is represented and is entitled
to vote at a duly held shareholders' meeting, (a) increase the maximum number of
shares subject to Options, except pursuant to Section 10 hereof, (b) decrease
the Option Price requirement contained in Section 6 hereof (except as
contemplated by Section 10 or 11 hereof) applicable to Incentive Stock options,
(c) change the designation of the class of persons eligible to receive Options,
(d) modify the limits set forth in Section 3 hereof regarding the value of
Common Stock for which any Optionee may be granted Incentive Stock Options,
unless provided for under Section 422(d) of the Code, or (e) in any manner
materially increase the benefits accruing to participants under the Plan.
Section 19. Not an Employment Agreement.
Nothing contained in the Plan or in any Option Agreement shall confer on any
Optionee any right to be continued in the employ of the Company or one of its
subsidiaries.
Section 20. Transfers and Leaves of Absence.
For purposes of the Plan (a) a transfer of an Optionee's employment, without an
intervening period from the Company to a subsidiary or, or vice versa, or from
one subsidiary to another shall not be deemed a termination of employment and
(b) an Optionee who is granted in writing a leave of absence shall be deemed to
have remained in the employ of the Company during such leave of absence.
Section 21. Acceleration of Options.
(a) Notwithstanding any provisions to the contrary contained in any agreement
evidencing an Option granted under the Plan, each outstanding Option shall
become immediately and fully exercisable during the periods specified in
subsection (c) below upon the occurrence of any of the following events:
(i) Any person, including a group defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, shall become
the beneficial owner of shares of the Company, with respect to
which 20% or more of the total number of votes for the
election of the Board may be cast;
(ii) As a result of, or in connection with, any cash tender offer,
exchange offer, merger or other business combination, sale of
assets or contested election, or combination of the foregoing,
the persons who were directors of the Company just prior to
such event shall cease to constitute a majority of the Board;
(iii) The stockholders of the Company shall approve an agreement
providing either for a transaction in which the Company will
cease to be an independently owned public corporation, or for
a sale or other disposition of all or substantially all the
assets of the Company; or
(iv) A tender offer or exchange offer is made for shares of the
Company's Common Stock (other than one made by the Company)
and shares of said Common Stock are acquired thereunder (an
"Offer").
(b) No Option granted to an officer of the Company shall become exercisable as a
result of the acceleration of exercisability of Options provided for in
subsection (a) of this Section 21 within six months of the date of its grant.
(c) In the event of the acceleration of the exercisability of Options as the
result of the occurrence of an event specified in Section 21 (a) above, each
outstanding Option shall become exercisable in full for a period of thirty days
from and after the date of the occurrence of such event after which period the
Option shall, subject to Section 10 of the Plan, again be exercisable only to
the extent and at the times provided in the Option Agreement relating thereto.
Section 22. Applicable Law.
This Plan shall be administered in such a manner as to not be in conflict with
the laws of the state in which the company is incorporated.
Section 23. Other Plans.
This Plan is not intended to and shall not preclude the establishment or
operation the Company or any subsidiary of any thrift, savings and investment,
achievement award, stock purchase, employee recognition or other benefit plan or
arrangement for any employees and any such other plan may be authorized and
payments made thereunder independently of this Plan.
