SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
SMTEK INTERNATIONAL, INC.
------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14-A
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
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<PAGE>
SMTEK INTERNATIONAL, INC.
(Formerly DDL Electronics, Inc.)
2151 Anchor Court
Thousand Oaks, California 91320 (805) 376-9415
October 22, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of SMTEK International, Inc. (formerly DDL Electronics, Inc.) to
be held at the offices of the Company located at 2151 Anchor Court, Thousand
Oaks, California 91320, telephone number (805) 376-9415, on Thursday,
November 19, 1998, at 3:00 p.m., local time.
The attached Notice of Annual Meeting and Proxy Statement fully describes
the formal business to be transacted at the Meeting, which includes the
election of three directors of the Company and adoption of the Company's 1998
Non-Employee Directors Stock Plan. Directors and officers of the Company will
be present to host the meeting and to respond to any questions from our
stockholders. We hope you will be able to attend.
The Company's Board of Directors believes that a favorable vote for each
matter described in the attached Notice of Annual Meeting and Proxy Statement
is in the best interests of the Company and its stockholders and unanimously
recommends a vote "FOR" each such matter. Accordingly, we urge you to review
the accompanying materials carefully.
Whether or not you can attend the Annual Meeting, please complete, sign,
date and mail the enclosed proxy card promptly. This action will not limit
your right to revoke your proxy in the manner described in the accompanying
Proxy Statement or to vote in person if you wish to attend the Annual Meeting
and vote personally.
The directors, officers and employees of SMTEK International, Inc. look
forward to seeing you at the meeting.
Sincerely,
/s/ Gregory L. Horton
--------------------------------------
Gregory L. Horton
President and Chief Executive Officer
IF YOU PLAN TO ATTEND THE ANNUAL STOCKHOLDERS MEETING IN PERSON,
PLEASE RSVP BY CALLING SMTEK TOLL-FREE AT 1-877-376-2595.
<PAGE>
SMTEK INTERNATIONAL, INC.
(Formerly DDL Electronics, Inc.)
2151 Anchor Court
Thousand Oaks, California 91320 (805) 376-9415
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 19, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
SMTEK International, Inc. (formerly DDL Electronics, Inc.), a Delaware
corporation (the "Company"), will be held at the offices of the Company
located at 2151 Anchor Court, Thousand Oaks, California 91320, telephone
number (805) 376-9415, at 3:00 p.m. local time on Thursday, November 19, 1998,
to consider and vote on the following matters:
1. To elect one Class I Director to serve for a term of one year, one Class
II Director to serve for a term of two years, and one Class III Director
to serve for a term of three years, or until their successors are duly
elected and qualified;
2. To approve the Company's 1998 Non-Employee Directors Stock Plan; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Information concerning these matters, including the names of the nominees
for the Board of Directors, is more fully set forth in the attached Proxy
Statement, which is a part of this notice.
The Board of Directors has fixed October 9, 1998 as the record date for
the meeting, and only holders of Common Stock of record at the close of
business on that date are entitled to receive notice of and vote at the
meeting or at any adjournment thereof.
Management sincerely hopes that you will attend the meeting. However,
you are requested to fill in, date, and sign the enclosed form of proxy and
mail it to the Company whether or not you expect to attend the meeting in
person. The prompt return of your proxy in the envelope enclosed for that
purpose will save expenses involved in further communication. Your proxy is
revocable and will not affect your right to vote in person in the event you
attend the meeting. The proxy may be revoked at the meeting by notifying the
Secretary of such revocation in writing prior to the voting of the proxy. The
Annual Report of SMTEK International, Inc. for the fiscal year ended June 30,
1998, including financial statements, is being mailed to stockholders with
this notice.
By Order of the Board of Directors
/s/ Richard K. Vitelle
----------------------------------
Richard K. Vitelle
Vice President and Secretary
Thousand Oaks, California
October 22, 1998
<PAGE>
SMTEK INTERNATIONAL, INC.
(Formerly DDL Electronics, Inc.)
2151 Anchor Court
Thousand Oaks, California 91320
PROXY STATEMENT
---------------
1998 ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 19, 1998
---------------
INTRODUCTION
This Proxy Statement and accompanying form of proxy are being furnished
to stockholders of SMTEK International, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation by the Board of Directors of
the Company (the "Board") of proxies to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 3:00 p.m. local time on
Thursday, November 19, 1998 at the offices of the Company located at 2151
Anchor Court, Thousand Oaks, California 91320, telephone number (805) 376-
9415, or at any adjournment thereof. If a proxy in the accompanying form is
duly executed and returned, the shares represented by such proxy will be voted
at the meeting in the manner described herein and in accordance with the
specification in the proxy. In the event no specification is made, such proxy
will be voted FOR the election of the Director nominees named herein, FOR the
proposal to approve the Company's 1998 Non-Employee Directors Stock Plan, and
in the discretion of the proxy holders on such other business as may properly
come before the meeting. The Board of Directors currently knows of no other
business that will be presented for consideration at the Annual Meeting. Any
person executing a proxy may revoke it at any time prior to its exercise by
filing with the Secretary of the Company a written revocation of the proxy or
a duly executed proxy bearing a later date. The proxy may be revoked at the
meeting by notifying the Secretary of such revocation in writing prior to the
voting of the proxy. This Proxy Statement was first mailed to the Company's
stockholders on or about October 22, 1998.
As of the close of business on October 9, 1998, the Company had
outstanding 34,088,128 shares of its Common Stock, par value $0.01 per share.
Each stockholder is entitled to one vote on each proposal for each share held
on the record date (October 9, 1998). A majority of the shares of Common
Stock issued and outstanding constitutes a quorum. Abstentions and broker
non-votes are counted for the purpose of determining the presence or absence
of a quorum for the transaction of business. Abstentions are counted in
tabulations of the votes cast on proposals presented to stockholders, whereas
broker non-votes are not counted for the purpose of determining whether a
proposal has been approved. Under the laws of the State of Delaware and the
provisions of the Company's Certificate of Incorporation, all stockholders are
entitled to cumulate their votes in the election of directors. A stockholder
may cumulate votes by casting for the election of one nominee a number of
votes equal to the number of directors to be elected multiplied by the number
of shares owned by the stockholder, or may distribute such votes on the same
principle among as many candidates as the stockholder sees fit. If a proxy is
marked for the election of directors, it may, at the discretion of the proxy
holders, be voted cumulatively in the election of directors. Under the
Delaware General Corporation Law and the Company's Certificate of
Incorporation, if a quorum is present at the meeting, the nominees for
election as directors who receive the greatest number of votes cast for
election of directors at the meeting by shares present in person or by proxy
and entitled to vote thereon shall be elected as directors.
The affirmative vote of the holders of a majority of shares of Common
Stock present, in person or by proxy, at the Annual Meeting, is required for
approval of the adoption of the 1998 Non-Employee Directors Stock Plan. An
abstention with respect to Proposal Two will have the same effect as a
negative vote, but because shares held by brokers as to which the brokers
withhold authority on this proposal will not be considered entitled to vote on
this proposal, a broker non-vote will have no effect on these votes. A broker
non-vote occurs when a nominee holding shares for a beneficial owner does not
vote on a proposal because the nominee does not have discretionary voting
power and has not received instructions from the beneficial owner.
The cost of preparing, assembling, printing and mailing this Proxy
Statement and accompanying form of proxy, and the cost of soliciting proxies
relating to the Annual Meeting, will be borne by the Company. The Company may
request banks and brokers to solicit their customers who beneficially own
Common Stock listed of record in names of nominees, and will reimburse such
banks and brokers for their reasonable out-of-pocket expenses for such
solicitations. The solicitation of proxies by mail may be supplemented by
telephone, facsimile and personal solicitation by officers, directors and
regular employees of the Company, but no additional compensation will be paid
to such individuals.
PROPOSAL ONE -
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides that the Board of
Directors shall be divided into three classes, designated as Class I, Class II
and Class III. As a result of a reduction in the size of the Board from seven
to five seats in June 1998, the Board of Directors currently consists of one
Class I director, one Class II director, and three Class III directors. The
term of office of the three Class III directors expires at this Annual
Meeting. The Company's Certificate of Incorporation and regulations of the
New York Stock Exchange require that the director classes be as nearly equal
in size as possible. In view of this, and pursuant to the authority granted
to the Board under the Company's Certificate of Incorporation, in October 1998
the Board of Directors adopted a resolution to rebalance the classes by
redesignating the classes of two director nominees standing for election at
this Annual Stockholders Meeting. Accordingly, at the Annual Meeting,
stockholders will be asked to elect one Class I Director to serve for a term
of one year, one Class II Director to serve for a term of two years, and one
Class III Director to serve for a term of three years, or until their
successors are duly elected and qualified.
A brief biography of the nominees for election as directors, and of each
other director whose term continues after the 1998 Annual Meeting, is
presented below.
<PAGE>
PRINCIPAL OCCUPATION AND YEAR FIRST
BUSINESS EXPERIENCE INCLUDING ELECTED A
NAME SERVICE ON OTHER BOARDS AGE DIRECTOR
____ _______________________ ___ ________
Nominee for Election to Class I Director for Term Expiring in 1999:
James P. Burgess Vice President, Trilogy Marketing 67 --
Inc., a manufacturers represent-
ative for electronics products
companies
Nominee for Election to Class II Director for Term Expiring in 2000:
Bruce E. Kanter Management consultant to various 55 1998
companies; director, Discus
Dental, a marketer and
Manufacturer of dental products
Nominee for Election to Class III Director for Term Expiring in 2001:
Oscar B. Marx, III President and CEO, TMW Enter- 59 --
prises, Inc., a private equity
investment company; Chairman,
Pullman Industries, a metal-
forming company; director,
Parametric Technology Corporation,
Tesma International, Inc.,
Powertrax and Ecoair Company
The Board of Directors recommends a vote "FOR" the
election of each of the director nominees.
PRINCIPAL OCCUPATION AND YEAR FIRST
BUSINESS EXPERIENCE INCLUDING ELECTED A
NAME SERVICE ON OTHER BOARDS AGE DIRECTOR
____ _______________________ ___ ________
Class I Director to Continue in Office Until the Annual Meeting for the Year
Ending June 30, 1999:
Charlene A. Gondek Restaurant proprietor 37 1997
Class II Director to Continue in Office Until the Annual Meeting for the Year
Ending June 30, 2000:
Gregory L. Horton Chief Executive Officer, 42 1996
President and Chairman of the
Board of Directors, SMTEK
International, Inc.
Mr. Burgess has served as Vice President of Trilogy Marketing, Inc., a
manufacturers representative for electronics products companies, since 1996.
From 1995 to 1996, Mr. Burgess served as Vice President of Alcoa Fujikura
Limited, a supplier of electrical products to the automotive industry. Mr.
Burgess served as Vice President of Electro-Wire Products, Inc., an electrical
distribution company, from 1985 to 1995, prior to the acquisition of that
company by Alcoa Fujikura Limited.
Mr. Kanter has provided management consulting services to various
companies since 1994. From 1991 to 1994, Mr. Kanter served as Executive Vice
President, Chief Financial Officer and director of Westwood One, Inc., the
parent company of several national radio networks and the largest producer and
distributor of radio programming. Mr. Kanter is a director of Discus Dental,
a marketer and manufacturer of dental products.
Mr. Marx has served as President and CEO of TMW Enterprises, Inc., a
private equity investment company, since 1995, and as Chairman of Pullman
Industries, a metal-forming company, since 1996. Mr. Marx served as President
and CEO of Electro-Wire Products, Inc., an electrical distribution company,
from 1994 to 1995, and as Vice President - Automotive Components Group of Ford
Motor Company from 1988 to 1994. Mr. Marx is a director of Parametric
Technology Corporation (a Nasdaq-traded company), Tesma International (a
Toronto Stock Exchange company), Powertrax and Ecoair Company (both privately
held companies).
Ms. Gondek was appointed a director on June 30, 1997 pursuant to an
agreement between the Company and Thomas M. Wheeler whereby Mr. Wheeler loaned
the Company $2 million. She served as President of Jolt Technology, Inc.
("Jolt"), from 1992 to 1996, and as a director of Jolt from 1992 to 1998. She
has been a restaurant proprietor since 1998. Jolt was acquired by the Company
on June 30, 1998.
Mr. Horton became the Company's President and Chief Executive Officer in
January 1996, following the Company's acquisition of SMTEK, Inc, a subsidiary
of the Company. He was appointed a director in February 1996, and was
appointed Chairman of the Board in July 1997. Since 1986, he has also served
as President of SMTEK, Inc.
Thomas M. Wheeler, Chairman of TMW Enterprises, Inc. and a Class III
Director of the Company since June 1997, retired from the Board of Directors
on September 29, 1998 due to personal time constraints. John J. Sammut was
appointed by the Board to serve the remainder of Mr. Wheeler's term, which
expires at the Annual Meeting. Mr. Sammut is Director of Business Development
at TMW Enterprises, Inc., a company controlled by Mr. Wheeler. Mr. Sammut's
term of office expires at this Annual Meeting, and he will not stand for
reelection. Mr. Marx was nominated by the Board to fill Mr. Sammut's seat.
Karen Beth Brenner, a Class III Director since July 1996, retired from
the Board of Directors on October 20, 1998, and Mr. Kanter was appointed by
the Board to fill the seat vacated by Ms. Brenner.
Richard K. Vitelle, a Class III Director whose term of office expires at
the Annual Meeting, is not standing for reelection.
None of the Company's executive officers or directors are related by
blood or marriage. In June 1997, as a condition to obtaining a $2 million
loan from Mr. Wheeler, the Company agreed to provide him with two seats on the
Board. See "Certain Relationships and Transactions." Aside from that
agreement, there are no arrangements or understandings between the listed
individuals and any other person pursuant to which those individuals were
selected as an officer or director.
Board Meetings and Committees
The Board of Directors held 3 meetings during the fiscal year ended June
30, 1998. The Company has standing Audit and Compensation Committees of the
Board. All of the directors attended more than 75% of the Board meetings and
meetings of committees of which they are members.
During the fiscal year ended June 30, 1998, the Audit Committee consisted
of Ms. Brenner and Robert G. Wilson. Mr. Wilson was a Class I director whose
term of office expired at the Annual Meeting held on June 29, 1998. The
principal functions of the Audit Committee are to review with the independent
auditors and management the results of the annual financial statement audit,
and to review the status of internal accounting controls. The Audit Committee
held one meeting during the fiscal year ended June 30, 1998.
During the fiscal year ended June 30, 1998, the Compensation Committee
consisted of Ms. Brenner, Ms. Gondek, Mr. Wheeler, Mr. Wilson and Melvin
Foster, a Class I director whose term of office expired at the Annual Meeting
held on June 29, 1998. The Compensation Committee establishes the levels of
compensation of the directors and senior management and also administers the
Company's option and incentive plans (except the 1996 Non-Employee Directors
Stock Option Plan). The Compensation Committee held one meeting during the
fiscal year ended June 30, 1998. The report of the Compensation Committee
begins on page 6.
Director Compensation
Since 1995, directors have not received cash compensation for their
services on the Company's Board of Directors except for reimbursement of
travel expenses.
Pursuant to the 1996 Non-Employee Directors Stock Option Plan (the "1996
Directors Plan"), annually on July 1 each non-employee director is
automatically granted, without further action by the Board, a stock option to
purchase 30,000 shares of the Company's Common Stock. The exercise price per
share of all options granted under the 1996 Directors Plan is equal to 100% of
the fair market value of the Common Stock at the time of grant. Under the
terms of the 1996 Directors Plan, each option granted becomes exercisable six
months after the grant date. Each option grant has a ten-year term. On July
1, 1998 options covering a total of 90,000 shares were granted to non-employee
directors at an option price of $0.81 per share.
More recently, the Company determined that, in order to attract and
retain qualified individuals to serve on its Board of Directors, it is
necessary and appropriate that non-employee directors be provided with
reasonable compensation for attending Board of Directors meetings and Board
committee meetings. To provide for such compensation to non-employee
directors, the Board adopted the 1998 Non-Employee Directors Stock Plan on
October 6, 1998, subject to stockholder approval. For additional information
concerning the 1998 Non-Employee Directors Stock Plan, see "Proposal Two -
Approval of the 1998 Non-Employee Directors Stock Plan".
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, the directors and executive
officers of the Company and persons who own more than 10% of the Company's
Common Stock ("statutory insiders") are required to file reports of their
ownership of the Company's Common Stock on Form 3 and any subsequent changes
in that ownership on Form 4 or Form 5 with the Securities and Exchange
Commission and the New York Stock Exchange.
To the Company's knowledge, based solely upon its review of the copies of
such reports required to be furnished to the Company during or with respect to
the fiscal year ended June 30, 1998, the Company believes that all Section
16(a) filing requirements applicable to its statutory insiders during or for
such fiscal year were satisfied, except that Robert G. Wilson, who served as a
director until the annual stockholders meeting on June 29, 1998, failed to
file one or more Form 4s to report dispositions of the Company's common stock
during fiscal 1998. These dispositions were reported on Mr. Wilson's Form 5
filed in August 1998.
EXECUTIVE COMPENSATION
Executive Compensation Table
The following table sets forth the cash compensation paid or accrued by
the Company, as well as certain other compensation, for its fiscal years ended
June 30, 1998, 1997 and 1996 to each of the Company's executive officers whose
compensation exceeded $100,000 for the fiscal year ended June 30, 1998:
Long-Term
Name and Annual Compensation Compensation
Principal -------------------------- Awards:
Positions Year Salary Bonus(1) Other Options (#)
-------------- ---- ------ ------- ----- -------
Gregory L. Horton 1998 $150,000 $126,000 (3) -0-
Chairman, President and 1997 150,000 97,000 (3) 100,000
Chief Executive Officer 1996 69,000(2) 24,000 (3) 400,000
Richard K. Vitelle 1998 $125,000 $ -0- (3) -0-
VP Finance & Admin., 1997 123,000 37,000 (3) 200,000
CFO and Secretary 1996 50,000(2) -0- (3) 185,000
(1) Bonus amounts shown for Mr. Horton were earned and accrued in the
periods indicated, but payment of these bonuses was deferred until
July 1998 because of the Company's cash constraints.
(2) Mr. Horton joined the Company in mid-fiscal 1996 as Chief Executive
Officer and President. Mr. Vitelle joined the Company mid-fiscal 1996
as Vice President-Finance and Administration and Chief Financial Officer.
(3) Total perquisites did not exceed the lesser of $50,000 or 10% of
the executive's salary and bonus.
<PAGE>
Option Grants In Fiscal Year Ended June 30, 1998
No options were granted to the Company's executive officers during the
fiscal year ended June 30, 1998.
Aggregated Option Exercises In Fiscal 1998 And Fiscal Year-End Option Values
The following table sets forth information concerning options held by
each of the named executive officers as of June 30, 1998:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares Fiscal Year-End Fiscal Year-End
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable(1) Unexercisable(2)
------ -------- -------- ------------- -------------
Gregory L. Horton -0- -0- 263,333/236,667 $ -0- /$ -0-
Richard K. Vitelle -0- -0- 223,332/161,668 $ -0- /$ -0-
(1) All options listed in the table are exercisable at option prices
equal to fair market value on the date of grant.
(2) The value of unexercised in-the-money options is based upon the
fair market value for the common stock on June 30, 1998 of
$0.75 less the applicable option conversion price.
Employment Agreements and Executive Severance Arrangements
Mr. Horton's employment agreement provides for a base salary of $150,000,
subject to annual reviews of the Compensation Committee, and annual bonus
compensation ranging up to 200% of his base salary. Such bonus compensation
is to be based in part on increases in the Company's revenues and profits and
upon the achievement of other objectives and criteria as the Board may
establish. Mr. Horton's employment is "at will." Should he voluntarily
resign or be terminated for cause, Mr. Horton will not be entitled to
severance pay. He is entitled to a severance equal to 20 months' base salary
if he is terminated without cause. As further described in the accompanying
Report of the Compensation Committee, Mr. Horton was awarded cash bonuses for
fiscal years 1996, 1997 and 1998. See "Compensation of Chief Executive
Officer."
Mr. Vitelle's employment agreement provides for a base annual salary of
$125,000. Mr. Vitelle's employment is "at will". If his employment is
terminated by the Company for cause, then he is not entitled to severance pay.
However, he is entitled to 12 months' base salary and benefits as severance if
he is terminated by the Company without cause, or if he is terminated as the
result of a change in control of the Company. In addition, if the principal
place of Mr. Vitelle's employment is relocated to any site beyond the 35-mile
radius of the Company's present headquarters, then he may resign at any time
within the following 12 months, whereupon he will be entitled to 12 months'
severance payments and benefits.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's executive compensation programs and reviews and
approves salaries of the executive officers named in the Executive
Compensation Table. The Committee is also responsible for administering the
Company's stock option plans (except for the non-discretionary 1996 Non-
Employee Directors Stock Option Plan and its proposed successor, the 1998 Non-
Employee Directors Stock Plan) and making incentive awards. The Company's
executive compensation programs are designed to:
* provide competitive levels of base compensation in order to attract,
retain and motivate high quality employees;
* tie individual total compensation to individual performance and the
success of the Company; and
* align the interests of the Company's executive officers with those
of its stockholders.
Base Salary. Base salary is targeted to be moderate yet competitive in
relation to salaries commanded by those in similar positions in comparable
companies. The Committee reviews management's recommendations for executives'
salaries and examines survey data for executives with similar responsibilities
in comparable companies to the extent such data is available. Individual
salary determinations are based on experience, achievement of goals and
objectives, sustained performance and comparison to peer level positions
outside the Company.
Incentive Compensation Program. Incentive compensation for the Company's
executive officers is designed to reward such individuals for their
contributions to corporate and individual objectives. In addition, the
Company's operating units maintain profit sharing plans under which operating
unit managers and other key employees receive incentive cash compensation
based on the performance and pre-tax profits of those operations. The
Company's executive officers named above do not participate in these operating
unit profit sharing plans.
Stock Options. The Committee administers the Company's 1993 and 1996
Stock Incentive Plans, which are designed to align the interests of management
and other key employees with those of the Company's stockholders. The number
of stock options granted is related to the recipient's base compensation,
level of responsibility and accomplishments. All options have been granted
with an option exercise price equal to the fair market value of the Company's
common stock on the date of grant. No options were granted to the Company's
executive officers in fiscal 1998.
Compensation of Chief Executive Officer. Gregory L. Horton was appointed
President and Chief Executive Officer of the Company in January 1996. The
Committee addressed Mr. Horton's incentive compensation during its meetings on
April 1, 1997 and May 28, 1997. During its deliberations on these dates, the
Committee noted that Mr. Horton had served as President and Chief Executive
Officer of the Company since January 1996 and had not yet been awarded any
cash incentive compensation, despite operational improvements that had been
effected since the beginning of his tenure. The Committee also noted that the
Company was at that time confronted with several important challenges which,
if managed successfully, would justify a significant award to Mr. Horton.
These challenges were the need to repay the Company's $5.3 million 10% Senior
Notes on or before the July 1, 1997 due date, the need to consummate a
strategic acquisition or merger, and the need to keep the Company's common
stock listed on an organized national stock market. In consideration of all
of these factors, the Committee approved incentive compensation for Mr. Horton
which included the following elements:
(1) a $60,000 cash bonus for services rendered from January 1996 through
March 1997;
(2) a cash bonus of 25% of his $150,000 base salary for the period from
April 1997 through March 1998; and
(3) cash bonuses of $50,000 each for achievement of three special short-
term goals:
(a) avoiding default on the Company's $5.3 million 10% Senior Notes
due July 1, 1997,
(b) consummating an acquisition or merger, and
(c) retaining the Company's listing on the New York Stock Exchange.
As a result of these actions, Mr. Horton received cash bonuses for the
fiscal years ended June 30, 1996, 1997 and 1998 of $24,000, $97,000 and
$126,000, respectively. Payment of these bonuses was deferred until July 1998
because of the Company's cash constraints. In its deliberations, the
Committee recognized that Mr. Horton's employment agreement provides for
incentive compensation up to 200% of his base salary. The actual cash bonuses
awarded amount to substantially less than 200% of Mr. Horton's base salary.
Submitted by the Compensation Committee:
Karen Beth Brenner, Charlene A. Gondek and Thomas M. Wheeler
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ms. Brenner was appointed to the Compensation Committee in July 1996.
Ms. Gondek and Mr. Wheeler were appointed to the Compensation Committee in
July 1997. None of these individuals were officers or employees of the
Company during fiscal 1998. There are no interlocks between the Company and
other entities involving the Company's executive officers and directors who
serve as executive officers or directors of other entities.
STOCK PERFORMANCE GRAPH
The following performance table compares the cumulative total return for
the period from June 30, 1993 through June 30, 1998, from an investment of
$100 in (i) the Company's Common Stock, (ii) the Dow Jones Industrials as a
group, and (iii) the Dow Jones Computer Index group of companies (the
Company's peer group). For each group an initial investment of $100 is
assumed on June 30, 1993. The total return calculation assumes reinvestment
of all dividends for the indices. The Company did not pay dividends on its
Common Stock during the time frame set forth below.
(stock performance graph - omitted)
The data points depicted on the graph are as follows:
Dow Jones Dow Jones SMTEK
Date Industrial Ave. Computer Index International
-------- ------ ------ ------
06/30/93 100.00 100.00 100.00
06/30/94 103.10 101.40 50.00
06/30/95 129.58 174.89 72.22
06/30/96 160.82 197.34 88.89
06/30/97 218.64 305.82 50.00
06/30/98 254.60 437.98 33.33
PRINCIPAL STOCKHOLDERS
The following table sets forth as of October 21, 1998, except as
otherwise indicated, the number of shares and percentage of outstanding Common
Stock known by the Company to be beneficially owned by (i) each person who is
known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, (ii) each of the Company's directors and nominees,
(iii) each Named Executive Officer and (iv) all executive officers and
directors/director nominees of the Company as a group. Unless otherwise
noted, shares are held with sole voting and investment power. Holdings
include, where applicable, shares held by spouses and minor children,
including shares held in trust.
SHARES OF COMMON STOCK
AS OF October 21, 1998
------------------------------
NAME AND ADDRESS OF NO. PERCENT OF
BENEFICIAL OWNER * SHARES CLASS
------------------- --------- ----------
Thomas M. Wheeler 6,386,254 18.7%
801 W. Big Beaver Road
Suite 201
Troy, Michigan 48084
Charlene A. Gondek 1,772,498(1) 5.2%
Gregory L. Horton 1,291,667(2) 3.8%
James P. Burgess -- --
Bruce E. Kanter 40,000(3) **
Oscar B. Marx, III -- --
John J. Sammut 73,500 **
Richard K. Vitelle 249,232(4) **
Directors and Executive
Officers as a Group (7
persons) 3,426,897(5) 10.1%
- --------
* Except as otherwise noted, the address for each beneficial owner is c/o
SMTEK International, Inc., 2151 Anchor Court, Thousand Oaks, CA 91320.
** Represents less than 1% of the outstanding shares.
(1) Includes 30,000 shares underlying exercisable options.
(2) Includes 366,667 shares underlying exercisable options.
(3) Held in a trust created by Mr. Kanter's father, of which Mr. Kanter is
the beneficiary.
(4) Includes 223,332 shares underlying exercisable options.
(5) Includes 619,999 shares underlying exercisable options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 30, 1997, the Company borrowed $2 million from Thomas M. Wheeler
under a note payable bearing 8% interest. The note matures on October 31,
1999, and is secured by a pledge of the common stock of SMTEK, Inc., a
subsidiary of the Company. The Company also agreed to give Mr. Wheeler two
seats on its Board of Directors, which seats were initially filled by Mr.
Wheeler and Ms. Gondek. See "Election of Directors". As a condition to
obtaining the $2 million loan from Mr. Wheeler, the Company agreed to acquire
all of the issued and outstanding shares of Jolt Technology, Inc., a
privately-held electronics manufacturing company owned by Mr. Wheeler, Ms.
Gondek and a third individual, for nine million shares of the Company's common
stock. Mr. Wheeler and Ms. Gondek received 6,386,254 and 1,742,498 shares of
the Company's common stock, respectively, upon the consummation of the Jolt
acquisition on June 30, 1998.
PROPOSAL TWO-
APPROVAL OF THE 1998 NON-EMPLOYEE DIRECTORS STOCK PLAN
Description of the 1998 Non-Employee Directors Stock Plan
The Company's 1998 Non-Employee Directors Stock Plan (the "Plan") was
adopted by the Board on October 6, 1998, subject to stockholder approval. The
following summary description of the Plan is qualified in its entirety by
reference to the full text of the Plan, which is attached to this Proxy
Statement as Exhibit A.
Prior to the Board of Directors' approval of the Plan, non-employee
directors of the Company have not received compensation for attendance at
Board meetings. Rather, under the 1996 Non-Employee Directors Stock Option
Plan (the "1996 Directors Plan"), directors have been compensated for services
as a director through the grant of stock options. Under the 1996 Directors
Plan, directors have automatically been granted, on July 1 of each year,
options to purchase 30,000 shares of the Company's Common Stock at an exercise
price equal to 100% of the fair market value of the Common Stock on the date
of grant.
The Board believes that, in order to attract and retain qualified persons
to serve on the Board of Directors and to provide incentives for attendance at
Board meetings, it is necessary and appropriate that non-employee directors be
provided with reasonable compensation for time spent by them in attending
Board meetings. Considering the size of the Company and the amount of
compensation provided to persons serving on the boards of directors of
comparable companies, the Board believes that compensation at the rate of
$1,000 per Board meeting attended in person plus reimbursement of expenses in
attending the meeting, $500 per Board meeting attended by conference
telephone, and $500 for meetings of committees of the Board that are not held
in conjunction with Board meetings, would be reasonable. The Board also felt
that use of the Company's Common Stock in lieu of cash payment for attendance
at Board meetings would be further supportive of the Company's desire to
increase non-employee directors' stock ownership, provide a direct link
between compensation and stockholder value, and further align their interests
with stockholders.
The Board of Directors approved the Plan because it believes it is
important to the long-term success of the Company for it to be able to obtain
and keep independent directors with superior abilities and experience and to
provide incentives to such independent directors to encourage the highest
level of performance by providing such persons with a proprietary interest in
the Company. The Board's resolution adopting the Plan also terminates the
1996 Directors Plan upon ratification of the Plan by the stockholders.
The Plan will be administered by the entire Board or a committee
comprised of at least two members of the Board who are "Non-Employee
Directors" within the meaning of Rule 16b-3 promulgated by the Securities and
Exchange Commission. The Board of Directors may amend the Plan no more than
once every six months. The Board may amend or terminate the Plan without
approval of the stockholders; provided, however, that stockholders' approval
is required for any amendment which increases the aggregate number of shares
of Common Stock subject to the Plan or alters the persons eligible to
participate in the Plan. The maximum number of shares that may be awarded
under the Plan is 1,000,000. The Plan will terminate on December 31, 2007
unless earlier terminated by the stockholders or the Board.
The Plan provides that each non-employee director (an "Eligible
Director") will receive that number of shares of Common Stock valued at fair
market value as are obtained by dividing the fair market value into $1,000 for
attendance at each meeting of the Board of Directors in person, $500 for
attendance at each meeting of the Board by conference telephone call, and $500
for attendance in person or by conference telephone call for each meeting of
the committees of the Board of Directors if such committee meetings are not
held in conjunction with meetings of the Board of Directors. The shares will
be issued as of the fifth business day following each quarterly release of the
Company's earnings. The Plan also continues the stock option feature of the
1996 Directors Plan by providing for an automatic annual grant to each
Eligible Director of a stock option to purchase 30,000 shares of the Company's
Common Stock (prorated for persons becoming Eligible Directors after an annual
grant date) at an exercise price per share equal to the fair market value of
the Common Stock as of the grant date. The stock options have a term of ten
years and are exercisable effective on the date of grant. The option price
may be paid in cash or by other consideration the Board deems advisable,
including surrendering to the Company outstanding Common Stock of the Company
to be valued at its fair market value on the date of exercise. No stock
certificates may be delivered to an Eligible Director until six months from
the date of grant of an option or from the date of issuance of the shares.
If a Plan participant ceases to be an Eligible Director while holding
unexercised stock options, such options may be exercised for a period of two
years after the date the optionee ceases to be an Eligible Director. In the
case of death, the options may be exercised by the executors or administrators
of the optionee's estate.
Under United States tax law, an Eligible Director will realize a gain
taxable as ordinary income for shares received for attendance at meetings in
an amount equal to the market price of the shares on the fifth business day
following the quarterly release of earnings, which is the date they are issued
(those shares shall then be held for six months before delivery to the
Eligible Director). For options, directors will realize a gain taxable as
ordinary income on the date of exercise of an option in an amount equal to the
difference between the market price on the date of exercise and the exercise
price. Those amounts are treated as a tax-deductible expense to the Company
on the date of issuance of the shares and on the date of exercise of the
options.
NEW PLAN BENEFITS ON ANNUALIZED BASIS - 1998 Non-Employee Directors Stock Plan
Name Dollar Value No. of Units
---- ------------ ------------
Stock options granted:
All current non-executive officer
directors as a group (1) 120,000 (2)
Stock issued for meeting fees:
All current non-executive officer
directors as a group $ 22,000 (3) (4)
__________________________________________________
(1) The dollar value of options to purchase shares of Common Stock which have
not yet been granted, and which when granted will be exercisable only in
the future, cannot be determined at this time. On October 20, 1998, the
closing sales price of the Company's Common Stock was $13/32 per share.
(2) "Units" as used here represent options to purchase shares of Common
Stock. The numbers in this table assume that there will be four Eligible
Directors on July 1, 1999: Mr. Burgess, Ms. Gondek, Mr. Kanter, and Mr.
Marx.
(3) For purposes of this table, the dollar value of shares of Common Stock
assumes that: (a) four meetings of the Board of Directors will be held
annually, and that such meetings will be attended in person by four
Eligible Directors; and (b) four meetings of Board committees will be
held annually not in conjunction with Board meetings, and that such
committee meetings will be attended by an average of three Eligible
Directors.
(4) "Units" as used here represent shares of Common Stock. The number of
shares of Common Stock which have not yet been issued, and which will be
issued only in the future, cannot be determined at this time because such
number will be determined in part on the fair market value. On October
20, 1998, the closing sales price of the Company's Common Stock was
$13/32 per share.
Vote Required for Approval
Approval of the Plan requires the affirmative vote of the holders of a
majority of the shares of Common Stock present, in person or by proxy, at the
Annual Meeting. Proxies will be voted FOR the resolution unless the Secretary
is instructed otherwise on a Proxy returned to the Company at its principal
executive office or at the Annual Meeting. Abstentions indicated on such a
Proxy card will be counted as a vote AGAINST this proposal. "Broker non-
votes" specified on Proxies returned by brokers holding shares for beneficial
owners who have not provided instructions as to voting on this issue will be
treated as not present for voting on this issue.
The Board of Directors recommends a vote "FOR" the
approval of the 1998 Non-Employee Directors Stock Plan.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP has served as the Company's independent public
accountants since 1994. Representatives of KPMG Peat Marwick are expected to
be present at the Annual Meeting and will be afforded the opportunity to make
a statement and answer questions from stockholders.
STOCKHOLDER PROPOSALS
Stockholders who wish to include proposals in next year's proxy statement
for action at the Company's 1999 annual meeting of stockholders in November
1999 must cause their proposals to be received in writing at the Company's
principal executive office (2151 Anchor Court, Thousand Oaks, California
91320) no later than August 3, 1999. Such proposals should be addressed to
the Company's Secretary and may be included in next year's proxy statement if
they comply with certain rules and regulations promulgated by the Securities
and Exchange Commission. Use of certified mail is suggested.
MISCELLANEOUS
The Board of Directors is unaware of any other business to be presented
for consideration at the meeting. If, however, such other business should
properly come before the meeting, the proxies will be voted in accordance with
the best judgment of the proxy holders.
By Order of the Board of Directors
/s/ Richard K. Vitelle
----------------------------------
Richard K. Vitelle
Vice President and Secretary
Thousand Oaks, California
October 22, 1998
EXHIBIT A
SMTEK INTERNATIONAL, INC.
1998 NON-EMPLOYEE DIRECTORS STOCK PLAN
ARTICLE I
GENERAL
1.01 Purpose.
The purpose of the 1998 Non-Employee Directors Stock Plan (the "Plan") of
SMTEK International, Inc. (the "Company") is to promote the best interests of
the Company and its stockholders by providing members of the Board who are not
employees of the Company or its affiliates with an opportunity to acquire a
proprietary interest in the Company. By encouraging stock ownership by
directors who are not employees of the Company or its affiliates, the Company
seeks to attract and retain on the Board persons of exceptional competence and
to provide a further incentive to serve as a director of the Company.
1.02 Administration.
The Plan shall be administered by the Board or a committee appointed by
the Board (the "Committee") comprised of at least two members of the Board who
are "Non-Employee Directors" within the meaning of Rule 16b-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor rule ("Rule 16b-3").
All references to the Board herein shall also be deemed to be a reference to
the Committee. The Board, subject to the express provisions of the Plan, shall
have the power to construe the Plan and any agreements defining the rights and
obligations of the Company and Plan participants, to resolve all questions
arising thereunder, to adopt and amend such rules and regulations for the
administration thereof as it may deem desirable, and otherwise to carry out
the terms of the Plan and such agreements. The interpretation and
construction by the Board of any provisions of the Plan or of any option
granted under the Plan shall be final. Notwithstanding the foregoing, the
Board shall have no authority or discretion as to the selection of persons
eligible to receive securities under the Plan, the number of securities
granted under the Plan, the timing of such grants, or the exercise price or
vesting provisions of securities granted under the Plan, which matters are
specifically governed by the provisions of the Plan.
1.03 Eligible Directors.
A person shall be eligible to receive grants under this Plan (an
"Eligible Director") if, at the time of the grant, he or she is a duly elected
or appointed member of the Board, but is not and has not since the beginning
of the Company's most recently completed fiscal year been an employee of the
Company or any of its affiliates (except for a director who has served solely
as an uncompensated interim executive officer and who no longer serves in that
capacity) and is not otherwise eligible for selection as a person to whom
stock may be allocated or to whom stock options or stock appreciation rights
may be granted (except for non-discretionary grants) pursuant to any plan of
the Company or any of its affiliates entitling participants therein to acquire
stock, stock options, or stock appreciation rights of the Company or any of
its affiliates. Notwithstanding the foregoing, no director shall become an
Eligible Director until such time as the Plan has been approved by the
Company's stockholders.
1.04 Shares of Common Stock Subject to the Plan and Grant Limit.
The shares that may be issued under the Plan shall be authorized and
unissued shares of the Company's Common Stock, par value $.01 per share
("Common Stock"), or previously issued shares of Common Stock reacquired by
the Company. The aggregate number of shares that may be granted under the
Plan shall not exceed 1,000,000 shares of Common Stock, subject to adjustment
in accordance with Article IV.
1.05 Amendment of the Plan.
The Board may, insofar as permitted by law, from time to time suspend or
discontinue the Plan or revise or amend it in any respect whatsoever that
would not compromise the ability of Eligible Directors to serve as
disinterested administrators of the Company's other employee benefit plans
under Section 16 of the Exchange Act and the rules promulgated thereunder,
except that no such amendment shall alter or impair or diminish any rights or
obligations under any option theretofore granted under the Plan without the
consent of the person to whom such option was granted. In addition, if an
amendment to the Plan would increase the number of shares subject to the Plan
(as adjusted under Article IV), increase the number of shares for which an
option or options may be granted to any optionee (as adjusted under Article
IV), change the class of persons eligible to receive options under the Plan,
provide for the grant of options having an exercise price per option share
less than the exercise price specified in the Plan, extend the final date upon
which options may be granted under the Plan, or otherwise materially increase
the benefits accruing to participants in a manner not specifically
contemplated herein or affect the Plan's compliance with Rule 16b-3, the
amendment shall be approved by the Company's stockholders to the extent
required to comply with Rule 16b-3 or any other state or federal securities
law. Under no circumstances may the provisions of the Plan that provide for
the amounts, price, and timing of option grants be amended more than once
every six months, other than to comport with changes in the Internal Revenue
Code, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules thereunder. Subject to the foregoing, the Board may
amend the Plan to comply with or take advantage of changes in the rules
promulgated by the Securities and Exchange Commission or its staff under
Section 16 of the Exchange Act.
1.06 Duration of Plan.
This Plan shall be effective upon its approval by the stockholders, which
requires the affirmative vote of the holders of a majority of the Common Stock
of the Company present, or represented, and entitled to vote at a meeting duly
held. No shares of Common Stock or stock options may be awarded prior to
approval of the Plan by the stockholders. This Plan will terminate on
December 31, 2007 unless a different termination date is fixed by the
stockholders or by action of the Board but no such termination shall affect
the prior rights under this Plan of the Company or of anyone to whom shares
have been transferred prior to such termination.
1.07 Restrictions.
All options and shares granted under the Plan shall be subject to the
requirement that, if at any time the Board shall determine, in its discretion,
that the listing, registration or qualification of shares granted under the
Plan upon any securities exchange or under any state or federal law, or the
consent or approval of any government regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of shares or
options or the issuance, if any, or purchase of shares in connection
therewith, such option may not be exercised as a whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
Unless the shares of stock to be issued under the Plan have been effectively
registered under the Securities Act of 1933, as amended (the "Securities
Act"), the Company shall be under no obligation to issue any shares of stock
unless the person who receives such shares or exercises such option, as a
whole or in part, shall give a written representation and undertaking to the
Company satisfactory in form and scope to counsel to the Company and upon
which, in the opinion of such counsel, the Company may reasonably rely, that
he or she is acquiring the shares of stock issued to him or her for his or her
own account as an investment and not with a view to, or for sale in connection
with, the distribution of any such shares of stock, and that he or she will
make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act, or
any other applicable law, and that if shares of stock are issued without such
registration, a legend to this effect may be endorsed upon the certificates
representing the securities so issued.
1.08 Nonassignability.
Options granted under the Plan shall be transferable only to the extent
such transfer is by will or the applicable laws of descent and distribution or
pursuant to a qualified domestic relations order, as defined by the Internal
Revenue Code of 1986, as amended (the "Code") or Title I of ERISA or the rules
promulgated thereunder, and is not otherwise prohibited by Rule 16b-3. During
the lifetime of the optionee, the option shall be exercisable only by the
optionee (or the optionee's permitted transferee) or his or her guardian or
legal representative.
1.09 Withholding Taxes.
Whenever shares of stock are to be issued, whether directly or upon
exercise of an option granted under the Plan, the Board shall have the right
to require the Eligible Director to remit to the Company an amount sufficient
to satisfy any federal, state and local withholding tax requirements prior to
the delivery of any certificate or certificates for such shares. The Board
may, in the exercise of its discretion, allow satisfaction of tax withholding
requirements by accepting delivery of stock of the Company or by withholding a
portion of the stock otherwise issuable.
1.10 Definition of "Fair Market Value."
For purposes of the Plan, the term "Fair Market Value" when used in
reference to the value of a share of Common Stock shall mean, on any day, (i)
the closing sales price on the immediately preceding business day of a share
of Common Stock as reported on the principal securities exchange on which
shares of Common Stock are then listed or admitted to trading, or (ii) if not
so reported, the closing sales price on the immediately preceding business day
of a share of Common Stock as published in the Nasdaq National Market Issues
report in The Wall Street Journal, or (iii) if no such closing prices are
reported, the mean between the high bid and low asked prices on the
immediately preceding business day as reported on the Nasdaq National Market
System, or (iv) if not so reported, as furnished by any member of the National
Association of Securities Dealers, Inc. selected by the Board. In the event
that the price of a share of Common Stock shall not be so reported or
furnished, the Fair Market Value of a share of Common Stock shall be
determined by the Board in its absolute discretion. A "business day" is any
day, other than a Saturday or Sunday, on which the relevant market is open for
trading.
1.11 Rights as a Stockholder.
(a) Eligible Directors shall have all rights and privileges of a
stockholder as to shares received under this Plan, including the right to vote
and receive dividends, except that during the Restricted Period, as defined in
Section 1.12, the shares of Common Stock may not be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of.
(b) An optionee or a permitted transferee of an option shall have no
rights as a stockholder with respect to any shares issuable or issued upon
exercise of the option until the date of the receipt by the Company of all
amounts payable in connection with exercise of the option, including the
exercise price and any amounts required by the Company pursuant to Section
1.09.
1.12 Restricted Period.
Certificates representing any shares of Common Stock to which the
Participant is entitled under this Plan shall be registered in the
Participant's name but shall be held in custody by the Company for the
Participant's account for a period (the "Restricted Period") ending six months
from the date of grant of the stock option or the date of issuance of the
shares, at which time those certificates shall be delivered to the
Participant. During the Restricted Period, the Participant shall have all
rights and privileges of a shareholder as to such shares, including the right
to vote and receive dividends, except that the shares of Common Stock may not
be sold, transferred, assigned, pledged or otherwise encumbered or disposed
of.
ARTICLE II
STOCK OPTIONS
2.01 Grants of Options.
Each Eligible Director shall be entitled to receive an annual grant of an
option to purchase 30,000 shares of Common Stock at an exercise price per
share equal to the Fair Market Value of Common Stock on the date of grant,
subject to adjustment as set forth in Article IV. Grants of options made
under this Plan shall be made initially on July 1, 1999 and thereafter on July
1 of each year (or the first business day thereafter on which the Company's
Common Stock is traded on the principal securities exchange on which it is
listed), except that for any person who first becomes an Eligible Director at
any time after September 30, 1998, the initial grant shall be made on the date
the person becomes an Eligible Director in a prorated number of options
calculated using a 365 day year.
2.02 Exercise Price.
The option exercise price shall be payable upon the exercise of an option
in legal tender of the United States or such other consideration as the Board
may deem acceptable, including without limitation Common Stock (delivered by
or on behalf of the person exercising the option or retained by the Company
from the Common Stock otherwise issuable upon exercise and valued at Fair
Market Value as of the exercise date), provided, however, that the Board may,
in the exercise of its discretion,
(i) allow exercise of an option in a broker-assisted or similar
transaction in which the exercise price is not received
by the Company until immediately after exercise, and/or
(ii) allow the Company to loan the exercise price to the person
entitled to exercise the option, if the exercise will be followed
by an immediate sale of some or all of the underlying shares and a
portion of the sales proceeds is dedicated to full payment of the
exercise price.
Upon proper exercise, and upon satisfaction of the Restricted Period as
provided in Section 1.12, the Company shall deliver to the person entitled to
exercise the option or his or her designee a certificate or certificates for
the shares of Common Stock to which the option pertains.
2.03 Exercise.
All options granted under the Plan shall become exercisable upon the date
of grant. Certificates representing shares issued upon exercise of options
may be held in custody by the Company as provided in Section 1.12.
2.04 Option Agreements.
Each option granted under the Plan shall be evidenced by an option
agreement duly executed on behalf of the Company stating the number of shares
of stock issuable upon exercise of the option, the exercise price, the time at
which the option becomes exercisable, and the time during which the option
remains exercisable. Such option agreements may but need not be identical and
shall comply with and be subject to the terms and conditions of the Plan, a
copy of which shall be provided to each option recipient and incorporated by
reference into each option agreement. Any option agreement may contain such
other terms, provisions and conditions not inconsistent with the Plan as may
be determined by the Board.
2.05 Term of Options and Effect of Termination.
Notwithstanding any other provision of the Plan, no options shall be
exercisable after the expiration of 10 years from the effective date of their
grant. In the event that any outstanding option under the Plan expires by
reason of lapse of time or is otherwise terminated without exercise for any
reason, then the shares of Common Stock subject to any such option that have
not been issued upon expiration or termination of the option shall again
become available in the pool of shares of Common Stock for which options may
be granted under the Plan. In the event that the holder of any options
granted under the Plan shall cease to be an Eligible Director of the Company,
all options granted under the Plan to such holder shall remain exercisable,
regardless of the reason the optionee ceases to be an Eligible Director, for a
period of two years after the date the optionee ceases to be an Eligible
Director (or, if sooner, until the expiration of the option according to its
terms), and shall then terminate. In the event of the death of an optionee
while such optionee is an Eligible Director or within the period after
termination of such status during which he or she is permitted to exercise an
option, such option may be exercised by any person or persons designated by
the optionee on a Beneficiary Designation Form adopted by the Board for such
purpose or, if there is no effective Beneficiary Designation Form on file with
the Company, by the executors or administrators of the optionee's estate or by
any person or persons who shall have acquired the option directly from the
optionee by his or her will or the applicable laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I of ERISA, or the rules promulgated thereunder or as otherwise
permitted by Rule 16b-3.
ARTICLE III
AWARD OF SHARES FOR ATTENDANCE AT BOARD MEETINGS
Each Eligible Director shall, on the fifth business day following each
quarterly public release of the Company's earnings (the "Valuation Date"),
automatically be entitled to receive, for each meeting of the Company's Board
of Directors attended by such Eligible Director during the preceding fiscal
quarter, that number of shares of Common Stock as are obtained by dividing the
Fair Market Value on the Valuation Date into: (i) $1,000 for attendance at
Board meetings in person; (ii) $500 for attendance at Board meetings by
conference telephone call; and (iii) $500 for attendance in person or by
conference telephone call for meetings of the committees of the Board of
Directors if such committee meetings are not held in conjunction with meetings
of the Board of Directors. All shares awarded shall be full shares, rounded
up to the nearest whole share. No fractional shares shall be issued.
ARTICLE IV
RECAPITALIZATIONS AND REORGANIZATIONS
4.01 Anti-dilution Adjustments.
If the outstanding shares of Common Stock of the Company are (a)
increased, decreased or exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different shares or other
securities are distributed in respect of such shares of Common Stock (or any
stock or securities received with respect to such Common Stock), through
merger, consolidation, sale or exchange of all or substantially all of the
properties of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, spin-off or other
distribution with respect to such shares of Common Stock (or any stock or
securities received with respect to such Common Stock), or (b) if the value of
the outstanding shares of Common Stock of the Company is reduced by reason of
an extraordinary cash dividend, an appropriate and proportionate adjustment
may be made by the Board in (x) the maximum number and kind of shares to be
issued under the Plan, (y) the number and kind of shares subject to then
outstanding options, and (z) the price for each share or other unit of any
other securities subject to then outstanding options. No fractional interests
will be issued under the Plan resulting from any such adjustments.
4.02 Corporate Transactions.
If the Company shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain and apply to the
securities to which a holder of the same number of shares of Common Stock that
are subject to that option would have been entitled. A Change in Control (as
defined below) of the Company shall cause the Plan to terminate, provided that
outstanding options granted to optionees who remain Eligible Directors after
such Change in Control shall remain in effect according to their terms subject
to adjustments made pursuant to Section 4.01, and outstanding options granted
to optionees who cease to be Eligible Directors after such Change in Control
shall remain exercisable according to their terms, subject to adjustments made
pursuant to Section 4.01, for a period of two years following such Change in
Control. For purposes hereof, a "Change in Control" means the following and
shall be deemed to occur if any of the following events occur:
(a) Except as provided by subparagraph (b) hereof, the acquisition
(other than from the Company) by any person, entity or group,
within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act (excluding, for this purpose, the Company or its
subsidiaries, or any employee benefit plan of the Company or its
subsidiaries which acquires beneficial ownership of voting
securities of the Company), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
fifty percent (50%) or more of the then outstanding shares of
Common Stock; or
(b) Approval by the stockholders of the Company of a reorganization,
merger or consolidation with any other person, entity or
corporation, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
another entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the
Company or such other entity outstanding immediately after
such merger or consolidation, or
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no person or entity acquires fifty percent (50%) or
more of the combined voting power of the Company's then
outstanding voting securities; or
(c) Approval by the stockholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale
or other disposition by the Company of all or substantially all
of the Company's assets.
Notwithstanding the preceding provisions of this paragraph, a Change in
Control shall not be deemed to have occurred (1) if the "person" described in
the preceding provisions is an underwriter or underwriting syndicate that has
acquired the ownership of the Company's voting securities solely in connection
with a public offering of the Company's securities or (2) if the "person"
described in the preceding provisions is an employee stock ownership plan or
other employee benefit plan maintained by the Company that is qualified under
the provisions of ERISA.
4.03 Determination by the Board.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. The
grant of an option pursuant to the Plan shall not affect in any way the right
or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all of any part
of its business or assets.
