File No. 33-
As filed with the Securities and Exchange Commission on October 14, 1996.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ELECTROMAGNETIC SCIENCES, INC.
(Exact name of issuer as specified in its charter)
Georgia 3665 58-1035424
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(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
660 Engineering Drive
Norcross, Georgia 30092
(770) 263-9200
(Address, including zip code, and telephone number, including area code, of
issuer's principal executive offices)
William S. Jacobs
Vice President and General Counsel
660 Engineering Drive
Norcross, Georgia 30092
(770) 263-9200, ext. 4214
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Michael H. Trotter, Esquire
KILPATRICK & CODY, L.L.P.
1100 Peachtree Street, Atlanta, Georgia 30309-4530
Telephone: (404) 815-6500
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Approximate date of commencement of proposed sale to the public: As
soon as possible after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box.
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CALCULATION OF REGISTRATION FEE
Title of each class of
securities to be registered: Common Stock, par value $.10 per share.
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Amount to be Registered: 773,583 shares
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Proposed Maximum Offering
Price per Unit: $15.667*
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Proposed Maximum Aggregate
Offering: $12,119,725*
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Amount of Registration Fee: $4,179.22
* Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(f). Calculated on the basis of $11.75 per share ,
the average of the high and low sale prices of the Common Stock of LXE
INC. (constituting the securities to be received by the Registrant in the
transaction) reported on the NASDAQ National Market System on October 7,
1996, and an exchange ratio of .75 shares of Common Stock of the Registrant
for each share of Common Stock of LXE INC .
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K, showing the location
in the Offering Circular/Prospectus
of the information required by Part I of Form S-4.
Item Number and Caption Location or Caption in Offering
in Form 2-4 Circular/Prospectus
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A. Information About the
Transaction.
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1 Forepart of the Registra- Cover Page of Registration
tion Statement and Outside Statement; Cross Reference
Front Cover Page of Sheet; Outside Front Cover Page
Prospectus of Offering Circular/Prospectus
2 Inside Front and Outside Inside Front Cover Page of
Back Cover Pages of Offering Circular/Prospectus;
Prospectus Table of Contents; Available
Information; Incorporation of
Documents by Reference;Outside
Back Cover Page of Offering
Circular/Prospectus
3 Risk Factors, Ratio of Summary; Selected Historical
Earnings to Fixed Charges Financial Data; Summary Pro
and Other Information. Forma Financial Data;Comparison
of Certain Unaudited Per Share
Data
4 Terms of the Transaction Summary; The Exchange Offer;
Description of Capital Stock of
ELMG; Description of Capital
Stock of LXE; Comparison of
ELMG Shares and LXE Shares
5 Pro Forma Financial Summary; Pro Forma
Information Consolidated Financial
Information -- Unaudited
6 Material Contacts with Summary; The Exchange Offer;
the Company Being Acquired Certain Relationships and
Related Transactions
7 Additional Information Not Applicable
Required for Reoffering
by Persons and Parties
Deemed to be Underwriters
8 Interests of Named Experts Legal Matters; Experts
and Counsel
9 Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act
Liabilities
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B. Information About the
Registrant.
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10 Information With Respect to Summary; Available Information;
S-3 Registrants Incorporation of Documents by
Reference; Information about
ELMG.
11 Incorporation of Certain Incorporation of Documents
Information by Reference by Reference
12 Information With Respect Not Applicable
to S-2 or S-3 Registrants
13 Incorporation of Certain Not Applicable
Information by Reference
14 Information With Respect Not Applicable
to Registrants Other Than
S-2 or S-3 Registrants
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C. Information About the
Company Being Acquired.
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15 Information With Respect to Not Applicable
S-3 Companies
16 Information With Respect to Summary; Available Information;
S-2 or S-3 Companies Incorporation of Documents by
Reference; Information about
LXE INC.
17 Information With Respect to Not Applicable
Companies Other Than S-2 or
S-3 Companies
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D. Voting and Management
Information.
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18 Information if Proxies, Not Applicable
Consents or Other
Authorizations are to be
Solicited
19 Information if Proxies, The Exchange Offer; Certain
Consents or Other Relationships and Related
Authorizations are not to Transactions; Security
be Solicited or in an Ownership; Available
Exchange Offer Information; Incorporation of
Documents by Reference
OFFERING CIRCULAR/PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 14, 1996
Offer by
ELECTROMAGNETIC SCIENCES, INC.
for all outstanding Shares of Common Stock of
LXE INC.
on the basis of .75
ELMG Shares for each LXE Share
Electromagnetic Sciences, Inc. ("ELMG.") hereby offers, upon
the terms and subject to the conditions set forth herein and in
the related Letter of Transmittal (collectively, the "Exchange
Offer"), to exchange shares of common stock, par value $.10 per
share, of Electromagnetic Sciences, Inc. ("ELMG Shares") for all
outstanding shares of common stock ("LXE Shares"), par value $.01
per share, of LXE Inc. ("LXE") not already owned by ELMG, at an
exchange ratio of .75 ELMG Shares for each LXE Share. The
Exchange Offer is subject to certain conditions as set forth
under "THE EXCHANGE OFFER -- Certain Conditions of the Exchange
Offer," including the conditions, which cannot be waived, that on
or before the date on which the Exchange Offer expires (the
"Expiration Date"), ELMG's shareholders approve the issuance of
ELMG Shares in the Exchange Offer and Merger described below, and
that ELMG receive tenders of a sufficient number of LXE Shares to
increase its ownership of LXE Shares to at least 90% of those
outstanding. Both ELMG Shares and LXE Shares are traded on the
NASDAQ National Market System ("NASDAQ"). On November [BLANK],
1996, the last reported sale price per ELMG Share as quoted on
NASDAQ was $ [BLANK] and the last reported sale price per LXE
Share as quoted on NASDAQ was $ [BLANK].
If ELMG accepts LXE Shares under the Exchange Offer, it will
immediately thereafter, and without further action by the board
of directors of LXE (the "LXE Board"), the shareholders of ELMG
or other shareholders of LXE, cause LXE to merge with a wholly
owned subsidiary of ELMG. If such merger is effected,
shareholders of LXE would receive ELMG Shares on the same basis
as in the Exchange Offer. Any such merger is referred to herein
as the "Merger" and, together with the Exchange Offer, the
"Transaction."
Questions and requests for assistance or additional copies of
this Offering Circular/Prospectus and the Letter of Transmittal
may be directed to the Information Agent at its address and
telephone number set forth on the back cover of this Offering
Circular/Prospectus.
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THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00
MIDNIGHT, ATLANTA TIME, ON [BLANK], 1996, UNLESS THE EXCHANGE
OFFER IS EXTENDED.
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THE SECURITIES TO WHICH THIS OFFERING CIRCULAR/PROSPECTUS RELATES
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING
CIRCULAR/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Offering Circular/Prospectus
is November [BLANK], 1996
The Dealer Manager for the Exchange Offer is:
Oppenheimer & Co., Inc.
<PAGE>
IMPORTANT
Any LXE shareholder desiring to tender shares either should
(i) complete and sign the Letter of Transmittal (or facsimile
thereof) in accordance with the instructions in the Letter of
Transmittal and deliver it with such shares and all other
required documents to the Exchange Agent, or (ii) request such
shareholder's banker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such shareholder. An
LXE shareholder having shares registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must
contact such person if such shareholder desires to tender such
shares.
Any LXE shareholder who desires to tender shares and cannot
deliver such shares and all other required documents to the
Exchange Agent by the expiration of the Exchange Offer must
tender such shares pursuant to the guaranteed delivery procedure
set forth under "THE EXCHANGE OFFER -- Procedure for Tendering
LXE Shares."
No person has been authorized to give any information or to
make any representation not contained in this Offering
Circular/Prospectus with respect to the transactions contemplated
hereby, and, if given or made, such information or representation
should not be relied upon as having been authorized. The
delivery of this Offering Circular/Prospectus does not constitute
an offer to sell, or the solicitation of an offer to purchase,
the securities offered hereby where such offer or solicitation
would be unlawful. Neither the delivery of this Offering
Circular/Prospectus nor the issuance of any securities hereunder
shall under any circumstances create any implication that there
has been no change in the affairs of either LXE or ELMG since the
date as of which information is furnished or the date hereof.
In accordance with various state securities laws applicable to
the Exchange Offer which require the Exchange Offer to be made to
the public by a licensed broker or dealer, the Exchange Offer
hereby is made to LXE shareholders residing in each such state by
Oppenheimer & Co., Inc. ("Oppenheimer"), as Dealer Manager, on
behalf of ELMG.
THIS OFFERING CIRCULAR/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION INCORPORATED HEREIN) ARE AVAILABLE WITHOUT CHARGE,
UPON ORAL OR WRITTEN REQUEST BY ANY PERSON RECEIVING THIS
OFFERING CIRCULAR/PROSPECTUS FROM WILLIAM S. JACOBS, SECRETARY,
ELECTROMAGNETIC SCIENCES, INC., 660 ENGINEERING DRIVE, NORCROSS,
GEORGIA 30092, (770) 263-9200. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
[BLANK][5 BUSINESS DAYS BEFORE INITIAL EXPIRATION OF EXCHANGE
OFFER], 1996.
AVAILABLE INFORMATION
Electromagnetic Sciences, Inc. has filed a Registration
Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") covering
the ELMG Shares to be issued in connection with the Exchange
Offer and the Proposed Merger, and will file a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") with the
Commission in connection with the Exchange Offer. As permitted
by the rules and regulations of the Commission, this Offering
Circular/Prospectus omits certain information contained in the
Registration Statement and the Schedule 14D-1. For such
information, reference is made to the Registration Statement, the
Schedule 14D-1 and the exhibits thereto.
Pursuant to Rules 14d-9 and 14e-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), LXE will
be required to file with the Commission within ten business days
after the commencement of the Exchange Offer a statement on
Schedule 14D-9 furnishing certain information with respect to its
position concerning the Exchange Offer. Such Schedule and any
amendments thereto should be available for inspection and copying
as set forth below (except that such Schedules and any amendments
thereto will not be available at the regional offices of the
Commission).
Each of Electromagnetic Sciences, Inc. and LXE Inc.is subject
to the informational requirements of the Exchange Act, and in
accordance therewith files reports and other information with the
Commission. The Registration Statement, as well as reports,
proxy statements and other information filed by Electromagnetic
Sciences, Inc. and LXE Inc. with the Commission pursuant to the
information requirements of the Exchange Act may be inspected and
copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following Regional Offices of the Commission: New York
Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10007; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60606. Copies of such material
also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Electromagnetic Sciences, Inc. Shares and LXE
Inc. Shares are quoted for trading on NASDAQ, and such reports,
proxy statements and other information concerning Electromagnetic
Sciences, Inc. and LXE Inc. may be inspected at the offices of
NASDAQ, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission
pursuant to the Exchange Act are hereby incorporated by reference
in this Offering Circular/Prospectus:
(a) Annual Report on Form 10-K of Electromagnetic Sciences,
Inc. for the fiscal year ended December 31, 1995;
(b) Quarterly Reports on Form 10-Q of Electromagnetic
Sciences, Inc. for the quarters ended March 31, June 30 and
September 30, 1996;
(C) Annual Report on Form 10-K of LXE Inc. for the fiscal
year ended December31, 1995*; and
(d) Quarterly Reports on Form 10-Q of LXE Inc. for the
quarters ended March31, June30 and September 30*, 1996.
* Copies of these items are being delivered with this Offering
Circular/Prospectus.
All documents filed by Electromagnetic Sciences, Inc. or LXE
Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date hereof and before the date on which
the Transaction is completed or the Exchange Offer is terminated,
whichever first occurs, shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing
thereof. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Offering
Circular/Prospectus to the extent that a statement contained
herein, or in any other subsequently filed document that also is
or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Offering
Circular/Prospectus.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the
detailed information appearing elsewhere in this Offering
Circular/Prospectus. Capitalized terms used and not otherwise
defined in this Summary have the meanings ascribed to them
elsewhere in this Offering Circular/Prospectus.
As used herein the term "ELMG" refers to Electromagnetic
Sciences, Inc. and "LXE" refers to LXE Inc. and, unless the
context otherwise requires, such entities and their respective
subsidiaries.
ELMG
ELMG designs and produces a wide range of advanced
communications and signal processing products with an emphasis on
wireless networks. ELMG's operations are conducted through its
wholly-owned subsidiary, EMS Technologies, Inc.; a 74%-owned
subsidiary, CAL Corporation, which is a Canadian corporation
acquired in 1993; and LXE, of which ELMG owns approximately 81.4%
of the outstanding shares. The Company's antennas, microwave
systems, subsystems and components are used in space and
satellite communications, cellular telecommunications, radar,
surveillance, search and rescue systems, and military
countermeasures. Through LXE, ELMG also produces wireless data
communications systems; these systems provide real-time, wireless
data and transaction processing, mainly for materials handling
operations. Advanced communications and signal processing
products accounted for 52%, 46% and 54% of consolidated net sales
in 1995, 1994 and 1993, respectively, while LXE's wireless data
communications systems accounted for 48%, 54% and 46% of
consolidated sales in the same respective years.
ELMG is a Georgia corporation with its principal executive
offices at 660 Engineering Drive, Norcross, Georgia 30092,
telephone (770) 263-9200.
LXE
LXE designs, manufactures and supports wireless data
communications systems, mainly for materials handling operations.
Typical customers in the materials handling markets are medium
and large sized companies that have substantial inventories or
complex distribution networks. LXE 's systems permit real-time
interaction between the customer's host computer network and
terminal operations in situations where mobility is desirable or
where cabled computer connections are not practical. LXE 's
systems improve the speed and reliability of communications with
materials handling personnel, facilitate improved accuracy of
inventory records and, in general, increase efficiency and
productivity in materials handling operations. LXE also has
begun developing and marketing systems for applications "outside
of the warehouse," which are believed to have potential for
future growth, including factory floor movement, transportation
and delivery, and electronic medical records retrieval.
LXE is a Georgia corporation with its principal executive
offices located at 303 Research Drive, Norcross, Georgia 30092,
telephone (770) 447-4224.
Background; Purpose of the Exchange Offer
In recent years, LXE's profitability has not been maintained
at stable or growing levels, principally due to increased
competition in the materials handling market for LXE's
traditional wireless local area network ("LAN") products, and to
difficulties experienced by LXE in timely introducing new
generations of products needed to meet evolving technical
requirements. At the same time, the boundaries between LXE's
commercial LAN products and the balance of ELMG's business have
become less distinct as other commercial markets and applications
for wireless communications products have been developing, and as
an increasing portion of ELMG's other business has shifted to
commercial, rather than governmental, customers. In this
environment, ELMG has become increasingly aware of opportunities
for LXE and other components of ELMG's business to share, or
jointly develop, technology and markets. In addition, ELMG
believes that LXE 's status as a separate public company results
in disproportionate analyst and investor attention to LXE 's role
within the overall ELMG organization. As a result of these
considerations, during 1995 ELMG began considering increasing its
ownership of LXE, and through certain transactions in February
and May 1996 increased its ownership from 71.6% to approximately
81.4%.
On July 31, 1996, ELMG's management reviewed with the ELMG
Board of Directors (the "ELMG Board") the benefits and costs of a
transaction that would result in full ownership of LXE . The
ELMG Board authorized management to continue the review process
and to retain investment banking assistance, and appointed a
special committee (the "ELMG Special Committee") to approve the
retention of an investment banker and to make a recommendation to
the full ELMG Board. At a meeting held on October 2, 1996, the
ELMG Special Committee unanimously made the recommendation that
ELMG proceed with the Exchange Offer on the terms recommended by
the Committee, and at a meeting on October 3, 1996, the full
ELMG Board unanimously accepted and approved such committee's
recommendation. See "THE EXCHANGE OFFER -- Background."
ELMG currently owns 81.4% of the LXE shares. The acquisition
of 100% of LXE is primarily intended to facilitate and encourage
the exchange and sharing of technical, production and marketing
resources among ELMG's subsidiaries, to eliminate various
expenses associated with LXE's status as a separate publicly
traded company, and to improve ELMG's ability to communicate the
role and capabilities of its various subsidiaries in the context
of its overall business strategies. ELMG also believes that the
Exchange Offer may be attractive to holders of LXE Shares because
the trading market for LXE Shares has been relatively illiquid
with much lower trading volumes and much wider bid-asked spreads
than the market for ELMG Shares, and because as holders of ELMG
Shares they will retain a significant indirect interest in LXE.
See "THE EXCHANGE OFFER -- Purpose of the Exchange Offer; the
Proposed Merger."
THE EXCHANGE OFFER
Terms of The Exchange Offer
ELMG is offering to exchange ELMG Shares for LXE Shares on the
basis of .75 ELMG Shares for each LXE Share exchanged pursuant to
the Exchange Offer. To be eligible to receive ELMG Shares
pursuant to the Exchange Offer, a holder of LXE Shares must
validly tender for exchange and not withdraw LXE Shares on or
before the Expiration Date. See "THE EXCHANGE OFFER -- Terms of
the Exchange Offer."
Expiration Date
12:00 midnight, Atlanta time, on December [BLANK], 1996, unless
extended, in which case the term "Expiration Date" shall mean the
last date and and time to which the Exchange Offer is extended.
See "THE EXCHANGE OFFER -- Extension of Tender Period;
Termination; amendment.
Exchange Offer Terms Not Arm's Length
The terms of the Exchange Offer are not the result of an arm's-
length negotiating process. They were determined solely by the
ELMG Special Committee and ELMG Board, whose principal fiduciary
duty is to ELMG and its shareholders. No investment banker or
other independent third party has passed on the adequacy or
fairness of the Exchange Offer. ELMG and the ELMG Board are
making no recommendation to LXE shareholders as to whether to
tender, and each LXE shareholder should decide for itself whether
to accept the terms of the Exchange Offer.
Certain Consequences of The Exchange Offer and The Merger
Upon consummation of the Exchange Offer and the Merger, the
holders of LXE Shares will become shareholders of ELMG. LXE
Shares will cease to trade on NASDAQ and application will be made
to de-register those Shares under the Exchange Act. After
consummation of the Exchange Offer and Merger, and without giving
effect to outstanding stock options of ELMG and LXE, the number
of ELMG Shares outstanding will be increased by 10.3% of those
currently outstanding; the holders of ELMG Shares immediately
prior to the consummation of the Exchange Offer will own
approximately 90.7% of the ELMG Shares that will be outstanding
after the Merger; the LXE shareholders other than ELMG will not
longer have a direct interest in LXE but will own approximately
9.3% of the ELMG Shares that will be outstanding after the
Merger.
Operation of LXE After the Exchange Offer and the Merger
ELMG currently intends that, following consummation of the
Exchange Offer and the Merger, the business of LXE will operate
in substantially the same way as at present, except for greater
exchange and sharing of technical, production and marketing
resources among LXE and ELMG's other subsidiaries. ELMG has
formulated no plans for changes in the officers of LXE following
the Merger, but may do so in the future. It is unlikely that
following the Merger the LXE Board of Directors would continue to
include members who were not employed by or otherwise affiliated
with ELMG.
Conduct of the Business of the Business of ELMG and LXE
if the Exchange Offer and Merger Are Not Consummated
If the Exchange Offer (and, therefore, the Merger) are not
consummated, it is expected that the business and operations of
ELMG and LXE will each continue to be conducted substantially
as they are currently being conducted and that LXE will continue
to be controlled by ELMG. ELMG has made no determination as to
any future transactions that might occur if the Exchange Offer
and Merger are not consummated, but reserves the right in such
event to purchase or propose to purchase LXE Shares from time to
time, subject to availability at prices deemed acceptable to
ELMG, pursuant to a merger transaction, cash tender offer,
exchange offer, open market or privately negotiated purchase or
otherwise, on terms that could be more or less favorable to other
LXE Shareholders than the terms of the Exchange Offer.
Interest of Certain Persons in the Merger
Certain officers and directors of ELMG are also officers and/or
directors of LXE, and are the holders of LXE Shares and options
to acquire additional LXE Shares. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" and "SECURITY OWNERSHIP."
Conditions of the Exchange Offer
The Exchange Offer is subject to certain conditions, including
the conditions, which cannot be waived, (i) that ELMG's
shareholders approve the issuance of ELMG Shares in the Exchange
Offer, and (ii) that ELMG receive sufficient tenders of LXE
Shares to increase its ownership above 90% , and that it then
cause the Merger to occur immediately after accepting such
tendered shares. To satisfy the second condition, not less than
473,993 LXE Shares must be tendered, subject to the effects of
possible exercises of LXE Options. All of the other conditions
to the Exchange Offer may be waived in whole or in part in the
sole discretion of ELMG. See "THE EXCHANGE OFFER -- Certain
Conditions of the Exchange Offer."
Amendment and Termination
The Exchange Offer may be amended at any time before or after
requisite approval by ELMG's shareholders and may be terminated
by ELMG at any time. See "THE EXCHANGE OFFER -- Certain
Conditions of the Exchange Offer; -- Extension of Tender Period;
Termination; Amendment."
Procedure for Tendering
Holders of LXE Shares desiring to accept the Exchange Offer must
complete and sign the Letter of Transmittal in accordance with
instructions contained therein, and forward or hand deliver it,
together with any other required documents, to the Exchange
Agent, either with the LXE Shares to be tendered or in compliance
with the specified procedures for guaranteed delivery of LXE
Shares. See "THE EXCHANGE OFFER -- Procedure for Tendering LXE
Shares."
Withdrawal Rights
Subject to the conditions set forth herein, tenders of LXE Shares
may be withdrawn at any time on or before the Expiration Date,
and, unless theretofore accepted for exchange, after December
[BLANK], 1996. See "THE EXCHANGE OFFER -- Withdrawal Rights."
No Fractional Shares
No fractional ELMG Shares will be distributed. Holders of LXE
Shares who would otherwise be entitled to receive a fractional
ELMG Share will be paid cash in lieu of such fraction. See "THE
EXCHANGE OFFER -- Terms of the Exchange Offer."
Delivery of ELMG Shares
ELMG will deliver ELMG Shares and cash in lieu of fractional
shares as soon as possible after acceptance of LXE Shares for
exchange. See "THE EXCHANGE OFFER -- Exchange of LXE Shares."
Exchange Agent
SunTrust Bank, Atlanta
Information Agent
Corporate Investor Communications, Inc.
Certain Federal Income Tax Consequences
The Exchange Offer and Merger will constitute a tax-free
reorganization and no income, gain or loss will be recognized by
LXE shareholders upon the receipt of ELMG Shares in exchange for
their LXE Shares. For a discussion of certain federal income tax
consequences to holders of LXE Shares who receive cash in lieu of
fractional shares in the Exchange Officer, see "THE EXCHANGE
OFFER -- Certain Federal Income Tax Consequences."
The Merger
Under applicable corporate law, if ELMG acquires sufficient
LXE Shares in the Exchange Offer to increase its ownership of LXE
to at least 90% of the then-outstanding LXE Shares, ELMG could
cause the Merger (in which each remaining LXE Share not owned by
ELMG would be converted into .75 ELMG Shares) to occur without
further action by the LXE Board of Directors (the "LXE Board")or
by the shareholders of either ELMG or LXE. It is a condition of
ELMG's acceptance of LXE Shares in the Exchange Offer that ELMG
receive sufficient tenders to reach the 90% ownership level, and
that it exercise its right to cause the Merger immediately upon
acquisition of the Tendered LXE Shares.
As of September 30, 1996, 5,574,518 LXE Shares were
outstanding and options covering 293,118 LXE Shares were
exercisable. Assuming that no LXE Options are exercised, 473,993
LXE Shares must have been validly tendered and not withdrawn as
of the Expiration Date for ELMG to own 90% of the then-outstanding LXE Shares.
The terms of the Merger would result in the conversion of all
options (the "LXE Options") outstanding under LXE's 1989 Stock
Incentive Plan (the "LXE Stock Plan") into options (the "ELMG
Options") to acquire a proportionate number of ELMG Shares under
ELMG's 1992 Stock Incentive Plan (the "ELMG Stock Plan"). The
LXE Options are held by current and former employees, directors
and officers of LXE and the option prices of the ELMG Options
would be adjusted such that the value of the options (as
determined by multiplying the number of shares times the
difference between the option exercise price and the market price
on the date of conversion) would be identical before and after
the conversion. See "THE EXCHANGE OFFER -- Conversion of LXE
Options."
Determination of the Exchange Ratio
The exchange ratio being offered for the LXE Shares was
recommended by the ELMG Special Committee (whose members have no
ownership or other personal interest in LXE) and approved by the
ELMG Board. The exchange ratio is not the product of an arm's-length
negotiating process, and in particular has not been
negotiated with LXE or the LXE Board. LXE's Board has advised
ELMG that [TO BE DETERMINED]. For further information regarding
the position of the LXE Board, as determined by those members who
are not employed by or otherwise affiliated with ELMG, holders of
LXE shares should refer to the Solicitation/Recommendation
Statement on Schedule 14D-9 [being delivered with this Offering
Circular/Prospectus].
In fixing the exchange ratios, the ELMG Special Committee and
Board considered a variety of factors, including: relative
historical and anticipated contributions to ELMG's earnings;
relative share trading prices; market valuations of comparable
companies as multiples of various operating results; relative
discounted cash flow analyses; the terms of comparable minority
buy-out transactions; the fact that tendering holders of LXE
Shares would continue to participate in the business of LXE as
holders of ELMG Shares; the perception of ELMG's management
regarding LXE 's business prospects; the condition of the NASDAQ
public market for the LXE Shares; and the perceived benefits to
ELMG of obtaining 100% ownership of LXE. See "THE EXCHANGE OFFER
- -- Determination of the Exchange Ratio."
Required Action by ELMG Shareholders
The Exchange Offer is conditional upon approval of the
Transaction by the shareholders of ELMG. The ELMG Board has
called a Special Meeting of the ELMG Shareholders (the "ELMG
Special Meeting"), to be held at [BLANK] on December [BLANK],
1996, for the purpose of voting on the matter, and is
distributing a Proxy Statement to the ELMG Shareholders in
connection with that meeting and vote.
The affirmative vote of a majority of the ELMG Shares present
at the ELMG Special Meeting is required to approve the
Transaction. The ELMG Board believes that the Transaction is in
the best interests of ELMG and its shareholders, and is
recommending that ELMG shareholders vote for its approval.
Market Prices
ELMG Shares and LXE Shares are traded on the NASDAQ National
Market System. On October 11, 1996, the last full trading day
for which quotations were available at the time of printing of
this Offering Circular/Prospectus, the reported closing sales
prices as quoted by NASDAQ were $17.25 per ELMG Share and $12.00
per LXE Share, and the closing high bids (the prices that dealers
stood ready to pay to investors seeking to sell their shares)
were $17.125 and $12.00, respectively.
For information relating to market prices of ELMG Shares and
LXE Shares during the current fiscal year and the past two fiscal
years, see "MARKETS FOR THE ELMG AND LXE SHARES." SHAREHOLDERS
ARE URGED TO OBTAIN CURRENT QUOTATIONS FOR ELMG SHARES AND LXE
SHARES.
Lack of Dissenters' Rights
Holders of LXE Shares and ELMG Shares will not be entitled to
dissenters' rights under the Georgia Business Corporation Code in
connection with the Transaction. See "LACK OF DISSENTERS' RIGHTS
OF LXE AND ELMG SHAREHOLDERS."
Accounting Treatment
ELMG's acquisition of LXE Shares in the Exchange Offer and
Merger will be accounted for by ELMG using the purchase method of
accounting under generally accepted accounting principles.
Currently, ELMG's consolidated financial statements include
all of LXE 's assets, liabilities, revenues, costs and other
deductions, and a minority interest amount that represents the
portion of LXE 's results of operations and shareholders' equity
applicable to the interest of minority shareholders of LXE . In
accordance with the purchase method of accounting, the
consolidated financial statements of ELMG will reflect the
Exchange Offer and Merger only from and after the closing date.
The minority interest amount reflected in ELMG's consolidated
financial statements applicable to LXE will be reduced by the
percentage of minority owned shares acquired and ELMG's share of
LXE 's results of operations will be increased to the extent of
the minority interest acquired.
ELMG will establish a new accounting basis for the portion of
LXE 's assets and liabilities attributable to the minority
shareholders' interests being purchased. LXE 's assets and
liabilities will be adjusted by ELMG to their respective fair
values as of the date of acquisition to the extent of the
ownership interests acquired. The value of the ELMG Shares being
exchanged for LXE Shares held by the minority shareholders is
anticipated to exceed the fair value of the net assets applicable
to the LXE Shares being acquired from the minority shareholders.
This excess cost will be allocated to goodwill, which will be
amortized on a straight-line basis over a 25-year period from the
date of acquisition.
Regulatory Approvals
ELMG is not aware of any federal or state regulatory agencies
whose approval is required for completion of the Transaction.
Selected Historical Financial Data
The following tables present summary historical consolidated
financial information for ELMG and LXE, which is derived in part
from the separate historical consolidated financial statements of
ELMG and LXE. The historical consolidated financial information
as of December 31, 1995, 1994, 1993, 1992 and 1991, and for the
years then ended has been derived in part from audited
consolidated financial statements of ELMG and LXE , respectively.
The consolidated financial statements of both ELMG and LXE as of
December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995 are incorporated by
reference elsewhere in this Offering Circular/Prospectus.
Historical consolidated financial information as of September 30,
1996 and 1995, and for the nine-month periods then ended is
derived in part from unaudited consolidated financial statements
incorporated by reference elsewhere in this Offering
Circular/Prospectus. In each case, the following summary
financial information should be read along with the incorporated
consolidated financial statements and related notes. See
"INCORPORATION OF DOCUMENTS BY REFERENCE."
(In thousands, except per share amounts)
<TABLE>
Nine Months
Ended Years Ended
September 30 December 31
<S> <C> <C> <C> <C> <C> <C> <C>
ELMG 1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Consolidated results of
operations for period:
Net sales $ 93,930 128,950 117,993 99,004 71,822 75,340
Gain on initial public
offering of LXE common
stock, net of income
taxes $ - - - - - 3,638
Earnings from continuing
operations $ 1,434 2,310 4,263 1,391 924 7,456
Earnings from continuing
operations per common
and common equivalent
share $ .20 .32 .58 .20 .10 .98
Weighted average number
of common and common
equivalent shares
outstanding 7,124 7,266 7,043 6,856 7,331 7,605
Consolidated financial
condition at end of
period:
Total assets $ 100,934 104,954 96,751 87,861 72,970 75,147
Long-term debt
(excluding current
installments) 4,262 10,989 4,592 5,060 927 1,104
Minority interest in
LXE 9,236 9,274 8,681 7,155 7,012 5,971
Stockholders' equity 59,217 60,209 56,431 51,548 50,079 52,063
</TABLE>
No cash dividends have been declared or paid during any of the periods
presented.
(In thousands, except per share amounts)
<TABLE>
Nine Months
Ended Years Ended
September 30 December 31
<S> <C> <C> <C> <C> <C> <C> <C>
LXE 1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Consolidated results of
operations for period:
Net sales $ 45,188 62,291 63,142 45,653 44,401 38,721
Net earnings (loss) $ (299) (165) 4,122 336 3,310 3,236
Net earnings (loss)
per common
and common equiva-
lent shares $ (.05) (.03) .71 .06 .57 .60
Weighted average number
of common and common
equivalent shares
outstanding 5,525 5,532 5,766 5,721 5,786 5,398
Consolidated financial
condition at end of
period:
Total assets $ 48,295 49,481 45,741 37,865 37,115 32,718
Long-term debt
(excluding
current install-
ments) 144 6,925 350 594 827 1,004
Long-term debt to
parent and due to
parent - non current 1,466 1,397 1,672 1,946 2,221 2,473
Stockholders' equity 32,478 32,611 32,298 27,713 27,264 23,663
</TABLE>
No cash dividends have been declared or paid during any of the periods
presented.
Summary Pro Forma Financial Data -- Unaudited
The unaudited pro forma financial information presented is for
informational purposes only and is not necessarily indicative of
either future results of operations or financial position or of
the results of operations or financial position that would have
been reported had the Exchange Offer and Merger been completed
at the beginning of the respective periods or as of the dates for
which such unaudited pro forma information is presented. For
additional detail, see "PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION -- UNAUDITED."
The unaudited pro forma consolidated financial information is
based on the historical results of operations and financial
condition of ELMG and LXE. For the periods presented, LXE has
been a majority-owned subsidiary of ELMG and, accordingly, has
been consolidated with ELMG in the historical financial
statements of ELMG. This information should be read in
conjunction with the Pro Forma Consolidated Financial Statements
that are included elsewhere herein and with the historical
consolidated financial statements of ELMG incorporated by
reference in this Offering Circular/Prospectus. The pro forma
data give effect to the Exchange Offer and Merger, resulting in
LXE being a wholly owned subsidiary of ELMG, accounted for as a
purchase and based upon a conversion of each currently
outstanding LXE Share into .75 ELMG Shares, as if such
transactions had occurred effective as of the first day of the
accounting period presented or as of the balance sheet date
presented.
ELMG Pro Forma Financial Data -- Unaudited
The following tables set forth for the periods and the dates
indicated certain unaudited pro forma consolidated financial
information of ELMG.
(In thousands, except per share amounts)
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
As As As As
Reported Adjusted Reported Adjusted
-------- -------- -------- --------
Consolidated results
of operations:
Net sales $ 128,950 128,950
Net earnings $ 2,310 2,190
Net earnings per
common and common
equivalent share $ .32 .27
Weighted average
number of common
and common
equivalent shares
outstanding 7,266 8,183
September 30, 1996
As Reported As Adjusted
----------- -----------
Consolidated financial
condition:
Total assets $
Long-term debt (excluding
current installments)
Minority interest in LXE
Stockholders' equity
Comparison Of Certain Unaudited Per Share Data
The following tables show comparative historical per share data for
ELMG and LXE , pro forma per share data for ELMG and LXE , and combined and
equivalent pro forma per share data for LXE .
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
------------------------ -----------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
ELMG
Net earnings $
Shareholders' equity -
end of period
LXE
Net earnings
Shareholders' equity -
end of period
MARKETS FOR THE ELMG AND LXE SHARES
Comparative Market Prices
ELMG Shares and LXE Shares are principally traded on NASDAQ
(Symbols: ELMG and LXEI). The following tables set forth the
high and low sales prices per ELMG Share and LXE Share as
reported by NASDAQ for each period indicated. They also set
forth the closing high bid and low asked prices for the first
trading day in 1996 and each successive final monthly trading
day, as quoted by market makers for the ELMG Shares and the LXE
Shares. The high bid at any given time is the highest price that
a market maker is at that time offering to pay to an investor who
wishes to sell his or her shares, and the low asked at any given
time is the lowest price at which a market maker is at that time
offering to sell shares to an investor who wishes to buy them.
For shares with wide bid-asked spreads, such as the LXE Shares,
the high bid and low asked prices provide clearer information
concerning market prices than do the reported sales prices;
because the sales prices are reported for transactions between a
market maker and an investor, the reported sales price will be
relatively high if the reported transaction is a sale by a market
maker, and relatively low if it is a purchase by a market maker.
The bid-asked prices provide no assurance that the specified
prices were available for transactions involving more than one
round lot (100 shares).
Neither of ELMG or LXE ever has paid a cash dividend with
respect to its shares. The fiscal year for each company ends on
December 31 of each year. On October 3, 1996, the last full
trading day before the public announcement of the Exchange Offer,
the closing sale price per ELMG Share, as quoted by NASDAQ, was
$17.25 and such price per LXE Share was $10.625. Also on that
day, there was a $0.375 spread between ELMG's closing bid price
of $17.00 and $17.375, compared with a $1.375 spread between
LXE's closing bid price of $10.125 and closing asked price of
$11.50.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT QUOTATIONS FOR ELMG
SHARES AND LXE SHARES.
ELMG Shares LXE Shares
Price Range Price Range
High Low High Low
---- --- ---- ---
1994
First Quarter $ 9-3/8 7-3/4 12-1/2 9-1/2
Second Quarter 9-1/4 7-7/8 12-1/4 10-1/4
Third Quarter 9-1/8 8 14 11
Fourth Quarter 12-1/8 8 15-1/4 12-3/4
1995
First Quarter 12-1/8 10 17-3/4 13-1/2
Second Quarter 15-3/8 10 16-1/4 13
Third Quarter 17-5/8 10-3/8 16-3/8 9-1/2
Fourth Quarter 12-1/8 9-1/2 10-1/4 7-1/2
1996
First Quarter 13-11/16 10-1/2 10-3/8 7
Second Quarter 16-3/8 10-3/4 12 8-3/4
Third Quarter 17 10-1/4 12 8
ELMG Shares LXE Shares
Bid Asked Bid Asked
--- ----- --- -----
1996
September 30 $ 17-3/8 17-1/4 10-1/8 11-1/2
August 30 13-3/8 13-3/4 10-5/8 11-3/8
July 31 12-1/4 12-1/2 8-1/4 9
June 28 14-3/8 14-3/4 10 10-5/8
May 31 14-1/4 14-1/2 9-3/4 10-3/8
April 30 11-3/8 11-3/4 8-3/4 9-1/4
March 29 12-1/8 12-3/8 9-1/4 9-3/4
February 29 12-7/8 13-1/4 9-5/8 10-1/4
January 31 11-1/8 11-3/8 8 8-3/4
January 2 11 11-1/4 8-1/4 8-3/4
Condition of the Market for the LXE Shares
Of the 1,031,444 outstanding LXE Shares not owned by ELMG,
an aggregate of approximately 656,000 are held by nine
institutional investors, and the remaining approximately 375,000
shares are believed to be held by approximately 2,000 holders.
As compared with the trading market for the ELMG Shares, the
market for the publicly held LXE Shares in recent months has been
characterized by wide bid-asked spreads, as indicated in the
foregoing table. It has also been characterized by relatively
sporadic, low-volume trading, as indicated in the following table
that sets forth trading volume, in 100-share lots, for the first
nine months of 1996. The volumes are reported by market makers,
and thus may represent only one side of the buy-sell cycle, with
subsequent offsetting transactions also being reported as
separate trading volume.
ELMG Shares LXE Shares
--------------------- ---------------------
Number of Number of
Days With Days With
1996 No Trading Volume No Trading Volume
---- ---------- -------- ---------- --------
September - 1,047,750 3 26,241
August - 793,905 6 136,237
July - 611,301 6 60,022
June - 938,911 1 96,554
May - 883,071 5 86,085
April - 304,493 3 104,160
March - 547,931 3 44,922
February - 1,435,122 2 93,089
January - 375,187 9 108,077
To be included in the NASDAQ National Market System, a
security must have at least two market makers. As late as 199
[BLANK], there were [BLANK] market makers for the LXE Shares, but
currently only two broker-dealers are making a market. If either
of these market makers concluded that the low trading volumes did
not justify the risks and required commitment of resources, the
LXE Shares would no longer be eligible for inclusion in the
National Market System. By way of comparison, [BLANK] broker-dealers
act as market makers for the ELMG Shares, which have
approximately [BLANK] holders and an average trading volume
during 1996 of [BLANK] shares per day.
THE EXCHANGE OFFER
Background
In 1991, ELMG caused LXE, which at that time was its wholly-owned
subsidiary, to offer approximately 22% of its outstanding shares in an
initial public offering. This offering was intended to raise capital
for further expansion of LXE's business, and to increase investor
familiarity with the LXE component of ELMG's business. At that time,
the defense markets, which had been central to ELMG's growth and
profitability during the 1980's, had been declining in volume and
profitability, while LXE's commercial wireless data communications business,
in various materials handling settings, had been expanding. The
offering was completed in April 1991, and ELMG believes that the
intended objectives were achieved.
In recent years, LXE's profitability has not been maintained
at stable or growing levels, principally due to increased
competition in the materials handling market for LXE's
traditional wireless local area network ("LAN") products, and to
difficulties experienced by LXE in timely introducing new
generations of products needed to meet evolving technical
requirements. At the same time, the boundaries between LXE's
commercial LAN products and the balance of ELMG's business have
become less distinct as other commercial markets and applications
for wireless communications products have been developing, and as
an increasing portion of ELMG's other business has shifted to
commercial, rather than governmental, customers. In this
environment, ELMG has become increasingly aware of opportunities
for LXE and other components of ELMG's business to share, or
jointly develop, technology and markets.
As a result of these various considerations, during 1995
ELMG began reviewing the appropriateness of increasing its
ownership of LXE . In late August 1995, the ELMG Board
authorized management to identify investment banking assistance
in analyzing methods of increasing ELMG's ownership of LXE, to
prepare a plan for protecting ELMG's level of LXE ownership if
favorable LXE share prices resulted in significant exercises of
outstanding LXE Options, and to purchase (if available at
approximately then-current market prices) the LXE Shares held by
two partnerships controlled by David A. Rocker. The Rocker
partnership shares at that time constituted the largest single
holding of any LXE shareholder other than ELMG, and were
sufficient to raise ELMG's LXE ownership above the 80% level
required for filing consolidated income tax returns.
In September 1995, before management acted on the ELMG
Board's various authorizations, and before any proposals were
formulated, adopted or presented to any LXE shareholders, LXE
announced an anticipated loss for the quarter ending September
30, 1995. From a closing price of $13.50 at the end of August,
the reported closing sales prices for the LXE Shares declined to
$10.25 at the end of September and $8.00 at the end of November
and December 1995, for an aggregate decline of approximately 40%.
In view of the depressed market for LXE Shares and the efforts
being undertaken to return LXE to profitability, management
concluded, in consultation with the ELMG Board, that it was no
longer desirable or appropriate at that time to pursue 100%
ownership. However, management continued to believe that ELMG
would benefit by acquiring the Rocker partnership shares and
increasing its LXE ownership above 80%. Based on preliminary
discussions with Mr. Rocker, management concluded that these
shares were not available at the then-current depressed market
prices, and management sought and received the ELMG Board's
authorization to negotiate a transaction at a premium over market
prices using ELMG Shares for all or a portion of the purchase
price. Further preliminary conversations with Mr. Rocker in
October 1995 caused management to conclude that at that time the
parties would be unable to agree on key terms, including the
extent to which any purchase price would be paid by delivery of
ELMG Shares, and the matter was not pursued until January 1996.
Negotiations commencing at that time resulted in the acquisition,
on February 23, 1996, of 548,200 LXE Shares. In this
transaction, ELMG delivered to the Rocker partnerships .8337 ELMG
Shares plus $.912 in cash for each LXE Share acquired, and also
received the agreement of Mr. Rocker and the partnerships to make
no further purchases of LXE Shares for a period of five years.
At the date of closing, the ELMG Shares had a closing market
value of $12.25 per share, or $10.21 for each .8337 ELMG Shares.
The ELMG Shares delivered in the transaction were not registered
under state or federal securities laws, and could not be freely
traded by their holders, but ELMG agreed to register such shares
for resale by such holders and subsequently obtained such
registration.
ELMG also acquired 19,874 LXE Shares in a cash transaction,
at $9.44 per share, on May 1, 1996. This transaction was with a
market maker who had acquired these shares from a former LXE
executive officer who had terminated as an employee and had
exercised an option previously granted to him in connection with
his employment. This transaction was entered into in order to
protect ELMG's 80% ownership level.
LXE reported a further loss for the quarter ended March 31,
1996, but returned to profitability in the quarter ended June 30,
1996, and was expected by management to report improving
performance in the immediately succeeding future quarters. As a
result, in July 1996, ELMG's management conducted a review of the
benefits and costs of a transaction that would result in full
ownership of LXE . The matter was reviewed with the ELMG Board
at a meeting held on July 31, 1996. Based on the potential
perceived advantages, the Board authorized management to continue
the review process, and to retain investment banking assistance
in evaluating whether to propose such a transaction and in
developing a proposed structure and terms. Because of the
significant holdings of LXE Shares and LXE Options of four
members of the ELMG Board (John B. Mowell, John E. Pippin, Don T.
Scartz and Thomas E. Sharon) the ELMG Board delegated to the ELMG
Special Committee, consisting of Anthony J. Iorillo, Jerry H.
Lassiter, and John H. Levergood, the responsibility for approving
the retention of an investment banker, and for making a
recommendation to the full ELMG Board as to whether to proceed
with a transaction and if so, on what terms.
The LXE Board held its regular quarterly meeting the
following day, August 1, 1996. ELMG management and board members
present at this meeting were Thomas E. Sharon, John E. Pippin,
John B. Mowell, Don T. Scartz and William S. Jacobs. Dr. Sharon
and Messrs. Scartz and Jacobs advised the other members of the
LXE Board of the status of ELMG's consideration of a transaction
to acquire the minority LXE Shares by issuing ELMG Shares, and
reported the appointment of the ELMG Special Committee and
proposed retention of investment banking assistance. Because
ELMG was at that time considering the possibility of a merger
transaction, which would involve negotiations with and, in order
to proceed, approval of the LXE Board, the LXE Board appointed
its own Special Committee (the "LXE Special Committee")
consisting of Frank W. Blount, William F. Evans and Francis X.
Stankard, being all of the LXE directors who were not directors,
employees or shareholders of ELMG.
The LXE Special Committee was delegated full authority to
identify and retain investment banking and legal advisors in
order to be in position to respond to a merger offer by ELMG, if
one was forthcoming, and to negotiate (or reject) an agreement on
behalf of LXE.
Other than the proposed use of ELMG Shares, no proposed
transaction terms were discussed. Mr. Evans observed that, in
his view, in recent years LXE had become less attractive as a
separate investment approach, and that LXE shareholders likely
would improve their investment prospects by becoming ELMG
shareholders in an appropriately structured transaction. No
member of the LXE Special Committee indicated the merger terms or
exchange ratio that he might consider to be appropriate.
Following further review of alternative transactions,
potential transaction costs and timing, the number of LXE 's
shareholders, and the concentration of LXE Shares in a small
number of institutional holders, ELMG concluded that if the ELMG
Special Committee and the ELMG Board chose to proceed, an
exchange offer directly to the LXE Shareholders probably would be
the most efficient and cost-effective transaction structure. On
September 3, 1996, Mr. Scartz, as ELMG's Senior Vice President
and Chief Financial Officer, and Mr. Jacobs, as its Vice
President and General Counsel, participated in telephone
conversations with each of Messrs. Evans and Stankard. At this
time, Messrs. Evans and Stankard were advised that ELMG was
contemplating the possibility of an exchange offer and was no
longer considering the possibility of proposing a negotiated
merger. Messrs. Scartz and Jacobs also advised that ELMG was not
contemplating negotiation with the LXE Special Committee
concerning the terms of an exchange offer, if one were initiated.
Based on this information, Messrs. Evans and Stankard concluded
that retention of an investment banker was not necessary at that
time, but that independent legal counsel would be retained to
advise the LXE Special Committee if and at the time ELMG
determined to proceed.
At a meeting held on October 2, 1996, following
presentations by and discussions with ELMG's management and
Oppenheimer, which had been retained to provide investment
banking assistance, the ELMG Special Committee unanimously
approved the recommendation that ELMG proceed with the Exchange
Offer, on the terms described in this Offering
Circular/Prospectus. At a meeting held on October 3, 1996, the
full ELMG Board unanimously accepted and approved the ELMG
Special Committee's recommendation.
Purpose of the Exchange Offer and Merger
The Exchange Offer is being made for the purpose of
acquiring 100% of the outstanding LXE Shares. ELMG is seeking
100% ownership of LXE for the following reasons:
* Ownership of 100% of the LXE Shares would facilitate
and encourage greater exchange and sharing of technical
and marketing resources among LXE and ELMG's other
operating subsidiaries, particularly EMS Technologies,
Inc., which is a 100% owned subsidiary and possesses
superior RF wireless engineering capabilities. ELMG
believes that access to such capabilities will be important
in LXE's future efforts to expand its wireless networking
business into new applications and markets. With LXE as a
100% owned subsidiary, such exchange and sharing can be
effected more expeditiously and with simpler review and
approval procedures than is possible under current procedures,
which are designed to protect the interests of the minority LXE
shareholders.
* As a 100% owned subsidiary, LXE would no longer incur
separate SEC reporting, shareholder reporting, tax
reporting, annual meeting and independent board
expenses, as well as other certain separate corporate
expenses. ELMG estimates that elimination of these expenses
would result in savings of approximately $420,000 per year.
* ELMG believes the greater ease in sharing of resources
among subsidiaries would permit consolidation of
various functions and operations, and more efficient
allocation and operation of production facilities, resulting
in direct savings believed to be significant but for which no
firm estimates have been developed.
* It is ELMG's belief, based on its management's
participation in conferences and discussions with
analysts and other members of the investment community,
that LXE 's status as a separately-traded company
results in disproportionate attention to LXE's role within
the ELMG organization, and detracts from ELMG's ability to
communicate its overall business strategy.
* Conversion of the LXE minority shareholder interest into
additional outstanding ELMG shares would increase
ELMG's share capitalization and number of shareholders,
and may thus encourage market makers and analysts to
participate in that market.
* ELMG believes that the conversion on the proposed terms
of the LXE Shares held by minority LXE shareholders may
be attractive to those shareholders because, among
other possible reasons, the trading market for LXE Shares
has been relatively illiquid with much lower trading volumes
and much wider bid-asked spreads than the market for ELMG
Shares, and thus may be less attractive to potential investors,
particularly those interested in liquidity for a substantial
holding. See "MARKETS FOR THE ELMG AND LXE SHARES." In
addition, as holders of ELMG Shares, LXE shareholders would
retain a significant indirect interest in LXE.
If ELMG holds, upon completion of the Exchange Offer, at
least 90% of such outstanding shares, under Georgia law ELMG
could and would cause the merger of LXE with a newly formed
subsidiary of ELMG without seeking a vote of LXE's shareholders
or the LXE Board, in which event remaining LXE shareholders
(other than ELMG) would receive .75 ELMG Shares for each LXE
Share.
If ELMG does not receive a sufficient tender in the Exchange
Offer to increase its LXE ownership above 90%, it will not accept
tendered LXE Shares, and has not formulated any plans or
proposals with respect to any subsequent efforts to acquire
additional LXE Shares.
Management believes that if the Exchange Offer is successful
the above-referenced benefits would be obtained with no
earnings-per-share dilution in 1997 or later years. For 1997 and
1998, this belief reflects projections of LXE earnings prepared
internally for normal business planning purposes. The
preparation and analysis of such projections of future operating
results are, in management's view, an essential tool in managing
the business of LXE and ELMG. However, neither management nor
the ELMG Board can know the course of future events, and thus any
such projections are no more than management's expectations,
based on its current understanding of factors it believes to be
relevant, and are subject to future developments and events that
cannot currently be known by, and may be beyond the control of,
LXE or ELMG. For example, management's projections of LXE's
earnings in 1997 and 1998 could be materially affected,
negatively or positively, by unexpected product advances by
competitors, by the unexpected development of alternative
technologies, by unexpected growth rates (either faster or
slower) in existing and target markets for LXE's products, by
currently unknown technical breakthroughs by LXE's engineering
staff, by unexpected difficulties in designing and manufacturing
new products, and by general economic trends and conditions both
in the United States and abroad.
Management's belief that the issuance of ELMG Shares in the
Exchange Offer and Merger would not adversely affect future
earnings per share is dependent on the anticipated savings
described above. These savings include both LXE's expenses as a
separate publicly traded company, as to which quantified savings
are readily identifiable, and other savings, which have not been
specifically quantified, arising from greater ease in sharing
resources throughout the organization.
ELMG management also believes it is possible that LXE's
future operations could achieve higher levels than those
contained in the above-described projections. In the course of
managing LXE's business affairs, management has analyzed
potential scenarios involving, for example, higher assumed rates
of growth in LXE's traditional markets and in new markets (such
as healthcare) that LXE is seeking to establish. Utilizing
favorable assumptions, such scenarios support the possibility of
future earnings at LXE substantially exceeding those required for
ELMG to avoid earnings-per-share dilution as a result of the
Exchange Offer and Merger. Such scenarios and higher earnings
are believed to be possible, and from time to time are used
internally for purposes of contingency planning and encouraging
higher levels of achievement. However, while achievement of
higher earnings is a primary objective of ELMG's management and
Board, such scenarios are viewed by ELMG as being speculative,
dependent on favorable future developments, and highly subject to
risks. For this reason, such scenarios and the potential higher
earnings that they support have not been relied upon either by
management for purposes of establishing employment levels or
other external commitments, or by the ELMG Special Committee or
Board in determining the exchange ratio.
Except for the Transaction and except as otherwise described
in this Offering Circular/Prospectus, ELMG does not have any
present plans or proposals which relate to or would result in an
extraordinary corporate transaction, such as a merger,
reorganization, liquidation, relocation of any operations of LXE,
or the sale or transfer of a material amount of assets involving
LXE or any of its subsidiaries, or any changes in LXE's
capitalization or any other change in LXE's corporate structure
or business or the composition of its management. However, ELMG
may, in the future, propose or develop additional or new plans or
proposals, or may propose the acquisition or disposition of
assets or other changes in LXE's business, corporate structure,
capitalization, management or dividend policy.
Determination of the Exchange Ratio
The ELMG Board has approved the exchange ratio being offered
for the LXE shares, based on the recommendation of the ELMG
Special Committee, whose members have no ownership or other
personal interest in LXE. The ELMG Special Committee and ELMG
Board each concluded that the exchange ratio was reasonable and
appropriate in light of numerous factors, including: relative
historical and anticipated contributions to ELMG's earnings, with
particular emphasis on estimated 1997 earnings; relative trading
prices for the LXE and ELMG Shares; market valuations of
comparable companies as multiples of selected operating results,
including revenues and earnings per share, again with particular
emphasis on estimated 1997 earnings; relative discounted cash
flow analyses; the terms of comparable minority buy-out
transactions; the fact that tendering holders of LXE Shares would
continue to participate in the business of LXE as holders of ELMG
Shares; the perception of ELMG's management regarding LXE 's
business prospects; the condition of the NASDAQ public market for
the LXE Shares; and the perceived benefits to ELMG of obtaining
100% ownership of LXE.
The exchange ratio represents a premium of 21.8% based on
the relative final closing sales prices of ELMG Shares and LXE
Shares on October 3, 1996, the date on which the exchange ratio
was approved by the ELMG Board, and a premium of 17.0% based on
the relative average closing reported sales prices during the 10
trading days ending on such date, in each case as reported by
NASDAQ. Based on relative closing high bid quotations reported
by NASDAQ, the premiums are 25.9% and 22.3%, respectively; high
bid prices are the prices at which at least one market maker
stands ready to purchase at least one round lot from investors
seeking to sell their shares, and ELMG believes that, for shares
(such as those of LXE ) with wide bid-asked spreads, the high
bids provide a more accurate measure of sales prices available to
individual investors.
Financial Advisor
Oppenheimer was retained by the ELMG Special Committee and
Board to provide advice in connection with the proposed
Transaction. However, Oppenheimer was not requested to, and has
not, rendered any opinion as to the fairness of the Exchange
Offer, from a financial point of view or otherwise, to either the
LXE shareholders or the ELMG shareholders, and Oppenheimer makes
no recommendation as to whether LXE shareholders should tender
their LXE Shares to ELMG pursuant to the Exchange Offer.
Oppenheimer is a nationally recognized investment banking
firm and is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged
buyouts, negotiated underwritings, secondary distribution of
listed and unlisted securities and private placements, and in
valuation for estates, corporate and other purposes. Oppenheimer
was retained by the ELMG Special Committee and Board as
financial advisor because of, among other things, Oppenheimer's
expertise in financial matters in general and in wireless
technology industries in particular, and because of its
familiarity with both ELMG and LXE through analysts and
investment bankers who have been following and maintaining
contact with both companies.
In providing assistance to the ELMG Special Committee and
Board, Oppenheimer reviewed certain publicly available business
and financial information and stock market data relating to ELMG
and LXE. Oppenheimer also received certain other information
provided to it by ELMG, including financial forecasts and
internally prepared information of ELMG and LXE, and met with the
management of ELMG and the President of LXE to discuss the
business and prospects of ELMG and LXE.
In the ordinary course of its business, Oppenheimer may
actively trade equity securities of ELMG and LXE for its own
account and for the accounts of customers, and accordingly may at
any time hold a long or short position in such securities.
Oppenheimer advised ELMG that as of the date of this Offering
Circular/Prospectus, Oppenheimer held no securities of ELMG or
LXE for its own account.
As compensation for its services in providing advice to the
ELMG Special Committee and Board, and for serving as Dealer
Manager for the Exchange Offer, ELMG has paid Oppenheimer
$125,000 to date ($25,000 of which constituted a retainer and
$100,000 of which became payable upon commencement of the
Exchange Offer), and has agreed to pay Oppenheimer an additional
fee of $175,000 in the event ELMG is successful in acquiring,
pursuant to the Exchange Offer and Merger, or otherwise, 50% or
more of the LXE shares not already owned by ELMG. In addition,
ELMG has agreed to reimburse Oppenheimer for its out-of-pocket
expenses. ELMG also has agreed to indemnify Oppenheimer and
certain related persons against certain liabilities and expenses
in connection with its services, including certain liabilities
under the federal securities laws.
Interests of Certain Persons in the Exchange Offer and Proposed
Merger
Thomas E. Sharon is the President and Chief Executive
Officer of ELMG and is the Chairman of the Board and Chief
Executive Officer of LXE . John E. Pippin is the Chairman of the
Board of ELMG and a director of LXE . Don T. Scartz is the
Senior Vice President and Chief Financial Officer, Treasurer and
a director of ELMG, and is Chief Financial Officer and Treasurer
of LXE . William S. Jacobs is Vice President, Secretary and
General Counsel of ELMG, and is Secretary and General Counsel of
LXE. John B. Mowell is a director of both ELMG and LXE .
Two holders of in excess of 5% of the outstanding ELMG
Shares also are substantial holders of LXE Shares, and certain
directors and executive officers of ELMG are the beneficial
owners of LXE Shares or LXE Options. The tables set forth in
"SECURITY OWNERSHIP" detail the holdings of ELMG Shares, ELMG
Options, LXE Shares and LXE Options of each such person.
Each of the individual directors and executive officers has
advised ELMG of his intention to tender the LXE Shares controlled
by him in the Exchange Offer, and to vote the ELMG Shares
controlled by him in favor of the Proposed Merger. ELMG has been
advised by Kopp Investment Advisors, Inc. and Dimensional Fund
Advisors, Inc. that [TO BE COMPLETED AS APPROPRIATE].
Terms of the Exchange Offer
Upon the terms and subject to the conditions of the Exchange
Offer, ELMG hereby offers to exchange ELMG Shares for all
outstanding LXE Shares, at an exchange ratio of .75 ELMG Shares
for each LXE Share, provided that such LXE Shares are validly
tendered by the Expiration Date and not withdrawn as provided at
"Withdrawal Rights." The term "Expiration Date" means 12:00
midnight, Atlanta time, on [BLANK], 1996, unless ELMG extends the
period of time for which the Exchange Offer is open, in which
event the term "Expiration Date" means the latest time and date
to which the Exchange Offer is so extended by ELMG.
Upon the terms and subject to the conditions of the Exchange
offer, ELMG will exchange all LXE Shares for ELMG Shares.
Tendering shareholders will not be obligated to pay any charges
or expenses of the Exchange Agent or any brokerage commissions.
Except as set forth in the Letter of Transmittal, any transfer
taxes on the exchanged LXE Shares pursuant to the Exchange Offer
will be paid by or on behalf of ELMG unless such payment would
jeopardize the tax-free nature of the Transaction for federal
income tax purposes. Currently, ELMG is not aware of any
transfer taxes, the payment of which by ELMG would have such a
result.
No fractional ELMG Shares will be distributed. The Exchange
Agent, acting as agent for LXE shareholders otherwise entitled to
receive fractional shares, will aggregate all fractional shares
and sell them for the accounts of such shareholders. Proceeds
from sales of fractional shares will be paid by the Exchange
Agent based upon the average gross selling price per share of all
such sales.
The Exchange Offer is subject to certain conditions set
forth below at "Certain Conditions of the Exchange Offer,"
including the conditions, which cannot be waived, (i) that ELMG's
shareholders approve the issuance of ELMG Shares pursuant to the
Exchange offer on or before the Expiration Date, and (ii) that
ELMG receive sufficient tenders of LXE Shares to increase its
ownership above 90% and that it then causes the Merger to occur
immediately after accepting such tendered Shares. If any
condition is not satisfied, ELMG may (i) terminate the Exchange
Offer and return all tendered LXE Shares to tendering
shareholders, (ii) extend the Exchange Offer and, subject to
withdrawal rights as set forth below at "Withdrawal Rights,"
retain all such LXE Shares until the expiration of the Exchange
Offer as so extended, (iii) waive such condition (other than the
conditions specifically referred to in the preceding sentence)
and, subject to any requirement to extend the period during which
the Exchange Offer is open, exchange all LXE Shares validly
tendered for exchange by the Expiration Date and not withdrawn,
or (iv) delay acceptance or exchange of any LXE Shares until
satisfaction or waiver of such condition to the Exchange Offer,
even though the Exchange Offer has expired. ELMG's right to
delay acceptance, or exchange of, tendered LXE Shares is subject
to applicable law, including, to the extent applicable, Rule 14e-1(c)
promulgated under the Exchange Act, which requires that ELMG
pay the consideration offered or return the LXE Shares deposited
by or on behalf of the LXE shareholders promptly after the
termination or withdrawal of the Exchange Offer. For a
description of ELMG's right to extend the period during which the
Exchange Offer is open and to amend, delay or terminate the
Exchange Offer, see "Extension of Tender Period; Termination;
Amendment," below.
This Offering Circular/Prospectus and the related Letter of
Transmittal will be mailed to record holders of LXE Shares and
will be furnished, for transmittal to beneficial owners of LXE
Shares, to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the LXE shareholder list or,
if applicable, who are listed as participants in a clearing
agency's security position listing.
Conversion of LXE Options
LXE has maintained the LXE Stock Plan, under which it has
from time to time issued Options to acquire LXE Shares to its
directors, officers and other senior employees. All such LXE
Options have been issued at the fair market value of the LXE
Shares on the date the option was granted. Options to acquire
366,543 LXE Shares remain outstanding, and options for 293,868
shares currently are exercisable at prices ranging from $3.66 to
$18.25. The remaining options for 52,675 shares become
exercisable not later than September 26, 2002, at option prices
ranging from $5.66 to $11.25. The ELMG Special Committee and
other members of the ELMG Board believe that stock options are an
important tool for attracting and retaining qualified personnel,
and for aligning the interests of key employees with those of the
shareholders. As a result, the ELMG Special Committee and the
ELMG Board believe that the LXE Options should be converted into
options to acquire .75 ELMG Shares for each LXE Share under
option, subject to the same vesting and expiration dates and
other material terms as the existing LXE Options. The exercise
prices of the ELMG Options would be adjusted proportionately
upwards by one-third, such that the aggregate exercise price and
"spread" (that is, the difference between the exercise price and
market value multiplied by the number of shares) for each option
would be unchanged by the Merger conversion.
Under the LXE Stock Plan, the outstanding LXE Options could,
as an alternative to conversion into ELMG Options, be canceled in
the Merger, but only if the option holders first had the
opportunity to exercise their options and thus receive ELMG
Shares in the Merger. The ELMG Special Committee, the
Compensation Committee of the ELMG Board and the full ELMG Board
all believe that it is preferable and more consistent with the
original intent of the LXE Options to convert them into ELMG
Options, thereby maintaining the equity incentives that options
provide, and limiting the potential adverse effects of
substantial sales of ELMG Shares by officers and employees who,
if the cancellation alternative were elected, would be required
to cover the exercise prices and taxes on income realized on
exercise. The ELMG Special Committee, the Compensation Committee
and the full ELMG Board also concluded that converting the
outstanding LXE Options into a proportionate number of comparable
ELMG Options was preferable to making cash payments to buy out
LXE Options at their respective spreads, because the cash buyout
approach would involve current accounting charges and use of
cash, and also would eliminate the continuing incentives intended
at the time the LXE Options were granted.
Procedures for Tendering LXE Shares
To tender LXE Shares pursuant to the Exchange Offer, either:
(a) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) and any other documents required by the
Letter of Transmittal must be received by the Exchange Agent at
one of its addresses set forth on the back cover of this Offering
Circular/Prospectus and either (i) certificates for the shares of
LXE Shares to be tendered must be received by the Exchange Agent
at one of such addresses, or (ii) such LXE Shares must be
delivered pursuant to the procedures for book-entry transfer
described below (and a confirmation of such delivery received by
the Exchange Agent), in each case by the Expiration Date; or (b)
the guaranteed delivery procedure described below must be
complied with.
The Exchange Agent will establish an account with respect to
the LXE Shares at [BLANK] and [BLANK] (collectively, the "Book-Entry
Transfer Facilities") for purposes of the Exchange Offer
within two business days after the date of this Offering
Circular/Prospectus, and any financial institution that is a
participant in the system of any Book-Entry Transfer Facility may
make delivery of LXE Shares by causing such Book-Entry Transfer
Facility to transfer such LXE Shares into the Exchange Agent's
account in accordance with the procedures of such Book-Entry
Transfer Facility. However, although delivery of LXE Shares may
be effected through book-entry transfer, the Letter of
Transmittal (or facsimile thereof) and any other required
documents must, in any case, be received by the Exchange Agent at
one of its addresses set forth on the back cover of this Offering
Circular/Prospectus by the Expiration Date, or the guaranteed
delivery procedure described below must be complied with.
Delivery of the Letter of Transmittal and any other required
documents to a Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
Except as otherwise provided below, all signatures on a
Letter of Transmittal must be guaranteed by a firm which is a
member of a registered national securities exchange or the
National Association of Securities Dealers, Inc. (the "NASD"), or
by a commercial bank or trust company having an office or
correspondent in the United States (an "Eligible Institution").
Signatures on a Letter of Transmittal need not be guaranteed if
(a) the Letter of Transmittal is signed by the registered holder
of the LXE Shares tendered therewith and such holder has not
completed the box entitled "Special Exchange Instructions" on the
Letter of Transmittal, or (b) such LXE Shares are tendered for
the account of an Eligible Institution. See Instructions [BLANK]
and [BLANK] of the Letter of Transmittal.
If a shareholder desires to tender LXE Shares pursuant to
the Exchange Offer and cannot deliver such LXE Shares and all
other required documents to the Exchange Agent by the Expiration
Date, such LXE Shares may nevertheless be tendered if all of the
following conditions are met:
(i) such tender is made by or through an Eligible
Institution;
(ii) a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form
provided by ELMG is received by the Exchange Agent
by the Expiration Date; and
(iii) the certificates for such LXE Shares (or a
confirmation of a book-entry transfer of such LXE
Shares into the Exchange Agent's account at one of
the Book Entry Transfer Facilities), together with
a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other
documents required by the Letter of Transmittal,
are received by the Exchange Agent within five NASDAQ
trading days after the date of execution of
the Notice of Guaranteed Delivery.
The method of delivery of LXE Shares and all other required
documents is at the option and risk of the tendering shareholder.
If certificates for LXE Shares are sent by mail, registered mail
with return receipt requested, properly insured, is recommended
and sufficient time to ensure timely receipt should be allowed.
To avoid backup federal income tax withholding with respect to
ELMG Shares received by a shareholder pursuant to the Exchange
Offer, the shareholder must provide the Exchange Agent with his
correct taxpayer identification number or certify that he is not
subject to backup federal income tax withholding by completing
the Substitute Form W-9 included in the Letter of Transmittal.
The tender of LXE Shares pursuant to any one of the
procedures described above will constitute an agreement between
the tendering shareholder and ELMG upon the terms and subject to
the conditions of the Exchange Offer.
All questions as to the form of documents and the validity,
eligibility (including time of receipt) and acceptance for
exchange of any tender of LXE Shares will be determined by ELMG,
in its sole discretion, which determination will be final and
binding. ELMG reserves the absolute right to reject any or all
tenders of LXE Shares determined by it not to be in proper form
or the acceptance for exchange of LXE Shares which may, in the
opinion of ELMG's counsel, be unlawful. ELMG also reserves the
absolute right to waive any defect or irregularity in any tender
of LXE Shares. None of ELMG, the Exchange Agent, the Information
Agent, the Dealer Manager or any other person will be under any
duty to give notification of any defect or irregularity in
tenders, or incur any liability for failure to give any such
notification.
Exchange of LXE Shares
Upon the terms and subject to the conditions of the Exchange
Offer, ELMG will accept for exchange, and will transfer ELMG
Shares in exchange for, LXE Shares validly tendered and not
withdrawn by the Expiration Date as promptly as practicable
after the later of (i) the Expiration Date, and (ii) the
satisfaction or waiver of the conditions set forth below in "
Certain Conditions of the Exchange Offer." In addition, ELMG
reserves the right, in its sole discretion subject to Rule 14e-1(c)
promulgated under the Exchange Act, to delay the acceptance
for exchange, or delay exchange, of any LXE Shares in order to
comply with any applicable law. For a description of ELMG's
right to terminate the Exchange Offer and not accept or exchange,
or to delay acceptance or exchange of any LXE Shares, see
"Extension of Tender Period; Termination; Amendment," below.
For purposes of the Exchange Offer, ELMG shall be deemed to
have accepted for exchange and exchanged LXE Shares tendered for
exchange when, as and if ELMG gives oral or written notice to the
Exchange Agent of its acceptance of the tenders of such LXE
Shares for exchange. Exchange of LXE Shares accepted for
exchange pursuant to the Exchange Offer will be made by deposit
of tendered LXE Shares with the Exchange Agent, which will act as
agent for the tendering shareholders for the purpose of receiving
ELMG Shares from ELMG and transmitting such ELMG Shares to
tendering shareholders. In all cases, exchange for shares of LXE
Shares accepted for exchange pursuant to the Exchange Offer will
be made only after timely receipt by the Exchange Agent of
certificates for such LXE Shares (or of a confirmation of a book-entry
transfer of such LXE Shares into the Exchange Agent's
account at one of the Book-Entry Transfer Facilities), a properly
completed and duly executed Letter of Transmittal (or facsimile
thereof), and any other required documents. For a description of
the procedure for tendering LXE Shares pursuant to the Exchange
Offer, see " Procedures for Tendering LXE Shares," above.
Accordingly, exchanges of ELMG Shares for LXE Shares may be made
to tendering shareholders at different times if delivery of the
LXE Shares and other required documents occur at different times.
Under no circumstances will interest be paid by ELMG pursuant to
the Exchange Offer, regardless of any delay in making such
exchange.
If certain events occur, ELMG may not be obligated to
exchange ELMG Shares for LXE Shares pursuant to the Exchange
Offer. See "Certain Conditions of the Exchange Offer," below.
If any tendered LXE Shares are not exchanged pursuant to the
Exchange Offer for any reason, or if certificates are submitted
for more LXE Shares than are tendered, certificates for such
unexchanged or untendered LXE Shares will be returned (or, in the
case of LXE Shares tendered by book-entry transfer, such LXE
Shares will be credited to an account maintained at one of the
Book-Entry Transfer Facilities), without expense to the tendering
shareholder, as promptly as practicable following the expiration
or termination of the Exchange Offer.
Withdrawal Rights
Tenders of LXE Shares made pursuant to the Exchange Offer
may be withdrawn at any time before the Expiration Date.
Thereafter, such tenders are irrevocable, except that they may be
withdrawn after [BLANK], 1996 unless theretofore accepted for
exchange as provided in this Offering Circular/Prospectus. If
ELMG extends the period during which the Exchange Offer is open,
is delayed in its acceptance of LXE Shares for exchange or is
unable to accept LXE Shares for exchange pursuant to the Exchange
offer for any reason, then, without prejudice to ELMG's rights
under the Exchange Offer, the Exchange Agent may, on behalf of
ELMG, retain all LXE Shares tendered, and such LXE Shares may not
be withdrawn except as otherwise provided in this section.
To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth on the back
cover of this Offering Circular/Prospectus, and must specify the
name of the shareholder who tendered the LXE Shares to be
withdrawn and the number of LXE Shares to be withdrawn. If the
LXE Shares to be withdrawn have been delivered to the Exchange
Agent, a signed notice of withdrawal with signatures guaranteed
by an Eligible Institution (unless not required by the terms set
forth above at "Procedures for Tendering LXE Shares") must be
submitted before such LXE Shares will be released. In addition,
such notice must specify, in the case of LXE Shares tendered by
delivery of certificates, the name of the registered holder (if
different from that of the tendering shareholder) and the serial
numbers shown on the particular certificates evidencing the LXE
Shares to be withdrawn or, in the case of LXE Shares tendered by
book-entry transfer, the name and number of the account at one of
the Book-Entry Transfer Facilities to be credited with the
withdrawn LXE Shares. Withdrawals may not be rescinded and LXE
Shares withdrawn will thereafter be deemed not validly tendered
for purposes of the Exchange Offer. However, withdrawn LXE
Shares may be retendered by again following one of the procedures
described above at "Procedures for Tendering LXE Shares" before
the Expiration Date.
All questions as to the form and validity (including time of
receipt) of any notice of withdrawal will be determined by ELMG,
in its sole discretion, which determination will be final and
binding. None of ELMG, the Exchange Agent, the Information
Agent, the Dealer Manager or any other person will be under any
duty to give notification of any defect or irregularity in any
notice of withdrawal, or incur any liability for failure to give
any such notification.
Extension of Tender Period; Termination; Amendment
ELMG reserves the right (but will not be obligated), at any
time or from time to time, in its sole discretion and regardless
of whether or not any of the conditions specified below at
"Certain Conditions of the Exchange Offer" have been satisfied,
to (i) extend the period during which the Exchange Offer is open
by giving oral or written notice of such extension to the
Exchange Agent and by making public announcement of such
extension, or (ii) amend the Exchange Offer in any respect by
making a public announcement of such amendment. There can be no
assurance that ELMG will exercise its right to extend or amend
the Exchange Offer.
If ELMG materially changes the terms of the Exchange Offer
(other than a change in price or percentage of securities sought)
or the information concerning the Exchange Offer, or waives a
material condition of the Exchange Offer, ELMG will extend the
Exchange Offer, if required by applicable law, for a period
sufficient to allow shareholders to consider the amended terms of
the Exchange Offer. Certain rules promulgated under the Exchange
Act provide that the minimum period during which an offer must
remain open following material changes in the terms of the offer
or information concerning the offer (other than a change in price
or a change in percentage of securities sought) will depend on
the facts and circumstances, including the relative materiality
of such terms or information. The Commission has stated that, as
a general rule, it is of the view that an offer should remain
open for a minimum of five business days from the date that
notice of such a material change is first published, sent or
given, and that, if material changes are made with respect to
information that approaches the significance of price and share
levels, a minimum of ten business days may be required to allow
adequate dissemination and investor response. If (i) ELMG
increases or decreases the consideration offered for LXE Shares
pursuant to the Exchange Offer or ELMG decreases the number of
LXE Shares eligible for exchange, and (ii) the Exchange Offer is
scheduled to expire at any time earlier than the expiration of a
period ending on the tenth business day from and including the
date that notice of such increase or decrease is first published,
sent or given, the Exchange Offer will be extended until the
expiration of such period of ten business days. The term
"business day" means any day other than a Saturday, Sunday or
federal holiday and consists of the time period from 12:01 a.m.
through 12:00 midnight, Atlanta time.
ELMG also reserves the right, in its sole discretion, if any
condition specified below at "Certain Conditions of the Exchange
Offer" has not been satisfied and so long as LXE Shares have not
theretofore been accepted for exchange, to delay (except as
otherwise required by applicable law) acceptance of, or the
delivery of ELMG Shares in exchange for, any tendered LXE Shares,
or to terminate the Exchange offer and not accept, or deliver
ELMG Shares in exchange for, any such LXE Shares.
If ELMG extends the period of time during which the Exchange
Offer is open for any reason, is delayed in accepting or in
delivering ELMG shares in exchange for, any LXE Shares, or is
unable to accept or so deliver in exchange for, any tendered LXE
Shares, then, without prejudice to ELMG's rights under the
Exchange Offer, the Exchange Agent may, on behalf of ELMG, retain
all LXE Shares tendered, and such LXE Shares may not be withdrawn
except as otherwise provided above at "Withdrawal Rights." The
reservation by ELMG of the right to delay acceptance, or exchange
of, any LXE Shares is subject to the requirements of Rule 14e-1(c)
under the Exchange Act, which requires that ELMG pay the
consideration offered or return the LXE Shares deposited by or on
behalf of shareholders promptly after the termination or
withdrawal of the Exchange Offer.
Any extension, termination or amendment of the Exchange
Offer will be followed as promptly as practicable by a public
announcement thereof. Without limiting the manner in which ELMG
may choose to make any public announcement, ELMG will have no
obligation (except as otherwise required by applicable law) to
publish, advertise or otherwise communicate any such public
announcement other than by making a release to the Dow Jones News
Service, subject to ELMG's obligations under Rule 14d-4(c) under
the Exchange Act (relating to the to dissemination of public
announcements concerning material changes in the Offering
Circular/Prospectus), if such rule is applicable. If the
Exchange Offer is extended, Commission regulations require a
public announcement of such extension no later than 9:00 a.m.,
Atlanta time, on the next business day after the previously
scheduled Expiration Date.
Certain Conditions of the Exchange Offer
ELMG may not accept tendered LXE Shares for exchange unless
each of the following conditions, which may not be waived by
ELMG, shall have been satisfied:
(a) The shareholders of ELMG, acting at a duly
convened meeting by vote of not less than half of the ELMG
Shares voted, shall haveapproved the issuance of ELMG Shares
in the Transaction (see "Approval by ELMG's Shareholders," below);
and
(b) There shall have been tendered in the Exchange Offer
and not withdrawn at least that number of LXE Shares as shall, upon
acceptance thereof, increase ELMG's ownership of LXE Shares to 90%
of those then-outstanding, and ELMG shall have provided to the
Exchange Agent its irrevocable commitment to cause the Merger to
occur immediately following such acceptance. Notwithstanding any
other provision of the Exchange Offer and without prejudice to ELMG's
other rights under the Exchange Offer, ELMG shall not be required to
accept or deliver ELMG Shares in exchange for any LXE Shares, and may
terminate the Exchange Offer as provided above at "Extension of Tender
Period; Termination; Amendment," if any of the following conditions
exists:
(c) there shall be threatened, instituted or pending any
action or proceeding by any government or governmental authority or
agency, domestic or foreign, or by any other person, domestic or
foreign, before any court or governmental authority or agency, domestic
or foreign, (i) challenging or seeking to make illegal, to delay or
otherwise directly or indirectly to restrain or prohibit the
making of the Exchange Offer or any other material element
of the Transaction, the acceptance for exchange of, or
delivery of ELMG Shares in exchange for, some of or all of
the LXE Shares by ELMG, or seeking to obtain material
damages or otherwise directly or indirectly relating to the
transactions contemplated by the Exchange Offer (including
the other elements of the Transaction), (ii) seeking any
material diminution in the benefits expected to be derived
by ELMG or any of its affiliates, including LXE , as a
result of the transactions contemplated by the Exchange
Offer (or any other elements of the Transaction), or (iii)
that otherwise, in the sole judgment of ELMG, has or may
have material adverse significance with respect to either
the value of ELMG or any of its subsidiaries or affiliates
(including LXE) or the value of the LXE Shares to ELMG;
(d) there shall be any action taken, or any statute,
rule, regulation, injunction, order or decree proposed,
enacted, enforced, promulgated, issued or deemed applicable
to the Exchange Offer or any transaction contemplated by the
Exchange Offer (including the other elements of the
Transaction) by any court, government or governmental
authority or agency, domestic or foreign, that, in the sole
judgment of ELMG might, directly or indirectly, result in
any of the consequences referred to in clauses (i) through
(iii) of paragraph (a) above;
(e) there shall have occurred (i) any general
suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the
over-the counter market, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks
in the United States, (iii) any material adverse change (or
development or threatened development involving a
prospective material adverse change) in United States or any
other currency exchange rates, or a suspension of or a
limitation on the markets therefor, (iv) the commencement of
a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States,
(v) any limitation (whether or not mandatory) by any
governmental authority or agency on, or any other event
that, in the sole judgment of ELMG, might adversely affect,
the extension of credit by banks or other financial institutions,
or (vi) in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration
or worsening thereof; or
(f) any material adverse change (i) shall have
occurred or been threatened (or any development shall have
occurred or been threatened involving a prospective material
adverse change) in the business, financial condition,
results of operations or prospects of LXE , or (ii) shall
have occurred in the market price of the LXE Shares or in
the United States securities, financial or commodities
markets, or ELMG shall have become aware of any facts which,
in the sole judgment of ELMG, have or may have material
adverse significance with respect to the value of LXE Shares to
ELMG
which, in the sole judgment of ELMG, in any such case and
regardless of the circumstances (including any action or omission
by ELMG) giving rise to any such condition, makes it inadvisable
to proceed with such acceptance for exchange of, or delivery of
ELMG Shares in exchange for, any LXE Shares.
The foregoing conditions (c) - (f) are for the sole benefit
of ELMG and may be asserted by ELMG in its sole discretion
regardless of the circumstances (including any action or omission
by ELMG) giving rise to any such condition or may be waived by
ELMG in its sole discretion in whole at any time or in part from
time to time. The failure by ELMG at any time to exercise its
rights under any of the foregoing conditions shall not be deemed
a waiver of any such right. The waiver of any such right with
respect to particular facts and circumstances shall not be deemed
a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right which may be
asserted at any time or from time to time. Any determination by
ELMG concerning the events described in this section will be
final and binding upon all parties.
In addition, ELMG will not accept for exchange any LXE
Shares tendered, and no ELMG Shares will be transferred in
exchange for any such LXE Shares, at any time at which there is
in effect a stop order issued by the Commission with respect to
the Registration Statement under which the ELMG Shares being
offered.
Approval by ELMG's Shareholders
The NASD's rules for securities traded on the NASDAQ
National Market System require shareholder approval of
transactions in which any director, officer or substantial
shareholder of the traded company has a 5% or greater interest
(or such persons collectively have a 10% or greater interest) in
a company to be acquired, or in the consideration to be delivered
in the transaction, and the present or potential issuance of
common stock could result in an increase in outstanding common
shares of 5% or more. Certain holders of in excess of 5% of the
ELMG Shares, as well as certain ELMG directors and officers, have
interests in LXE exceeding these individual or collective
threshold levels. The Shares remaining available for option
under the ELMG Stock Plan are not sufficient to allow conversion
of all outstanding LXE Options -- of the 500,000 shares
authorized under that Plan, 73,280 shares remain available for
options, whereas up to 274,907 shares would be required for
conversion of outstanding LXE Options in the Merger. In
addition, some holders of LXE Options currently are not employees
of LXE and would not be eligible to receive a current grant of an
ELMG Option under the ELMG Stock Plan. Under both the ELMG Stock
Plan and NASD rules, shareholder approval is required to amend
that plan to increase the number of available shares to issue
ELMG Options to all current holders of LXE Options. ELMG intends
to seek shareholder approval at the ELMG Special Meeting, which
is expected to be held on December [BLANK], 1996. See "THE
EXCHANGE OFFER -- Certain Conditions of the Exchange Offer."
Certain Federal Income Tax Consequences
The following discussion summarizes certain federal income
tax consequences of the Exchange Offer and Merger to holders of
LXE Shares, but does not purport to be a complete analysis of all
of the potential tax effects of the Transaction. The discussion
is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, Internal Revenue Service ("IRS")
rulings and judicial decisions now in effect, all of which are
subject to change at any time by legislative, judicial or
administrative action, and any such change may be applied
retroactively. No information is provided herein with respect to
foreign, state or local tax laws or estate and gift tax
considerations. This information is directed to LXE shareholders
who hold their LXE Shares as "capital assets" within the meaning
of Section 1221 of the Code. ELMG does not intend to request a
ruling from the IRS with respect to the Exchange Offer or the
Merger. The opinion of Kilpatrick & Cody, L.L.P., tax counsel to
ELMG ("Tax Counsel") regarding federal income tax consequences
relevant to the Exchange Offer and Merger is filed as an exhibit
to the Registration Statement of which this Offering
Circular/Prospectus is a part, and is subject to the
qualifications stated therein. Such opinion, however, has no
binding effect on the IRS or the courts.
In the opinion of Tax Counsel, the transitory existence of a
new subsidiary with which LXE will merge in the Merger will be
disregarded for federal income tax purposes, and the Exchange
Offer together with the Merger will constitute a tax-free
exchange under Section 368 of the Code. In such event, (i) no
income, gain or loss will be recognized by LXE shareholders upon
the receipt of ELMG Shares in exchange for their LXE Shares, (ii)
no income, gain or loss will be recognized by ELMG or LXE
pursuant to the Exchange Offer or Merger, (iii) the tax basis of
the ELMG Shares received by LXE shareholders will be equal to
their basis in LXE Shares immediately before consummation of the
Exchange Offer or Merger, (iv) the holding period of the ELMG
Shares received by each LXE shareholder will include the period
for which such shareholder has held the LXE Shares surrendered in
exchange therefor, and (v) the payment of cash in lieu of
fractional share interests in ELMG will be treated for federal
income tax purposes as if the fractional shares were issued as
part of the overall transaction, and then were redeemed by ELMG.
The cash payments will be treated as having been received as
distributions in full payment in exchange for the shares redeemed
as provided in Section 302(a) of the Code.
Certain LXE shareholders may be subject to backup
withholding at a rate of 20% on payments of cash in lieu of
fractional share interests in ELMG. In order to avoid such
backup withholding, each LXE shareholder must provide the
Exchange Agent with such LXE shareholder's correct taxpayer
identification number and certify that such is not subject to
such backup withholding by completing the Substitute Form W-9
included in the Letter of Transmittal.
Effects of the Exchange Offer and Merger
As a result of the Exchange Offer and Merger, if completed,
LXE would become a wholly owned subsidiary of ELMG, and LXE's
shareholders other than ELMG would hold, in lieu of their LXE
Shares, ELMG Shares representing approximately 9.3% of the then-outstanding
equity ownership of ELMG.
LXE Shares would no longer be traded on the NASDAQ National
Market System or on any other market, and would no longer be
registered under the Exchange Act. ELMG currently intends that
the business of LXE will operate in substantially the same way as
at present, except for greater exchange and sharing of
techinical, production and marketing resources among LXE and
ELMG's other subsidiaries. ELMG has formulated no plans for
changes in the officers of LXE following the Merger, but may do
so in the future. It is unlikely that LXE's Board would continue
to include members who were not employed by or otherwise
affiliated with ELMG.
Fees and Expenses
Financial Advisor and Dealer Manager. Oppenheimer is acting
as ELMG's financial advisor in connection with the proposed
acquisition of LXE and as Dealer Manager for the Exchange Offer.
In connection with such services, ELMG has agreed to pay to
Oppenheimer an aggregate fee of up to $300,000, plus certain
expenses. See "THE EXCHANGE OFFER--Financial Advisor."
Oppenheimer may be an underwriter of the ELMG Shares under the
Securities Act.
Information Agent. ELMG has retained Corporate Investor
Communications, Inc. to act as the Information Agent and SunTrust
Bank, Atlanta to act as the Exchange Agent in connection with the
Exchange Offer. The Information Agent may contact holders of LXE
Shares by mail, telephone, telex, telegraph and personal
interviews, and may request brokers, dealers and other nominee
shareholders to forward materials relating to the Exchange Offer
to beneficial owners. The Information Agent and the Exchange
Agent each will receive reasonable and customary compensation for
their respective services, will be reimbursed for certain
reasonable out-of-pocket expenses and will be indemnified against
certain liabilities in connection therewith, including certain
liabilities under the federal securities laws. The Information
Agent and the Exchange Agent have not been retained to make
solicitations or recommendations in their respective roles as
Information Agent or Exchange Agent.
Others. Brokers, dealers, commercial banks and trust
companies will, upon request, be reimbursed by ELMG for
reasonable and necessary costs and expenses incurred by them in
forwarding materials to their customers.
It is estimated that the expenses incurred by ELMG in
connection with the Exchange Offer and Merger will be
approximately as set forth below:
(In thousands)
Investment banking fees $
Legal fees
Accounting and Exchange Agent fees
Filing fees
Printing, mailing and Information
Agent fees
Miscellaneous
---------
$=========
Source of Funds
ELMG expects to obtain the funds for fees and expenses
related to the Transaction from available cash and cash
equivalents.
Regulatory Approvals
ELMG is not aware of any license or regulatory permit which
appears to be material to the business of LXE and which is likely
to be adversely affected by ELMG's acquisition of LXE Shares
pursuant to the Exchange Offer and Merger, or of any approval or
other action by any state, federal or foreign government or
governmental agency that would be required before the acquisition
of LXE Shares pursuant to the Exchange Offer or Merger. ELMG
presently intends to take such actions with respect to any
approvals as will enable it to acquire LXE Shares as
expeditiously as possible. In this regard, ELMG expressly
reserves the right to challenge the validity and applicability of
any state, foreign or other statutes or regulations purporting to
require approval of the commencement or consummation of the
Exchange Offer and Merger.
There can be no assurance that any license, permit, approval
or other action, if needed, would be obtained or, if so obtained,
when, or that adverse consequences might not result to LXE or to
its business in the event of adverse regulatory action or
inaction.
Miscellaneous
ELMG is not aware of any jurisdiction where the making of
the Exchange Offer or the acceptance thereof would not comply
with applicable law. If ELMG becomes aware of any jurisdiction
where the making of the Exchange Offer or acceptance thereof
would not comply with applicable law, ELMG will make a good faith
effort to comply with such law. If, after such good faith
effort, ELMG cannot comply, the Exchange Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of
LXE Shares in such jurisdiction.
No person has been authorized to give any information or
make any representation on behalf of ELMG not contained in this
Offering Circular/Prospectus or in the Letter of Transmittal and,
if given or made, such information or representation must not be
relied upon as having been authorized.
INFORMATION ABOUT LXE
Copies of LXE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, and of its Quarterly Report on Form
10-Q for the quarter ended September 30, 1996, are delivered with
this Offering Circular/Prospectus. The description of LXE in
such Reports and in certain other reports filed by LXE with the
Commission pursuant to the Exchange Act is incorporated herein by
reference. See "INCORPORATION OF DOCUMENTS BY REFERENCE."
INFORMATION ABOUT ELMG
The description of ELMG set forth in its Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 and in
subsequent reports filed by ELMG with the Commission pursuant to
the Exchange Act is incorporated herein by reference. See
"INCORPORATION OF DOCUMENTS BY REFERENCE."
ELMG is subject to the informational filing requirements of
the Exchange Act and, in accordance therewith, is obligated to
file reports and other information with the Commission relating
to its business, financial statements and other matters.
Information as of particular dates concerning ELMG's directors
and executive officers, their remuneration, options granted to
them, the principal holders of ELMG's securities and any material
interests of such persons in transactions with ELMG is required
to be disclosed in proxy statements distributed to ELMG's
shareholders and filed with the Commission. Such reports, proxy
statements and other information are available for inspection and
may be copied as described in "AVAILABLE INFORMATION," or
obtained in the manner specified on page -ii- of this Offering
Circular/Prospectus.
Except as described above and in "THE EXCHANGE OFFER --
Background" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,"
(a) neither ELMG nor, to the best of ELMG's knowledge, any of
ELMG's directors and executive officers has any contract,
arrangement, understanding or relationship with any other person
with respect to any securities of LXE , and (b) there have not
been any contracts, negotiations or transactions between (i) ELMG
or any of ELMG's directors, officers or affiliates, on the one
hand, and (ii) LXE or any of its directors, officers or
affiliates, on the other hand, that are required to be disclosed
pursuant to the rules and regulations of the Commission. None of
ELMG and its directors and executive officers has effected any
transaction in LXE Shares during the 60 days preceding the
commencement of the Exchange Offer.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LXE's Relationship and Transactions with ELMG
As of [BLANK], 1996, ELMG owned 4,543,074 LXE Shares,
representing approximately 81.4% of the 5,574,518 outstanding LXE
Shares. ELMG has the power, acting alone, to elect the entire
LXE Board and, except as may otherwise by provided by law, to
approve any action requiring shareholder approval, and three of
the six members of the LXE Board are also members of the ELMG
Board. ELMG's ownership of more than a majority of the
outstanding LXE Shares precludes a change in control of LXE not
favored by ELMG.
During the past three fiscal years, ELMG has provided LXE
with a variety of services, and ELMG and LXE have entered into a
variety of transactions. It is the intention of LXE and ELMG
that all transactions between them, or between LXE and any other
affiliated party, will be beneficial to LXE and will be approved
by disinterested members of the LXE Board. In this regard,
transactions with ELMG or other affiliates are reviewed and
approved by the LXE Audit Committee members who are not otherwise
affiliated with ELMG. Reviews of continuing relationships, such
as those under the Services Agreement or with respect to the
retirement and group health plans, as described below, occur no
less often than annually. The following is a description of
transactions between ELMG and LXE since the beginning of the
fiscal year ended December 31, 1992:
Administrative and Other Services. Pursuant to a Services
Agreement that is updated annually, ELMG provides administrative
and other services to LXE. Under this Agreement, ELMG is
obligated for a one-year term, and during any subsequent
renewals, to provide services as reasonably required by LXE. The
Services Agreement covers accounting services, services related
to facilities operations and maintenance, data processing
services, investor relations services, and engineering design
services. Amounts to be paid are determined by reference to
allocation formulas that are reviewed each year and are intended
to reimburse ELMG for the cost of providing each category of
services, including overhead costs associated with the personnel
and facilities involved. The Services Agreement also provides
for the allocation to LXE of approximately 50% (45% in 1994) of
the compensation and overhead costs of ELMG's Chief Executive
Officer, Chief Financial Officer and General Counsel, each of
whom also serves LXE in a similar capacity. This allocation was
determined after consideration of anticipated relative time
commitments and of anticipated relative net sales of the two
companies for the year in question. For all services under the
Services Agreements, LXE paid to ELMG $1,579,000 for 1993,
$1,739,000 for 1994, and $1,724,000 for 1995, and ELMG
anticipates that the amount to be paid in 1996 will not
significantly differ from the 1995 amount.
In order to reduce the number of items for which allocations
are made, the Services Agreement provides that, to the extent
feasible, all third-party suppliers will submit invoices directly
to LXE for goods or services provided for LXE's benefit; to the
extent separate invoicing is not feasible, third-party invoices
are allocated between LXE and ELMG on a basis determined by ELMG
to fairly reflect the respective benefits to LXE and ELMG.
ELMG believes that it will continue to be beneficial for the
foreseeable future for LXE to obtain a significant portion of its
administrative services from ELMG, whether or not the Transaction
occurs, because of the efficiencies involved in utilizing a
larger-scale, existing administrative structure.
Employee Benefit Plans. LXE personnel participate in a
defined-contribution retirement plan maintained by ELMG and under
which annual contributions are determined from year to year by
the ELMG Board. ELMG has charged the Company $477,000, $411,000,
and $534,000 for the years ended December 31, 1993, 1994 and
1995, respectively, representing the actual contributions
allocated to the accounts f the Company's employees for the year.
LXE also is responsible for a prorata share of plan overhead
expenses.
LXE personnel participate in the group health plans
maintained by ELMG; for the years ended December 31, 1993, 1994
and 1995, ELMG charged LXE $1,199,000, $1,319,000 and $1,346,000,
respectively, for expenses incurred under these plans, based on
LXE's proportionate share of the covered employee census. ELMG
expects that LXE's personnel will continue to participate in the
ELMG group health plans for the foreseeable future.
LXE personnel are also eligible to participate in the stock
purchase and 401(k) savings plans maintained by ELMG. Under the
stock purchase plan, LXE matches, on a one-for-four basis,
employee salary deductions, up to a maximum matching contribution
of 1-1/4% of base compensation; the employee deductions and LXE
contributions are forwarded to a custodian to be applied to the
purchase for the employee's account of ELMG common stock. Under
the ELMG 401(k) savings plan, the employer matches on a one-for-four
basis, up to a maximum matching contribution of 1-1/2% of
eligible compensation, salary deductions for employee personal
savings plan accounts. During the years ended December 31, 1993,
1994 and 1995, LXE's contributions with respect to the
participation of its employees in these plans were $3,000, $3,000
and $23,000, respectively, for the stock purchase plan and
$99,000, $88,000 and $106,000, respectively, for the 401(k)
savings plan.
Technology Park Buildings. In 1991, LXE acquired from ELMG
the 112,000 square-foot 125 Technology Park Building, which had
previously been occupied by ELMG and had been renovated to LXE's
specifications. A portion of the purchase price of this building
is being financed by ELMG under a note providing for monthly
installments of principal and interest over a 10-year period,
bearing interest at the prime rate, and secured by a junior
mortgage on the building. During 1993, 1994 and 1995, the
principal balance of this note was reduced from $2,496,000 to
$1,672,000, and LXE paid $141,000, $132,000 and $177,000 to ELMG
as interest. During 1993 and 1994, ELMG used approximately
22,000 square feet, and during 1995 approximately 8,000 square
feet, of the 125 Technology Park Building for certain of its
production operations. For such usage, ELMG paid LXE rent of
$3.23 per square foot per year in 1993 and 1994, and $3.70 per
square foot per year in 1995, plus operating expenses. The
rental payments equal LXE's cost, based on actual depreciation
charges, interest cost on the unamortized investment, taxes and
insurance. Also during 1995, ELMG used approximately 20,000
square feet of space in another building located in Technology
Park in which LXE has leased approximately 36,000 square feet.
ELMG paid LXE rent for such space equal to LXE's own lease
payments, or $8.52 per square foot per annum, plus operating
expenses. The amount of such space initially used by ELMG during
1996 was approximately the same as in 1995, but ELMG moved these
production operations to a larger facility in September 1996; LXE
plans to vacate its portion of the building, and is seeking
another tenant to assume its lease obligations, but until this
occurs, ELMG is continuing to reimburse LXE for lease payments on
the 20,000 square feet.
Interests of ELMG Directors and Executive Officers
Thomas E. Sharon is the President and Chief Executive
Officer of ELMG and is the Chairman of the Board and Chief
Executive Officer of LXE. John E. Pippin is the Chairman of the
Board of ELMG and a director of LXE. Don T. Scartz is the Senior
Vice President and Chief Financial Officer, Treasurer and a
director of ELMG, and is Chief Financial Officer and Treasurer of
LXE. William S. Jacobs is Vice President, Secretary and General
Counsel of ELMG, and is Secretary and General Counsel of LXE .
John B. Mowell is a director of both ELMG and LXE .
The tables included at "SECURITY OWNERSHIP" detail the
holdings of ELMG Shares, ELMG Options, LXE Shares and LXE Shares
by the executive officers and directors of ELMG.
<PAGE>
SECURITY OWNERSHIP
The following table sets forth certain information
concerning ELMG Shares and LXE Shares beneficially
owned as of [BLANK}, 1996 (except as otherwise noted),
by the Company's directors, executive officers, and by
persons who beneficially own more than 5% of the ELMG
Shares. The table also sets forth the potential
issuance of ELMG Shares as a result of the Exchange
Offer and Merger, based on each person's holdings of
LXE Shares or LXE Options. Except as otherwise
indicated, each person possessed sole voting and
investment power with respect to the shares shown.
<TABLE>
ELMG Shares LXE Shares Potential ELMG
------------------------ ---------------------- Shares upon Potential
Amount of Approximate Amount of Approximate Exchange/ Percent of
Beneficial Percent of Beneficial Percent of Conversion of Outstanding
Name Ownership Class Ownership Class LXE Shares ELMG Shares
---- ---------- ----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kopp Investment Advisors, Inc. 1,478,000 (1) 18.7% 310,000(1) 5.4% 1,710,583 19.4%
6600 France Avenue So.
Edina, Minnesota 55435
David A. Rocker 779,252 (2) 9.9% - * 779,252 8.9%
Suite 1759
45 Rockefeller Plaza
New York, New York 10111
Dimensional Fund Advisors, Inc. 491,499 (3) 6.2% 168,900 2.9% 618,174 7.0%
1299 Ocean Avenue
Santa Monica, California 90401
Brinson Partners, Inc. 491,800 6.2% - * 491,800 5.6%
209 South LaSalle
Chicago, Illinois 60604-1295
Wellington Management Company 403,000 5.1% - * 403,000 4.6%
75 State Street
Boston, Massachusetts 02109
Anthony J. Iorillo 2,000 (4) * - * 2,000 *
Jerry H. Lassiter 17,672 (4) * - * 17,672 *
John H. Levergood 2,000 (4) * - * 2,000 *
John B. Mowell 30,784 (4) * 26,900 (5) * 50,959 *
John E. Pippin 223,865 (4) 2.8% 114,210 (5) 2.0% 309,523 3.5%
Don T. Scartz 54,728 (4) * 4,092 (5) * 57,797 *
Thomas E. Sharon 164,155 (4) 2.1% 48,219 (5) * 200,319 2.3%
William S. Jacobs 21,501 (4) * 7,000 (5) * 26,751 *
John J. Farrell, Jr. 6,000 (4) * - * 6,000 *
Jeffrey A. Leddy 33,199 (4) * - * 33,199 *
Neilson A. Mackay 22,336 (4) * - * 22,336 *
All directors and executive officers
as a group (11 persons) 578,240 7.3% 200,421 3.5% 728,566 8.3%
- ------------------------------------
</TABLE>
* Percentage of shares beneficially owned does not exceed 1%
(1) Kopp Investment Advisors, Inc. has advised that it
exercises investment discretion as to all listed shares, but
exercises voting power only as to approximately 85,000 ELMG
Shares and 15, 000 LXE Shares. Kopp Advisors is the record owner
of 15,000 ELMG Shares and 5,000 LXE Shares.
(2) David A. Rocker has advised that the shares to which he
is deemed to have beneficial ownership are owned by Rocker
Partners, L. P., a New York limited partnership (733,496 shares)
and Compass Holdings, Ltd., a corporation organized under the
Business Companies Ordinance of the British Virgin Islands
(81,956 shares). Ownership data is as of September 20, 1996.
(3) Dimensional Fund Advisors, Inc. (Dimensional) has
advised that the shares of which it is deemed to have beneficial
ownership are held in the portfolios of DFA Investment Dimensions
Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business
trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans;
Dimensional serves as investment manager to all of these
entities. Dimensional disclaims beneficial ownership of all such
shares. Ownership data is as of September 20, 1996.
(4) Includes shares that are subject to currently
exercisable options in the amounts of 2,000 for Mr. Iorillo,
10,782 for Mr. Lassiter, 2,000 for Mr. Levergood, 10,782 for Mr.
Mowell, 130,514 for Dr. Pippin, 42,000 for Mr. Scartz, 109,916
for Dr. Sharon, 9,000 for Mr. Jacobs, 28,000 for Mr. Leddy, and
20,000 for Dr. Mackay. For Mr. Mowell, Dr. Pippin and Mr.
Jacobs, these totals also include 5,000, 42,593 and 7,400 shares,
respectively, as to which each person shares voting and
investment power with family members but disclaims beneficial
interest.
(5) Includes shares that are subject to currently
exercisable options in the amounts of 15,900 for Mr. Mowell,
95,400 for Dr. Pippin, 40,893 for Dr. Sharon, 2,000 for Mr.
Scartz, and 5,000 for Mr. Jacobs. The total for Mr. Mowell also
includes 1,000 shares, and for Mr. Jacobs 300 shares, as to which
each shares voting and investment power with a family member, but
disclaims beneficial interest.
--------------------------------
LACK OF DISSENTERS' RIGHTS OF LXE AND ELMG SHAREHOLDERS
Neither holders of ELMG Shares nor holders of LXE Shares
would be entitled to dissenters' rights under Georgia law in
connection with the Exchange Offer or Merger, and ELMG does not
intend to accord dissenters' rights to holders of ELMG Shares or
LXE Shares. Georgia law provides that holders of LXE Shares are
not entitled to dissenters' rights if, at the LXE record date for
the Merger, LXE Shares are listed on a national securities
exchange (or securities quotation system such as the NASDAQ
National Market System) and if, as a result of the Merger, the
holders of LXE Shares become entitled to receive only shares of
stock of a corporation which at the effective time of the Merger
are either listed on a national securities exchange (or
securities quotation system such as the NASDAQ National Market
System) or held of record by more than 2000 shareholders, and
cash in lieu of fractional shares. It is expected that each of
these conditions will be satisfied in connection with the Merger,
and that holders of LXE Shares will thus not be entitled to any
dissenters' rights in connection with the Transaction. Georgia
law provides appraisal rights only to shareholders of the
constituent corporations in a merger. Because the Merger would
be effected by a newly formed subsidiary of ELMG, holders of ELMG
Shares would not be entitled to dissenters' rights under Georgia
law.
DESCRIPTION OF CAPITAL STOCK OF ELMG
The authorized capital stock of ELMG consists of 75,000,000
shares of common stock, $.10 par value per share, of which
[BLANK] shares currently are outstanding. Holders of ELMG Shares
are entitled to one vote per share on all matters to be voted
upon by shareholders. ELMG has authorized 10,000,000 shares of
preferred stock, $1.00 par value per share. No shares of
preferred stock have been issued and ELMG presently does not
contemplate the issuance of such shares.
Antitakeover Provisions
Existing provisions of ELMG's Articles of Incorporation and
By-Laws could deter, to varying degrees and in various
circumstances, an effort to take control of ELMG without approval
of the ELMG Board.
Stockholder Rights Plan. On March 23, 1989, the ELMG Board
adopted the ELMG Stockholder Rights Plan, under which the
acquisition by any person of 20% or more of the outstanding ELMG
Shares, without prior approval of disinterested members of the
ELMG Board, would result in distribution to other ELMG
shareholders of rights that would significantly dilute the
interest of the 20% shareholder. The plan is intended to provide
the ELMG Board with sufficient time and leverage to adequately
represent shareholder interests in response to unsolicited, and
potentially abusive or unfair, takeover efforts. Kopp Investment
Advisors, Inc. ("Kopp") beneficially owns [BLANK]% of the
currently outstanding ELMG Shares, plus [BLANK]% of the currently
outstanding LXE Shares, and may in the course of its normal
activities acquire beneficial ownership of additional ELMG or LXE
Shares. In that event, if the LXE Shares held by Kopp are
exchanged in the Exchange Offer or converted in the Merger, Kopp
could beneficially own in excess of 20% of the ELMG Shares
outstanding after the Merger. In order to make it possible for
Kopp to tender its LXE Shares in the Exchange Offer, if it wishes
to do so, and to support approval of the Transaction as an ELMG
shareholder, without further restricting its investment
activities prior to the completion of the Transaction, the ELMG
Board has formally consented to the acquisition of additional
ELMG Shares by Kopp in the Exchange Offer and Merger, in an
amount not exceeding 23% of the ELMG Shares outstanding after the
Merger. Under the ELMG Stockholder Rights Plan, Kopp could
thereafter acquire up to an additional 2% of the outstanding ELMG
Shares (for aggregate beneficial ownership not exceeding 25%)
without triggering a rights distribution.
Bylaws Provisions. The Bylaws of ELMG elect coverage of two
provisions of the Georgia Business Corporation Code which would
provide certain protections to ELMG and its shareholders in the
event of an attempt to take over ELMG by third parties. The
first provision (the "Fair Price Provision") is designed to
achieve a measure of assurance that any multi-step attempt to
take over ELMG is made on terms which offer similar treatment of
all holders of each class of ELMG's voting stock. The second
provision (the "Business Combination Provision") is designed to
encourage any person who would acquire 10% or more of the voting
stock of ELMG to seek the approval of the ELMG Board before the
acquisition.
These provisions may have the effect of discouraging
takeover attempts and also may have the effect of maintaining the
position of incumbent management. In addition, the provisions
may have a significant effect on the ability of shareholders of
ELMG to benefit from certain kinds of transactions that may be
opposed by the incumbent ELMG Board. Accordingly, before
tendering their LXE Shares, LXE shareholders are urged to
consider the Fair Price and Business Combination Provisions.
The Fair Price Provision requires that a business
combination with a holder of at least 10% of a company's
outstanding voting stock (an "Interested Shareholder") either be
unanimously approved by the members of the board who are
unaffiliated with the Interested Shareholder (the "Continuing
Directors"), or recommended by at least two-thirds of the
Continuing Directors and approved by the holders of a majority of
the outstanding shares entitled to vote thereon other than voting
shares beneficially owned by the Interested Shareholder. If the
approval or recommendation requirements cannot be met, then the
business combination cannot be completed unless certain minimum
price criteria and procedural safeguards are satisfied.
The Business Combination Provision prohibits an Interested
Shareholder from engaging in any business combination with ELMG
for a period of five years from the date the person became an
Interested Shareholder, unless either (a) before such person
became an Interested Shareholder, the ELMG Board approves either
the business combination or the transaction which resulted in
such person becoming an Interested Shareholder, (b) the
Interested Shareholder becomes the owner of at least 90% of the
voting shares of ELMG in the same transaction in which he became
an Interested Shareholder, excluding voting shares owned by
directors, officers, their affiliates and associates,
subsidiaries of ELMG, and employee stock plans of ELMG in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer (collectively,
"Insiders"), or (c) subsequent to becoming an Interested
Shareholder, the Interested Shareholder acquires additional
shares resulting in ownership of at least 90% of the voting
shares and obtains the approval of the holders of a majority of
the voting shares other than voting shares beneficially owned by
the Interested Shareholder and Insiders.
DESCRIPTION OF CAPITAL STOCK OF LXE ; COMPARISON
OF ELMG SHARES AND LXE SHARES
LXE has authorized 20,000,000 shares of common stock, $0.01
par value per share (the "LXE Shares"), with 5,574,518 shares
currently outstanding, of which 4,543,074 are owned by ELMG.
Holders of LXE Shares are entitled to one vote per share on all
matters to be voted upon by shareholders. LXE has authorized
5,000,000 shares of preferred stock, $1.00 par value per share.
No shares of preferred stock have been issued and LXE presently
does not contemplate the issuance of such shares.
Comparison
Both ELMG and LXE are Georgia corporations. Consequently,
except for the differences noted below, the rights of holders of
ELMG Shares and LXE Shares are substantially identical. The
Articles of Incorporation and the Bylaws of LXE do not elect
coverage under the Fair Price and Business Combination
Provisions under which ELMG has elected coverage. In addition,
LXE has not adopted a shareholder rights plan or any other plan
which is similar to the ELMG Stockholder Rights Plan described
above. See "DESCRIPTION OF CAPITAL STOCK OF ELMG -- Antitakeover
Provisions."
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- UNAUDITED
The unaudited pro forma financial information presented is
for informational purposes only and is not necessarily indicative
of either future results of operations or financial position or
of the results of operations or financial position that would
have been reported had the Exchange Offer and Merger been
completed at the beginning of the respective periods or as of the
dates for which such unaudited pro forma information is
presented. For additional detail, see "PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION -- UNAUDITED."
The following unaudited Pro Forma Consolidated Condensed
Financial Statements for ELMG has been prepared based upon the
historical consolidated results of operations of both ELMG and
LXE and the historical financial condition of ELMG. LXE is a 81%
owned subsidiary of ELMG and, accordingly, has been consolidated
and included in the historical consolidated financial statements
of ELMG. The pro forma consolidated financial data give effect
to (i) the Exchange Offer, assuming that all of the outstanding
LXE Shares held by shareholders other than ELMG (excluding
293,868 shares under exercisable options) are tendered and
accepted by ELMG in the Exchange Offer, and (ii) the Proposed
Merger, resulting in LXE being a wholly owned subsidiary of ELMG.
The Exchange Offer and Merger are accounted for as a purchase
based upon the conversion of each LXE Share into .75 ELMG Shares.
The Pro Forma Consolidated Condensed Balance Sheet as of
September 30, 1996 assumes that the Exchange Offer and Merger
occurred effective as of the date presented. The Pro Forma
Consolidated Condensed Income Statements assume that the Exchange
Offer and Merger occurred effective as of the first day of each
period presented.
The Pro Forma Consolidated Condensed Balance Sheet should be
read in conjunction with the accompanying pro forma notes and the
separate historical consolidated financial statements and related
notes thereto of ELMG and LXE reported in Annual Reports on Form
10-K for the fiscal year ended December 31, 1995, and Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1996, which are incorporated herein by reference.
See "INCORPORATION OF DOCUMENTS BY REFERENCE."
ELMG
Pro Forma Consolidated Statement of Income -- Unaudited
Nine Months Ended September 30, 1996
(In thousands)
Pro Forma
As Reported Adjustments As Adjusted
----------- ----------- -----------
Net sales $
Cost of sales
Selling, general and
administrative expenses
Research and development
expenses
----------- ---------- ----------
Operating income
----------- ---------- ----------
Interest and other income,
net of foreign exchange
gains and losses
Interest expense
Income before income
taxes and LXE
minority interest
Income taxes
LXE minority interest
----------- ---------- ----------
Net earnings $
=========== ========== ==========
Net earnings per
common and
common equivalent
share $
=========== ========== ==========
Weighted average number of
common and common
equivalent shares
See accompanying notes to Unaudited Pro Porma Consolidated Financial
Statements.
ELMG
Pro Forma Consolidated Statement of Income --Unaudited
Year Ended December 31, 1995
(In thousands, except per share amounts)
Pro Forma
As Reported Adjustments As Adjusted
----------- ----------- -----------
Net sales $ 123,950 123,950
Cost of sales 83,865 83,865
Selling, general and
administrative expenses 30,836 (a) 369
(b) (420)
Research and development
expenses 10,392 10,392
----------- ---------- ----------
Operating income 3,857 3,908
----------- ---------- ----------
Interest and other income,
net of foreign exchange
gains and losses 675 675
Interest expense (864) (864)
Income before income
taxes and LXE
minority interest 3,668 3,719
----------- ---------- ----------
Income taxes (note 2) 1,402 (c) 160 1,562
LXE minority interest 144 (d) 44 -
----------- ---------- ----------
Net earnings $ 2,310 2,157
=========== ========== ==========
Net earnings per
common and
common equivalent
share $ .32 .26
=========== ========== ==========
Weighted average number of
common and common
equivalent shares 7,266 (e) 774
(f) 142 8,182
Pro Forma adjustments:
(a) Amortization of goodwill
(b) Expense savings
(c) Income tax effect of expense savings
(d) Elimination of minority interest
(e) ELMG shares issued in the Exchange Offer
(f) Common equivalent shares derived from LXE
Options converted to ELMG Options
See accompanying notes to Unaudited Pro Forma Consolidated Financial
Statements
ELMG
Pro Forma Consolidated Balance Sheet -- Unaudited
September 30, 1996
(In thousands)
Pro Forma
As Reported Adjustments As Adjusted
----------- ----------- -----------
ASSETS
Current assets
Cash and cash equivalents $
Trade accounts receivable,
net
Inventories
Deferred income taxes
----------- ---------- ----------
Total current assets
----------- ---------- ----------
Net property, plant and
equipment
Other assets
Goodwill, net of accumulated
amortization (a) 8,249
----------- ---------- ----------
$
=========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current installments of
long-term debt $
Accounts payable and
accrued liabilities
Other current liabilities
----------- ---------- ----------
Total current
liabilities
----------- ---------- ----------
Longer-term debt, excluding
current installments
Deferred income taxes
----------- ---------- ----------
Total liabilities
----------- ---------- ----------
Minority interest in LXE
Stockholders' equity:
Paid-in capital
Retained earnings
----------- ---------- ----------
Total stockholders'
equity
----------- ---------- ----------
$
=========== ========== ==========
Pro Forma adjustments:
(a) Goodwill from exchange offer
See accompanying notes to Unaudited Pro Forma Consolidated Financial
Statements
ELMG
Notes to Unaudited Pro Forma Financial Statements
(1) Basis of Presentation
The Unaudited Pro Forma Consolidated Financial Statements for ELMG
presented in this document have been prepared based upon the historical
consolidated results of operations and the historical financial condition
of ELMG and LXE. LXE is a 81% owned subsidiary of ELMG and, accordingly,
has been consolidated and included in the historical consolidated financial
statements of ELMG. The pro forma consolidated financial data give effect
to (I) the Exchange Offer, assuming that all of the outstanding LXE Shares
held by shareholders other than ELMG (excluding 293,118 shares under
exercisable options) are tendered and accepted by ELMG in the Exchange
Offer, and (ii) the proposed Merger, resulting in LXE being a wholly owned
subsidiary of ELMG. The Exchange Offer and Merger are accounted for as a
purchase based upon the conversion of each LXE Share into .75 ELMG Shares.
The Pro Forma Consolidated Balance Sheet as of September 30, 1996 assumes
that the Exchange Offer and Merger occurred effective as of the date
presented. The Pro Forma Consolidated Income Statements assume that the
Exchange Offer and Merger occurred effective as of the first day of each
period presented.
The Unaudited Pro Forma Consolidated Financial Statements should be
read in conjunction with the accompanying pro forma notes and the separate
historical consolidated financial statements and related notes thereto of
ELMG and LXE reported in Annual Reports on Form 10-K for the fiscal year
ended December 31, 1995, and Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 1996, which are
incorporated herein by reference. See "INCORPORATION OF DOCUMENTS BY
REFERENCE."
(2) Assumptions
The Unaudited Pro Forma Financial Statements include certain
assumptions concerning the effects of the Exchange and Merger:
Goodwill - ELMG will establish a new accounting basis for the
portion of LXE's assets and liabilities attributable to the minority
shareholders' interests being purchased. The combined value of the ELMG
Shares (based upon the October 3, 1996 closing price of $17.25) and the
exercisable ELMG Options (based upon the Black-Scholes option pricing
model) being exchanged for LXE Shares held by the minority shareholders and
LXE Options is expected to exceed the fair value of the net assets being
acquired in the Exchange; this excess will be allocated to goodwill, which
will be amortized on a straight-line basis over a 25-year period from the
date of acquisition.
Expense Savings - As a 100% owned subsidiary, LXE would no longer
incur separate SEC reporting, shareholder reporting, tax reporting, annual
meeting and independent board expenses, as well as other certain separate
corporate expenses. Elimination of these expenses would result in initial
savings of approximately $420,000 per year.
Conversion of LXE Options - LXE Options will be converted into
options to acquire a proportionate number of ELMG Shares under ELMG's 1992
Stock Incentive Plan. The option prices of the ELMG Options would be
adjusted such that the value of the options (as determined by multiplying
the number of shares by the difference between the option exercise price
and the market price on the date of conversion) would be identical before
and after the conversion. Under Statement of Financial Accounting
Standards 123, there is no compensation charge for the conversion of the
LXE Options, however, the value of converted ELMG options that are
exercisable (based upon the Black-Scholes option pricing model) will
increase the amount of goodwill associated with the Exchange and Merger.
In addition, those converted ELMG Options that have an exercise price below
the current market price of ELMG Shares will increase the common equivalent
shares utilized in the calculation of earnings per share.
(3) Write-off of Deferred Income Taxes
In 1991, ELMG recognized a pre-tax gain of approximately $5.9 million
pre-tax, representing ELMG's share of the increase in LXE's book value
following LXE's initial public offering of common stock. ELMG provided
approximately $2.2 million of deferred income tax expense on the gain,
which will be written off as a result of the tax-free Exchange Offer and
Merger; this write-off will be reflected in ELMG's consolidated income
statement as a $2.2 million reduction of income tax expense for the year in
which the Exchange Offer and Merger become effective.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon by
William S. Jacobs, Vice President, Secretary and General Counsel of ELMG.
Mr. Jacobs is an officer and employee of ELMG, and he and/or members
of his family are beneficial owners of an aggregate of 12,501 of the
outstanding ELMG Shares, and of options to acquire 13,000 additional shares
(of which options for 9,000 shares currently may be exercised); they also
are beneficial owners of 2,000 of the outstanding LXE Shares, and of
currently exercisable options to acquire an additional 5,000 shares.
EXPERTS
The consolidated financial statements and schedules of ELMG as of
December 31, 1994 and 1995, and for each of the years in the three-year
period ended December 31, 1995, incorporated by reference herein and
elsewhere in the Registration Statement, have been incorporated by
reference herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements and schedules of LXE as of
December 31, 1994 and 1995, and for each of the years in the three-year
period ended December 31, 1995, incorporated by reference herein and
elsewhere in the Registration Statement, have been incorporated by
reference herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF ELMG
The name, business address, present principal occupation or employment
and five-year employment history of each director and executive officer of
ELMG are set forth below. Unless otherwise indicated below, the address of
each director and officer is 660 Engineering Drive, Norcross, Georgia
30092. All directors and officers listed below are citizens of the United
States, except for Dr. Mackay, who is a citizen of Canada.
Present Principal Occupation or Employment, Five
Name and Title Year Employment History and Business Address
- ------------------ ------------------------------------------------
Thomas E. Sharon, President and Chief Executive Officer of ELMG
President and Chief (since 1994); previously President and Chief
Executive Officer, Operating Officer of ELMG.
and Director
John E. Pippin, Chairman Chairman of the Board of ELMG; until 1994,
of the Board Dr. Pippin also served as Chief Executive
Officer.
Don T. Scartz, Senior Senior Vice President since 1995, Chief
Vice President and Financial Officer and Treasurer of ELMG.
Chief Financial Officer, Until 1995, Mr. Scartz was a Vice President
Treasurer, and Director of ELMG.
Anthony J. Iorillo, Until 1996, Chairman of the Board, American
Director Mobile Satellite Corporation, Reston,
551 Paseo Miramar Virginia, a major provider of satellite-based
Pacific Palisades, CA communications for ground vehicles, ships and
90272 aircraft in the United States and surrounding
areas and waters (since 1994). Previously,
and until his retirement in 1994, Mr. Iorillo
was a Senior Vice President of Hughes Aircraft
Company and President of Hughes
Telecommunications and Space Sector, El
Segundo, California, a leading supplier and
operator of communications satellites and
related network equipment. Mr. Iorillo also is
a director of Ortel Corp.
Jerry H. Lassiter, Private investor organizing and managing
Director interests in finance and real estate.
48 Hickory Hollow
Winder, GA 30680
John H. Levergood, President, Broadband Communications Group,
Director Scientific-Atlanta, Inc., Atlanta, Georgia,
4261 Communications Drive which designs and produces a broad range
Norcross, GA 30092 of advanced cable television equipment (since
1992). Previously, Mr. Levergood had served
as a consultant to the Broadband Communications
Group following his retirement, in 1989, as
President and Chief Operating Officer of
Scientific-Atlanta. Mr. Levergood also is a
director of Golden Poultry, Inc.
John B. Mowell, President, Mowell Financial Group, Inc.,
Director Tallahassee, Florida, an investment counseling
407 East 6th Avenue firm.
Tallahassee FL 32315
William S. Jacobs, General Counsel and Secretary of ELMG since
Vice President, General 1992, and Vice President since 1993. He also
Counsel and Secretary serves as General Counsel and Secretary of EMS
Technologies, Inc. and LXE . Previously, he
was engaged in the private practice of law with
Trotter Smith & Jacobs, Atlanta, Georgia, and
in such capacity had served as ELMG's principal
corporate legal counsel since 1982.
Neilson A. Mackay, President of CAL Corporation since September
President of 1992, a controlling interest in which was
CAL Corporation acquired by ELMG in January 1993. Before
1050 Morrison Drive joining CAL, he had served since 1988 as
Ottawa, Ontario K2H 8K7 President of Innotech Aviation Limited, a
Montreal, Quebec-based privately held aerospace
company with approximately 650 employees.
Innotech is active in all post-manufacturing
sectors of the corporate aviation market,
including aircraft sales, flight management,
maintenance, and interior and avionics
modifications.
Jeffrey A. Leddy, President of EMS Technologies, Inc. since
President of July 1994. Mr. Leddy joined ELMG as an
EMS Technologies, Inc. engineer in September 1980.
John J. Farrell, President and Chief Operating Officer of LXE
President and Chief since May 1995. Before joining LXE , Mr.
Operating Officer of LXE Farrell had been Senior Vice President and
303 Research Drive Chief Operating Officer of Oki Telecom, a
Norcross, GA 30092 world-wide supplier of cellular telephones and
base stations, since 1993. During the three
years before 1993, he directed Oki Telecom's
marketing and sales efforts.
Facsimile copies of the Letter of Transmittal will be accepted.
The Letter of Transmittal, certificates for LXE Shares and any other
required documents should be sent by each shareholder of LXE or such
shareholder's broker-dealer, commercial bank, trust company or other
nominee to the Exchange Agent as follows:
Exchange Agent: SunTrust Bank, Atlanta
By Mail: Corporate Trust Department
P. O. Box 4625
Atlanta, Georgia 30302
By Facsimile
Transmission: (404) 332-3966
By Hand: Corporate Trust Department
25 Park Place
Atlanta, Georgia 30302
For Information call: (404) 588-7815
(800) 568-3476
Any questions or requests for assistance or additional copies
of the Offering Circular/Prospectus and the Letter of Transmittal
may be directed to either the Information Agent or the Dealer
Manager at their respective telephone numbers and locations listed
below. You also may contact your broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the
Exchange Offer.
The Information Agent: Corporate Investor Communications, Inc.
111 Commerce Road
Carlstadt, New Jersey 07072-2586
Call Toll Free: (888) 776-9943
Banks and Brokers call: (201) 896-1900
The Dealer Manager is: Oppenheimer & Co., Inc.
Oppenheimer Tower
One World Financial Center
39th Floor
New York, New York 10281
(212) 667-7000 or (800) 999-0860
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Bylaws of the Company provide that the Company will
indemnify its directors and officers, and persons serving at the
request of the Company as a director of officer of another
corporation, partnership, joint venture, trust or other
enterprise, against all expenses, judgments and amounts paid in
settlement actually and reasonably incurred by any such person in
connection with threatened or actual actions, suits or
proceedings, whether civil, criminal, administrative or
investigative, to which such person becomes subject by having
served in such role. Such indemnification shall be made if such
person acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or
its equivalents, will not, of itself, create a presumption that
such person did not so act and did not have such reasonable cause
to believe. With respect to actions by or on behalf of the
Company, the foregoing indemnification pursuant to the Bylaws
shall not be paid for judgments or amounts paid in settlement,
but shall be paid for expenses; however, except as discussed
below, no indemnification will be made for any claim, issue or
matter as to which such person has been adjudged to be liable for
negligence or misconduct in the performance of his duty to the
Company, except to the extent that a court of competent
jurisdiction determines upon application that such person is
fairly and reasonably entitled to indemnity.
The Company will indemnify the persons discussed in the
immediately preceding paragraph only when (a) the Company's board
of Directors by a majority vote of a quorum consisting of
directors who are not parties to the action, suit or proceeding,
(b) if such a quorum is not obtainable, a committee, consisting
of two or more directors who are not parties to the action, suit
or proceeding designated by the Board of Directors in which
designation interested directors may participate), by a majority
vote, or (c) special legal counsel selected by the Board of
Directors or its committee in the manner described in (a) or (b)
above, or, if a quorum of the Board of Directors cannot be
obtained, by a majority vote of the full Board of Directors (in
which selection interested directors may participate), or (d) the
shareholders, by the affirmative vote of a majority of the shares
entitled to vote thereon, determine that indemnification is
proper in the circumstances because the person has met the
applicable standard of conduct discussed in the immediately
preceding paragraph. However, expenses shall be paid by the
company as they are incurred and in advance of the final
disposition of the relevant case, upon receipt of an undertaking
by the director or officer to repay such amounts if it shall
ultimately be determined that he or she is not entitled to be
indemnified. Independent of these indemnification provisions
contained in the Bylaws, the Georgia Business Corporation Code
provides a statutory right to indemnification from the Company to
a director who is successful in the defense of any proceeding to
which he was a party because he is a director of the Company.
In addition to the foregoing indemnification provisions, the
Bylaws authorize further indemnification of directors and
officers. Pursuant to this provision, the Company is a party to
Indemnification Agreements that provide substantially broader
indemnity rights than those described above. Among other things,
these Agreements provide for indemnification in respect of
judgments in actions by or on behalf of the Company, and do not
require, as a condition of indemnification, independent
determinations that the individual met the specified standards of
conduct. However, under the Agreements and applicable Georgia
law, no indemnification may be paid: (i) if it is determined
that the individual's conduct constituted intentional misconduct,
fraud or a knowing violation of the law, or an appropriation, in
violation of his or her duties, of any business opportunity of
the Company; (ii) with respect to liability for distributions to
shareholders in excess of amounts legally available for such
distributions; or (iii) with respect to any transaction from
which he or she received an improper personal benefit.
The Company maintains a directors' and officers' liability
insurance policy covering certain losses arising from claims made
against them by reason of wrongful acts (with certain exceptions)
committed by them in their capacities as directors and officers.
The insurer's limit of liability under the policy is $10 million
per policy year.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this
Registration Statement:
Exhibit
Number Description of Exhibit
- ------- -----------------------
1.1 Dealer Manager Agreement dated [BLANK], 1996, by
and between Oppenheimer & Co., Inc. and Electromagnetic
Sciences, Inc.*
3.1 Amended and Restated Articles of Incorporation of
Electromagnetic Sciences, Inc., effective July 3, 1989
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1995).
3.2 Bylaws of Electromagnetic Sciences, Inc., as amended
through March 20, 1995 (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
4.1 Electromagnetic Sciences, Inc. Stockholder Rights Plan
dated as of July 3, 1989 (incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
4.2 Agreement with respect to long-term debt pursuant to
Item 601(b)(4)(iii)(A) (incorporated by reference to
Exhibit 4.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
5.1 Opinion of William S. Jacobs, General Counsel, as to
legality of the securities offered.*
8.1 Opinion of Kilpatrick & Cody, L.L.P., as to certain tax
matters.*
10.1 Employment Agreement dated as of January 1, 1989, by
and between the Company and Thomas E. Sharon (incorporated
by reference to Exhibit 19.9 to the Company's Report on Form 10-Q
for the quarter ended June 30, 1992).
10.2 Amendment, dated July 29, 1992, of Employment Agreement
dated as of January 1, 1989, by and between the Company
and Thomas E. Sharon (incorporated by reference to Exhibit 10.4
to the Company's Report on Form 10-K for the year ended
December 31, 1993).
10.3 Second Amendment, dated November 15, 1994, of Employment
Agreement dated as of January 1, 1989, by and between the
Company and Thomas E. Sharon (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
10.4 Separation Agreement between LXE Inc. and Malcolm M. Bibby,
effective December 13, 1994 (incorporated by reference to
Exhibit 10.12 to the Annual Report on Form
10-K of LXE Inc. for the year ended December 31, 1994).
10.5 Consulting Agreement, effective January 1, 1995, by and
between the Company and John E. Pippin (incorporated by
reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.6 1981 Incentive Stock Option Plan, as amended and
restated February 6, 1987, and further amended through
March 23, 1989 (incorporated by reference to Exhibit 10.6
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.7 Form of split-dollar life insurance agreement between the
Company and certain of its officers (incorporated by reference
to Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.8 Form of split-dollar life insurance agreement effective
January 1, 1993, between the Company and an executive
officer (incorporated by reference to Exhibit 10.5 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.9 Electromagnetic Sciences, Inc. 1986 Directors' Stock
Option Plan, as amended through July 31, 1992
(incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.10 Electromagnetic Sciences, Inc. 1986 Non-Qualified Stock
Option Plan, as amended through July 31, 1992 (incorporated
by reference to Exhibit 10.10 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.11 Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan
(incorporated by reference to Exhibit 19.1 to the Company's
Report on Form 10-Q for the quarter ended March 31, 1992).
10.12 LXE Inc. 1989 Stock Incentive Plan, as amended and restated
March 1, 1991 and further amended March 6, 1992 (incorporated
by reference to Exhibit 19.2 to the Report on Form 10-Q of
LXE Inc. for the quarter ended March 31, 1992).
10.13 Form of Stock Option Agreement evidencing options granted in
1992, 1993 and 1995 to certain executive
officers under the Electromagnetic Sciences, Inc. 1992
Stock Incentive Plan (incorporated by reference to Exhibit 19.3
to the Company's Report on Form 10-Q for the quarter ended
June 30, 1992).
10.14 Form of Stock Option Agreement dated May 15, 1995, evidencing
option granted to John J. Farrell, Jr. under the 1992 Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.15 Form of Stock Option Agreement evidencing options granted
automatically under the 1992 Stock Incentive Plan to newly-elected
non-employee members of the Board of Directors (incorporated
by reference to Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.16 Form of Stock Option Agreement evidencing option granted
January 27, 1995, to John E. Pippin (incorporated by Reference
to Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.17 Form of Stock Option Agreement evidencing options granted
January 1,1989 to certain executive officers under the LXE Inc.
1989 Stock Incentive Plan (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990).
10.18 Form of Stock Option Agreement evidencing options granted
September 26, 1990 to an executive officer under the LXE Inc.
1989 Stock Incentive Plan (incorporated by reference to
Exhibit 19.2 to the Report on Form 10-Q of LXE Inc. for the
quarter ended June 30, 1991).
10.19 Form of Stock Option Agreement evidencing options granted
September 26, 1990 to John B. Mowell under the LXE Inc. 1989
Stock Incentive Plan (incorporated by reference to Exhibit 19.3
to the Report on Form 10-Q of LXE Inc. for the quarter ended
June 30, 1991).
10.20 Form of Stock Option Agreement evidencing options granted in
1992 to certain executive officers under the LXE Inc. 1989
Stock Incentive Plan (incorporated by reference to Exhibit 19.1
to the Report on Form 10-Q of LXE Inc. for the quarter ended
June 30, 1992).
10.21 Form of Stock Option Agreement dated May 15, 1995,
evidencing options granted to John J. Farrell, Jr.
under the LXE Inc. 1989 Stock Incentive Plan
(incorporated by reference to Exhibit 10.6 to the LXE
Inc. Annual Report on Form 10-K for the year ended December 31,
1995).
10.22 Form of Restricted Stock Award Restriction Agreement
governing awards of restricted stock made to the
Company's executive officers effective January 27, 1995
(incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.23 Forms of Amendments dated April 21, 1995 and January 26, 1996,
to Restricted Stock Award Restriction Agreements effective
January 27, 1995 (incorporated by reference to Exhibit 10.23 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.24 Restricted Stock Award Restriction Agreement dated May 15, 1995,
between the Company and John J. Farrell, Jr. (incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.25 Form of Indemnification Agreement between the Company and its
directors (incorporated by reference to Exhibit 19.5 to the
Company's Report on Form 10-Q for the quarter ended June 30, 1992).
10.26 Form of Indemnification Agreement between the Company and
its Vice President and General Counsel (incorporated by
reference to Exhibit 19.6 to the Company's Report on Form 10-Q
for the quarter ended June 30, 1992).
10.27 Form of Indemnification Agreement between LXE Inc. and certain
of the Company's officers and directors in their capacity as
directors of LXE Inc. (incorporated by reference to Exhibit 19.2
to the Report on Form 10-Q of LXE Inc. for the quarter ended
June 30, 1992).
10.28 Form of Indemnification Agreement between LXE Inc. and certain
officers of the Company in their capacity as officers of LXE Inc.
(incorporated by reference to Exhibit 19.3 to the Report on
Form 10-Q of LXE Inc. for the quarter ended June 30, 1992).
10.29 Letters dated April 17, 1995 and April 19, 1995 between
LXE Inc. and John J. Farrell, Jr. concerning the terms
of his employment as President of LXE Inc. (incorporated by
reference to Exhibit 10.1 to Report on Form 10-Q of LXE Inc.
for the quarter ended June 30, 1995).
11.1 Statement re: Computation of Per Share Earnings.*
22.1 Subsidiaries of the registrant.*
23.1 Consent of Independent Auditors.*
23.2 Consent of William S. Jacobs (included in his opinion filed
as Exhibit 5.1).
23.3 Consent of Kilpatrick & Cody, L.L.P. (included in its
opinion filed as Exhibit 8.1).
25.1 Power of Attorney (see Signature Page of this
Registration Statement).
99.1 Form of Letter of Transmittal for tendering LXE Shares.*
99.2 Letter to Securities Dealers, Commercial Banks, Trust
Companies and other Nominees.*
99.3 Letter to clients of Securities Dealers, Commercial
Banks, Trust Companies and other Nominees.*
99.4 Instruction sheet for LXE Shareholders.*
99.5 Form of Notice of Guaranteed Delivery.*
99.6 Preliminary Proxy Materials for Special Meeting of the
Shareholders of Electromagnetic Sciences, Inc., including
preliminary form of Proxy.
*To be filed by amendment.
Item 22. Undertakings.
(a) The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement:
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual reports pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Atlanta, State of Georgia, on October 14, 1996.
ELECTROMAGNETIC SCIENCES, INC.
By:
/s/ Thomas E. Sharon
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Thomas E. Sharon and Don T. Scartz,
jointly and severally, his attorneys-in-fact, each with power of substitution
for him in any and all capacities, to sign any amendments to this
Registration Statement, and to file the same, with the exhibits thereto,
and other documents in connection therewith, with the Securities and
Exchange Commission hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated.
Signature Title Date
/s/ Thomas E. Sharon President and Chief Executive October 14, 1996
Officer and Director (Principal
Executive Officer)
/s/ John E. Pippin Chairman of the Board October 14, 1996
/s/ Don T. Scartz Senior Vice President and Chief October 14, 1996
Financial Officer, Treasurer, and
Director (Principal Financial and
Accounting Officer)
/s/ Anthony J. Iorillo Director October 14, 1996
/s/ Jerry H. Lassiter Director October 14, 1996
/s/ John H. Levergood Director October 8, 1996
/s/ John B. Mowell Director October 8, 1996
Exhibit 99.6
Preliminary Proxy Materials
ELECTROMAGNETIC SCIENCES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER [BLANK], 1996
Notice is hereby given that a Special Meeting of
Shareholders of Electromagnetic Sciences, Inc. (the "Company" or
"ELMG") will be held at [BLANK].m. local Atlanta time on December
[BLANK], 1996, at ELMG's offices, 660 Engineering Drive,
Technology Park/Atlanta, Norcross, Georgia, for the following
purposes:
(1) To consider and vote upon a proposal to issue
shares of the Company's common stock, $.10 per share (the
"ELMG Shares ") in exchange for the acquisition of any or
all of the outstanding shares $.01 par value (the "LXE
Shares") of LXE Inc. ("LXE"), an 81% subsidiary of the
Company, not currently owned by the Company, and to amend
the Company's 1992 Stock Incentive Plan as necessary for,
and otherwise approve, the conversion of outstanding options
to acquire LXE Shares into options to acquire a
proportionate number of ELMG Shares; and
(2) To transact such other business as may properly
come before the Meeting or any adjournment thereof.
Only holders of record of ELMG Shares at the close of
business on November [BLANK], 1996, will be entitled to notice of
and to vote at the Meeting or any adjournment thereof.
By Order of the Board of Directors,
WILLIAM S. JACOBS, Secretary
Norcross, Georgia
November [BLANK], 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING OF
SHAREHOLDERS, YOU ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED
FORM OF PROXY AND MAIL IT IN THE ENCLOSED RETURN ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IT IS
IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. IF YOU DO ATTEND
THE MEETING AND DECIDE THAT YOU WISH TO VOTE IN PERSON, YOU MAY
WITHDRAW YOUR PROXY.
ELECTROMAGNETIC SCIENCES, INC.
660 Engineering Drive, Technology Park/Atlanta
Norcross, Georgia 30092
Telephone (770) 263-9200
PROXY STATEMENT
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON December [BLANK], 1996
GENERAL INFORMATION
Special Shareholders' Meeting
This Proxy Statement is furnished in connection with the
solicitation by the Company's Board of Directors of proxies to be
used at the Special Meeting of Shareholders to be held at
.m. local Atlanta time on December [BLANK], 1996, at the
Company's offices, 660 Engineering Drive, Technology
Park/Atlanta, Norcross, Georgia. This Proxy Statement is being
mailed to shareholders on approximately November [BLANK], 1996.
Matters to be Acted Upon
The following matters will be acted upon at the Special
Meeting of Shareholders:
(1) The proposal (the "Proposal") to issue ELMG Shares
in exchange for the acquisition of any or all of the
outstanding LXE Shares not currently owned by the Company,
and to amend the Company's 1992 Stock Incentive Plan as
necessary for, and otherwise approve, the conversion of
outstanding options to acquire LXE Shares into options to
acquire a proportionate number of ELMG Shares ; and
(2) The transaction of such other business as may
properly come before the Meeting or any adjournment thereof.
Revocation of Proxies
A proxy form is enclosed herewith. Any shareholder who
executes and delivers a proxy may revoke it at any time prior to
its use by giving written notice of such revocation to the
Secretary of the Company at 660 Engineering Drive, Technology
Park/Atlanta, Norcross, Georgia, 30092, or by executing and
delivering to the Secretary of the Company a proxy bearing a
later date. A proxy may also be revoked at the Special Meeting
by any shareholder who is present and elects to vote in person.
Voting of Proxies
When the enclosed proxy is properly executed and returned,
the shares that it represents will be voted at the Special
Meeting in accordance with the instructions noted thereon. In
the absence of such instructions, the shares represented thereby
will be voted in favor of the Proposal. The Board of Directors
does not know of any other business to be brought before the
Meeting, but it is intended that as to such other business, if
any, a vote may be cast pursuant to the proxy in accordance with
the judgment of the person or persons acting thereunder.
Only holders of record of issued and outstanding ELMG Shares
at the close of business on November [BLANK], 1996, are entitled
to notice of, or to vote at, the Special Meeting. Each holder is
entitled to one vote for each ELMG Share on the record date. On
November [BLAK], 1996, there were [BLANK] ELMG Shares outstanding
and entitled to vote.
Vote Required
Assuming the presence of a quorum at the Special Meeting,
the Proposal will be approved by favorable vote of a majority of
the ELMG Shares actually voted. Abstentions and broker non-votes
will be considered as present for the purposes of determining the
presence of a quorum, but will not otherwise be considered in
determining the outcome of the vote.
Cost of Solicitation
The cost of soliciting proxies will be borne by the Company.
Officers, directors and employees of the Company may solicit
proxies by telephone, telegraph or personal interview.
1997 Shareholder Proposals
Any proposals by shareholders intended for presentation at
the 1997 Annual Meeting of Shareholders must be received by the
Company at its principal executive offices, attention of the
Secretary, no later than December 1, 1996, in order to be
included in the proxy materials for that Meeting.
THE PROPOSAL
Summary
LXE is an 81.4% subsidiary of the Company. LXE is a leading
supplier of wireless communications systems for computerized
materials handling, information management and other operations
that require mobility and real-time access to data. LXE's
principal executive offices are located at 303 Research Dr.,
Norcross, Georgia 30092, and its telephone number is (770) 447-4405.
The Company's Board is proposing that the Company acquire
the outstanding LXE Shares currently held by persons other than
the Company. In order to effect this acquisition, the Company
has initiated an exchange offer (the "Exchange Offer") under
which all minority LXE shareholders may surrender any and all of
their LXE Shares in exchange for ELMG Shares at a ratio of .75
ELMG Shares for each LXE Share tendered. If as a result of the
Exchange Offer the Company becomes the holder of in excess of 90%
of the outstanding LXE Shares, the Company would have the right
to cause, without further vote of the LXE shareholders, a merger
(the "Merger") of LXE with a newly formed subsidiary of the
Company, as a result of which LXE would become a wholly owned
subsidiary of the Company and all remaining LXE Shares held by
the minority LXE shareholders would be converted into ELMG
Shares, at the same ratio. It is a condition of ELMG's
acceptance of LXE Shares in the Exchange Offer that ELMG receive
sufficient tenders to increase its LXE ownership above 90%, and
that ELMG exercise its right to cause the Merger immediately upon
acquisition of tendered LXE Shares. In that event, the terms of
the Merger would result in the conversion of all options (the
"LXE Options") outstanding under the LXE 1989 Stock Incentive
Plan into options (the "ELMG Options") to acquire a proportionate
number of ELMG Shares under the ELMG 1992 Stock Incentive Plan
(the "ELMG Stock Plan"). The LXE Options are held by current and
former employees, directors and officers of LXE, and the option
prices of the ELMG Options would also be adjusted proportionately
such that the value of the options (as determined by multiplying
the number of shares times the difference between the option
exercise price and the market price) would be identical before
and after the conversion.
The approval of the Company's shareholders is being sought
primarily in order to comply with rules of the National
Association of Securities Dealers for trading of the ELMG Shares
on the NASDAQ National Market System. These rules relate to
transactions in which officers, directors or substantial
shareholders have significant interests. Also, shareholder
approval is required of amendments to the ELMG Stock Plan that
permit the conversion of LXE Options into ELMG Options. See
"Shareholder Approval -- Reasons for Seeking Shareholder
Approval."
A vote FOR the Proposal will constitute a vote approving
each of the matters described as part of it. The Company is not
seeking separate votes on the individual matters because the
Company intends to accept shares under the Exchange Offer, and
thereby further reduce the liquidity of the trading market for
the LXE Shares, only if it has received the shareholder approval
required to exchange and/or convert all outstanding LXE Shares
and LXE Options into ELMG Shares and ELMG Options.
Background
In 1991, ELMG caused LXE, which at that time was its wholly
owned subsidiary, to offer approximately 22% of its outstanding
shares in an initial public offering. This offering was intended
to raise capital for further expansion of LXE's business, and to
increase investor familiarity with the LXE component of ELMG's
business. At that time, the defense markets, which had been
central to ELMG's growth and profitability during the 1980's, had
been declining in volume and profitability, while LXE's
commercial wireless data communications business, in various
materials handling settings, had been expanding. The offering
was completed in April 1991, and ELMG believes that the intended
objectives were achieved.
In recent years, LXE's profitability has not been maintained
at stable or growing levels, principally due to increased
competition in the materials handling market for LXE's
traditional wireless local area network ("LAN") products, and to
difficulties LXE has experienced in timely introducing new
generations of products needed to meet evolving technical
requirements. At the same time, the boundaries between LXE's
commercial LAN products and the balance of ELMG's business have
become less distinct as other commercial markets and applications
for wireless communications products have been developing, and as
an increasing portion of ELMG's other business has shifted to
commercial, rather than governmental, customers. In this
environment, ELMG has become increasingly aware of opportunities
for LXE and other components of ELMG's business to share, or
jointly develop, technology and markets.
As a result of these various considerations, during 1995
ELMG began reviewing the appropriateness of increasing its
ownership of LXE. In late August 1995, ELMG's Board authorized
management to identify investment banking assistance in analyzing
methods of increasing ELMG's ownership of LXE, to prepare a plan
for protecting the Company's level of LXE ownership if favorable
LXE share prices resulted in significant exercises of outstanding
LXE Options, and to purchase (if available at approximately then-current
market prices) the LXE Shares held by two partnerships
controlled by David A. Rocker. The Rocker partnership shares at
that time constituted the largest single holding of any LXE
shareholder other than ELMG, and were sufficient to raise ELMG's
LXE ownership above the 80% level required for filing
consolidated income tax returns.
In September 1995, prior to management acting on the Board's
various authorizations, and before any proposals were formulated,
adopted or presented to any LXE Shareholders, LXE announced an
anticipated loss for the quarter ending September 30, 1995. From
a closing price of $13.50 at the end of August, the reported
closing sales prices for the LXE Shares declined to $10.25 at the
end of September and $8.00 at the end of November and December
1995, representing an aggregate decline of approximately 40%. In
view of the depressed market for LXE Shares and the efforts being
undertaken to return LXE to profitability, management concluded,
in consultation with the Board, that it was no longer desirable
or appropriate at that time to pursue 100% ownership of LXE.
However, management continued to believe that ELMG would benefit
by acquiring the Rocker partnership shares and increasing its LXE
ownership above 80%. Based on preliminary discussions with Mr.
Rocker, management concluded that these shares were not available
at the then-current depressed market prices, and management
sought and received the Board's authorization to negotiate a
transaction at a premium over market prices using ELMG Shares for
all or a portion of the purchase price. Further preliminary
conversations with Mr. Rocker in October 1995 caused management
to conclude that at that time the parties would be unable to
agree on key terms, including the extent to which any purchase
price would be paid by delivery of ELMG Shares, and the matter
was not pursued until January 1996. Negotiations commencing at
that time resulted in the acquisition, on February 23, 1996, of
548,200 LXE Shares. In this transaction, ELMG delivered to the
Rocker partnerships .8337 ELMG shares plus $.912 in cash for each
LXE Share acquired, and also received the agreement of Mr. Rocker
and the partnerships to make no further purchases of LXE Shares
for a period of five years. At the date of closing, the ELMG
Shares had a closing market value of $12.25 per Share, or $10.21
for each .8337 ELMG Share. The ELMG Shares delivered in the
transaction were not registered under state or federal securities
laws, and could not be freely traded by their holders, but the
Company agreed to register such shares for resale by such
holders, and subsequently obtained such registration.
ELMG also acquired 19,874 LXE Shares in a cash transaction,
at $ 9.44 per Share, on May 1, 1996; this transaction was with a
market maker that had acquired these shares from a former LXE
executive officer who had terminated as an employee and had
exercised an option previously granted to him as an employee.
This transaction was entered in connection with the conclusion of
the former officer's employment relationship, and in order to
protect ELMG's 80% ownership level.
LXE reported a further loss for the quarter ended March 31,
1996, but returned to profitability in the quarter ended June 30,
1996, and was expected by management to report improving
performance in the immediately succeeding quarters. As a result,
in July 1996 ELMG's management believed it would be appropriate
to again consider acquiring full ownership of LXE. Management
conducted a review of the benefits and costs of such a
transaction, and concluded that the factors identified in 1995
had grown in importance since that time. The matter was reviewed
with the ELMG Board at a meeting held on July 31, 1996. Based on
the potential perceived advantages, the Board authorized
management to continue the review process, and to retain
investment banking assistance in evaluating whether to propose
such a transaction and in developing a proposed structure and
terms. Because of the significant holdings of LXE Shares and LXE
Options of four members of the ELMG Board, John B. Mowell, John
E. Pippin, Don T. Scartz and Thomas E. Sharon, the Board
delegated to a Special Committee, consisting of Anthony J.
Iorillo, Jerry H. Lassiter, and John H. Levergood, the
responsibility for approving the retention of an investment
banker, and for making a recommendation to the full Board as to
whether to proceed with a transaction and if so on what terms.
At a meeting held on October 2, 1996, following presentations by
and discussions with ELMG's management and Oppenheimer & Co.,
Inc., which had been retained to provide investment banking
assistance, the Special Committee unanimously approved the
recommendation that ELMG proceed with the Exchange Offer, on the
terms described in this Proxy Statement. At a meeting held on
October 3, 1996, the full ELMG Board unanimously accepted and
approved the Special Committee's recommendation.
Reasons for the Exchange Offer and Proposed Merger
ELMG's management and Board have initiated the Exchange
Offer, and are seeking shareholder approval for the Exchange
Offer and proposed Merger, for the following reasons:
Ownership of 100% of the LXE Shares would facilitate
and encourage greater exchange and sharing of technical and
marketing resources among LXE and ELMG's other operating
subsidiaries, particularly EMS, which is a 100%-owned
subsidiary and possesses superior RF wireless engineering
capabilities. Management believes that access to such
capabilities will be important in LXE's future efforts to
expand its wireless networking business into new
applications and markets. With LXE as a 100%-owned
subsidiary, such exchange and sharing can be effected more
expeditiously and with simpler review and approval
procedures than is possible under current procedures, which
are designed to protect the interests of the minority LXE
shareholders.
As a 100%-owned subsidiary, LXE would no longer incur
separate accounting, SEC reporting, shareholder reporting,
annual meeting and independent board expenses. Management
estimates that elimination of these expenses would result in
savings of approximately $420,000 per year.
Management believes the greater ease in sharing of
resources among subsidiaries would permit consolidation of
various functions and operations, and more efficient
allocation and operation of production facilities, resulting
in direct savings believed to be significant but for which
no firm estimates have been developed.
It is management's belief, based on its participation
in conferences and discussions with analysts and other
members of the investment community, that LXE's status as a
separately-traded company results in disproportionate
attention to LXE's role within the ELMG organization, and
detracts from ELMG's ability to communicate its overall
business strategies.
Conversion of the LXE minority shareholder interest
into additional outstanding ELMG shares would increase
ELMG's share capitalization and number of shareholders, and
may thus encourage market makers and analysts to participate
in that market.
ELMG believes that the conversion on the proposed
terms, of the LXE Shares held by minority LXE shareholders
may be attractive to those shareholders because, among other
possible reasons, the trading market for LXE Shares has been
relatively illiquid with much lower trading volumes and much
wider bid-asked spreads than the market for ELMG Shares, and
thus may be less attractive to potential investors,
particularly those interested in liquidity for a substantial
holding. In addition, as holders of ELMG Shares, LXE
shareholders would retain a significant indirect interest in
LXE.
Management believes that if the Exchange Offer is successful
the foregoing benefits would be obtained with no earnings-per-share
dilution in 1997 or later years. For 1997 and 1998, this
belief reflects projections of LXE earnings prepared internally
for normal business planning purposes. The preparation and
analysis of such projections of future operating results are, in
management's view, an essential tool in managing the business of
LXE and ELMG. However, neither management nor the ELMG Board can
know the course of future events, and thus any such projections
are no more than management's expectations, based on its current
understanding of factors it believes to be relevant, and are
subject to future developments and events that cannot currently
be known by, and may be beyond the control of, LXE or ELMG. For
example, management's projections of LXE's earnings in 1997 and
1998 could be materially affected, negatively or positively, by
unexpected product advances by competitors, by the unexpected
development of alternative technologies, by unexpected growth
rates (either faster or slower) in existing and target markets
for LXE's products, by currently unknown technical breakthroughs
by LXE's engineering staff, by unexpected difficulties in
designing and manufacturing new products, and by general economic
trends and conditions both in the United States and abroad.
Management's belief that the issuance of ELMG Shares in the
Exchange Offer and proposed Merger would not adversely affect
future earnings per share is dependent on the anticipated savings
described above. These savings include both LXE's expenses as a
separate publicly traded company, as to which quantified savings
are readily identifiable, and other savings, which have not been
specifically quantified, arising from greater ease in sharing
resources throughout the organization.
The Exchange Offer
ELMG initiated the Exchange Offer on November [BLANK], 1996.
Under the Exchange Offer, ELMG is offering to exchange .75 ELMG
Shares for each LXE Share tendered to it on or before December
[BLANK], 1996, subject to shareholder approval of the Proposal at
the Special Meeting. The Exchange Offer is being made for any
and all outstanding LXE Shares not already owned by ELMG (the
"LXE Minority Shares"). The exchange ratio was determined by
ELMG's Board, based on the recommendation of the Special
Committee. The Special Committee and ELMG's Board each concluded
that the exchange ratio was reasonable and appropriate in light
of numerous factors, including: relative historical and
anticipated contributions to ELMG's earnings; trading prices for
the LXE and ELMG Shares; market valuations of comparable
companies as multiples of selected operating results, including
projected revenues and earnings per share; relative discounted
cash flow analyses; the terms of comparable minority buy-out
transactions; the fact that tendering holders of LXE Minority
Shares would continue to participate in the business of LXE as
holders of ELMG Shares; management's perception of LXE's business
prospects; the perceived benefits to ELMG of obtaining 100%
ownership of LXE; and expectations concerning the level of
premium that would likely be attractive to at least a majority of
the minority LXE shareholders.
The exchange ratio represents a premium of 21.8% based on
the relative final closing trading prices of the ELMG Shares and
LXE Shares on October 3, 1996, the date on which the exchange
ratio was set by the ELMG Board, and a premium of 17.0% based on
the relative average closing reported sales prices during the ten
trading days ending on such date. Based on relative closing high
bid prices (which are the highest prices that a market maker is
at that time offering to pay to an investor seeking to sell his
or her shares) the premiums are 25.9% and 22.3%, respectively.
The maximum number of shares issuable under the Exchange
Offer, if all LXE Minority Shares are tendered, is 773,583 ELMG
Shares, which would constitute 9.3% of the ELMG Shares
outstanding upon completion of the transaction (assuming that
none of the currently outstanding LXE or ELMG Options are
exercised prior to that time).
Two holders of in excess of 5% of the ELMG Shares are also
substantial holders of LXE Shares, and certain directors and
executive officers of ELMG are the beneficial owners of LXE
Shares or LXE Options. See "Security Ownership." Each of the
individual directors and executive officers has advised ELMG of
his intention to tender the LXE Shares controlled by him in the
Exchange Offer, and to vote the ELMG Shares controlled by him in
favor of the Proposal. ELMG has been advised by Kopp Investment
Advisors, Inc. and Dimensional Fund Advisors, Inc. [TO BE
COMPLETED AS APPROPRIATE].
Effect of the ELMG Stockholder Rights Plan. On March 23,
1989, the ELMG Board adopted the ELMG Stockholder Rights Plan,
under which the acquisition by any person of 20% or more of the
outstanding ELMG Shares, without prior approval of disinterested
members of the ELMG Board, would result in distribution to other
ELMG shareholders of rights that would significantly dilute the
interest of the 20% shareholder. The Plan is intended to provide
the Board with sufficient time and leverage to adequately
represent shareholder interests in response to unsolicited, and
potentially abusive or unfair, takeover efforts. As set forth at
"Security Ownership," Kopp Advisors beneficially owns [BLANK]% of
the currently outstanding ELMG Shares, plus [BLANK]% of the
currently outstanding LXE Shares, and may in the course of its
normal activities acquire beneficial ownership of additional ELMG
or LXE Shares. In that event, if the LXE Shares held by Kopp
Advisors are exchanged in the Exchange Offer or converted in the
Merger, Kopp Advisors could beneficially own in excess of 20% of
the ELMG Shares outstanding after the Merger. In order to make
it possible for Kopp Advisors to tender its LXE Shares in the
Exchange Offer, if it wishes to do so, and to support the
Proposal as an ELMG shareholder, without further restricting its
investment activities prior to the completion of the Transaction,
the Board has formally consented to the acquisition of additional
ELMG Shares by Kopp Advisors in the Exchange Offer and proposed
Merger, in an amount such that its ownership after the Merger
would not exceed 23% of the ELMG Shares outstanding at that time.
Under the Stockholder Rights Plan, Kopp Advisors could thereafter
acquire up to an additional 2% of the outstanding ELMG Shares
(for aggregate beneficial ownership not exceeding 25%) without
triggering the rights distribution.
Expenses. For its services in providing advice to the
Special Committee and the ELMG Board, and for serving as Dealer
Manager for the Exchange Offer, ELMG is paying Oppenheimer
$125,000 plus $175,000 upon the acquisition under the Exchange
Offer of not less than 50% of the LXE Minority Shares, plus
legal, travel and other expenses not to exceed $50,000.
The Proposed Merger
Section 14-2-1104 of the Official Code of Georgia Annotated
(the "Short-Form Merger Provision") provides that the holder of
in excess of 90% of the outstanding shares of a Georgia
corporation may cause the majority-owned subsidiary to be merged
with the parent without a vote or other consent of other
shareholders of the subsidiary. In order to achieve its
objectives as described above at "Reasons for the Exchange Offer
and Proposed Merger," ELMG intends, subject to ELMG shareholder
approval of the Proposal, to exercise its rights under the Short-Form Merger
Provision if sufficient LXE Shares are tendered in
the Exchange Offer for ELMG's aggregate ownership of outstanding
LXE Shares to exceed 90%. In that event, ELMG would transfer its
LXE Shares to a wholly owned subsidiary ("LXE Merger Subsidiary")
formed for the purpose, and would cause LXE Merger Subsidiary to
effect the Merger. In the Merger, LXE would survive as a wholly-owned
subsidiary of ELMG, and any then-remaining holders of LXE
Minority Shares would receive, automatically and without further
action on their part, ELMG Shares in the ratio of .75 ELMG Shares
for each LXE Share.
ELMG intends for the Exchange Offer and Merger to be
accomplished as a tax-free reorganization, such that neither
ELMG, LXE nor holders of LXE Minority Shares would recognize
taxable income in the transaction. Based on advice of tax
counsel, and in order to provide assurance to holders of LXE
Minority Shares that tenders may be accomplished on a tax-free
basis, ELMG has specified as a condition, which may not be
waived, of its acceptance of LXE Shares in the Exchange Offer
that it receive tenders of sufficient LXE Shares to increase its
ownership of outstanding LXE Shares above 90%, and that it cause
the Merger to occur immediately following its acquisition of LXE
Shares in the Exchange Offer. In order to achieve this 90%
threshold, ELMG must receive tenders of 473,993 of the
outstanding 1,031,444 LXE Minority Shares, assuming no additional
LXE Shares have been issued pursuant to exercises of LXE Options.
Conversion of LXE Options. LXE has maintained the LXE 1989
Stock Incentive Plan (the "LXE Stock Plan") under which it has
from time to time issued options to acquire LXE Shares to its
directors, officers and other senior employees. All such options
have been issued at the fair market value of the LXE Shares on
the date the option was granted. Options to acquire 366,543 LXE
Shares remain outstanding, and options for 293,868 shares are
currently exercisable at prices ranging from $3.66 to $18.25.
The remaining options for 52,675 shares become exercisable not
later than September 26, 2002, at option prices ranging from
$5.66 to $11.25. The Special Committee and other members of
ELMG's Board believe that stock options are an important tool for
attracting and retaining qualified personnel, and for aligning
the interests of key employees with those of the shareholders.
As a result, the Special Committee and ELMG Board believe that
the LXE Options should be converted into options to acquire .75
ELMG Shares for each LXE Share under option, subject to the same
vesting and expiration dates and other material terms as the
existing LXE Options. The exercise prices of the ELMG Options
would be adjusted such that the aggregate exercise price and
aggregate "spread" (that is, the difference between the exercise
price and market value multiplied by the number of shares) for
each option would be unchanged by the Merger conversion.
Under the LXE Stock Plan, the outstanding LXE Options could,
as an alternative to conversion into ELMG Options, be canceled in
the Merger, but only if the option holders first had the
opportunity to exercise their options and thus receive ELMG
Shares in the Merger. The Special Committee, the Compensation
Committee of the ELMG Board, and the full ELMG Board all believe
that it is preferable and more consistent with the original
intent of the LXE Options to convert them into ELMG Options,
thereby maintaining the equity incentives that options provide,
and limiting the potential adverse effects of substantial sales
of ELMG Shares by officers and employees who, if the cancellation
alternative were elected, would be required to cover both the
option exercise prices and the taxes on income realized on
exercise. The Special Committee, the Compensation Committee and
the full ELMG Board also concluded that converting the
outstanding LXE Options into a proportionate number of comparable
ELMG Options was preferable to making cash payments to buy out
LXE Options at their respective spreads, because the cash-buyout
approach would involve current accounting charges and use of
cash, and would also eliminate the continuing incentives intended
at the time the LXE Options were granted.
Details concerning LXE and ELMG Options held by ELMG
directors, executive officers and employees are set forth under
the heading "Security Ownership -- Additional Information About
LXE Options."
Shareholder Approval
A vote FOR the Proposal would constitute a vote in favor of
shareholder approval of each of the following actions.
Issuance of up to 773,583 ELMG Shares in exchange for
the acquisition of outstanding LXE Minority Shares in the
Exchange Offer and the Merger, plus the issuance of such
additional LXE Shares as may be required to acquire any LXE
Shares hereafter issued upon the exercise of LXE Options,
including the issuance of ELMG Shares to persons who are
holders of 5% or more of the outstanding ELMG Shares, or who
are directors or officers of ELMG.
The conversion of outstanding LXE Options for up to
366,543 LXE Shares into ELMG Options for 274,907 ELMG
Shares, subject to adjustments in the exercise prices as
described under the foregoing heading, "The Proposed Merger
-- Conversion of LXE Options."
Amendment of the ELMG Stock Plan to increase the number
of ELMG Shares issuable thereunder by the number of the ELMG
Shares issuable as a result of conversion of LXE Options,
and to issue ELMG Options to all current holders of LXE
Options as described under, "The Proposed Merger --
Conversion of the LXE Options."
Reasons for Seeking Shareholder Approval. ELMG is seeking
shareholder approval of the Proposal for the following reasons:
The NASD's rules for securities traded on the National
Market System require shareholder approval of transactions
in which any director, officer or substantial shareholder of
the traded company has a 5% or greater interest (or such
persons collectively have a 10% or greater interest) in a
company to be acquired, or in the consideration to be
delivered in the transaction, and the present or potential
issuance of common stock could result in an increase in
outstanding common shares of 5% or more. As set forth under
the heading "Security Ownership," certain holders of in
excess of 5% of the ELMG Shares, as well as certain ELMG
directors and officers, have interests in LXE exceeding
these individual or collective threshold levels.
The Shares remaining available for option under the
ELMG Stock Plan are not sufficient to allow conversion of
all outstanding LXE Options -- of the 500,000 shares
authorized under that Plan, 73,280 shares remain available
for options, whereas up to 274,907 shares would be required
for conversion of the LXE Options in the Merger. In
addition, some holders of LXE Options are not currently
employees of LXE or ELMG and would not be eligible to
receive a current grant of an ELMG Option through the Plan.
Under both the ELMG Stock Plan and NASD rules, shareholder
approval is required to amend that Plan to increase the
number of available shares and to issue ELMG Options to all
current holders of LXE Options.
ELMG is not providing for or seeking separate approval of
the various items included within the Proposal. The Special
Committee, the Compensation Committee and the ELMG Board have
unanimously concluded that it would not be appropriate or in
ELMG's interest to substantially reduce the outstanding LXE
Shares, and thereby further reduce the trading market for those
Shares, without providing for the exchange or conversion of all
LXE Minority Shares, and for the conversion of outstanding LXE
Options issued as part of LXE's incentive and compensation
programs for its directors and employees. These Committees and
the ELMG Board have also unanimously concluded that it is not in
ELMG's interest to pursue either of the alternative dispositions
of the LXE Options in the Merger, as described under the heading
"The Proposed Merger -- Conversion of LXE Options," even though
those alternatives do not require shareholder approval.
Except with respect to requirements for shareholder approval
specified in the ELMG Stock Plan, shareholder approval is not
required by applicable state corporate law in order to complete
either the Exchange Offer or the proposed Merger. Dissenting
ELMG shareholders have no rights of appraisal or similar rights
with respect to the Merger or other matters included in the
Proposal.
SECURITY OWNERSHIP
The following table sets forth certain information
concerning ELMG Shares and LXE Shares beneficially
owned as of [BLANK], 1996 (except as otherwise noted),
by the Company's directors, executive officers, and by
persons who beneficially own more than 5% of the ELMG
Shares. The table also sets forth the potential
issuance of ELMG Shares as a result of the Exchange
Offer and Merger, based on each person's holdings of
LXE Shares or LXE Options. Except as otherwise
indicated, each person possessed sole voting and
investment power with respect to the shares shown.
<TABLE>
ELMG Shares LXE Shares Potential ELMG
-------------------------- ------------------------ Shares upon Potential
Amount of Approximate Amount of Approximate Exchange/ Percent of
Beneficial Percent of Beneficial Percent of Conversion of Outstanding
Name Ownership Class Ownership Class LXE Shares ELMG Shares
---- ---------- ----------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kopp Investment Advisors, Inc. 1,478,000 (1) 18.7% 310,000(1) 5.4% 1,710,583 19.4%
6600 France Avenue So.
Edina, Minnesota 55435
David A. Rocker 779,252 (2) 9.9% - * 779,252 8.9%
Suite 1759
45 Rockefeller Plaza
New York, New York 10111
Dimensional Fund Advisors, Inc. 491,499 (3) 6.2% 168,900 2.9% 618,174 7.0%
1299 Ocean Avenue
Santa Monica, California 90401
Brinson Partners, Inc. 491,800 6.2% - * 491,800 5.6%
209 South LaSalle
Chicago, Illinois 60604-1295
Wellington Management Company 403,000 5.1% - * 403,000 4.6%
75 State Street
Boston, Massachusetts 02109
Anthony J. Iorillo 2,000 (4) * - * 2,000 *
Jerry H. Lassiter 17,672 (4) * - * 17,672 *
John H. Levergood 2,000 (4) * - * 2,000 *
John B. Mowell 30,784 (4) * 6,900 (5) * 50,959 *
John E. Pippin 223,865 (4) 2.8% 114,210 (5) 2.0% 309,523 3.5%
Don T. Scartz 54,728 (4) * 4,092 (5) * 57,797 *
Thomas E. Sharon 164,155 (4) 2.1% 48,219 (5) * 200,319 2.3%
William S. Jacobs 21,501 (4) * 7,000 (5) * 26,751 *
John J. Farrell, Jr. 6,000 (4) * - * 6,000 *
Jeffrey A. Leddy 33,199 (4) * - * 33,199 *
Neilson A. Mackay 22,336 (4) * - * 22,336 *
All directors and executive officers
as a group (11 persons) 578,240 7.3% 200,421 3.5% 728,566 8.3%
- ------------------------------------
</TABLE>
* Percentage of shares beneficially owned does not exceed 1%
(1) Kopp Investment Advisors, Inc. has advised that it exercises
investment discretion as to all listed shares, but exercises voting power
only as to approximately 85,000 ELMG Shares and 15, 000 LXE Shares. Kopp
Advisors is the record owner of 15,000 ELMG Shares and 5,000 LXE Shares.
(2) David A. Rocker has advised that the shares to which he is deemed
to have beneficial ownership are owned by Rocker Partners, L. P., a New
York limited partnership (733,496 shares) and Compass Holdings, Ltd., a
corporation organized under the Business Companies Ordinance of the British
Virgin Islands (81,956 shares). Ownership data is as of September 20,
1996.
(3) Dimensional Fund Advisors, Inc. (Dimensional) has advised that the
shares of which it is deemed to have beneficial ownership are held in the
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans;
Dimensional serves as investment manager to all of these entities.
Dimensional disclaims beneficial ownership of all such shares. Ownership
data is as of September 20, 1996.
(4) Includes shares that are subject to currently exercisable options
in the amounts of 2,000 for Mr. Iorillo, 10,782 for Mr. Lassiter, 2,000 for
Mr. Levergood, 10,782 for Mr. Mowell, 130,514 for Dr. Pippin, 42,000 for
Mr. Scartz, 109,916 for Dr. Sharon, 9,000 for Mr. Jacobs, 28,000 for Mr.
Leddy, and 20,000 for Dr. Mackay. For Mr. Mowell, Dr. Pippin and Mr.
Jacobs, these totals also include 5,000, 42,593 and 7,400 shares,
respectively, as to which each person shares voting and investment power
with family members but disclaims beneficial interest.
(5) Includes shares that are subject to currently exercisable options
in the amounts of 15,900 for Mr. Mowell, 95,400 for Dr. Pippin, 40,893 for
Dr. Sharon, 2,000 for Mr. Scartz, and 5,000 for Mr. Jacobs. The total for
Mr. Mowell also includes 1,000 shares, and for Mr. Jacobs 300 shares, as to
which each shares voting and investment power with a family member, but
disclaims beneficial interest.
------------------------
Additional Information About LXE Options
The following table provides information concerning the expiration dates
and exercise prices of LXE Options held by ELMG
directors and executive officers and other specified groups, and of the ELMG
Options into which their LXE Options would be
converted if the proposed Merger occurs. Expiration dates would not be
affected. The stated value of unexercised in-the-money
options is the same for the ELMG Options following the Merger as for the
converted LXE Options prior to the Merger.
<TABLE>
LXE Options Currently Held ELMG Options Received in the Merger
-------------------------- ------------------------------------
Number of Number of Market Value Value of Unexercised
Underlying Expiration Exercise Underlying Exercise of Underlying In-the-Money Options
Name Shares Dates Prices Shares Prices ELMG Shares* Converted in the Merger*
----------- ------------ --------- ---------- ----------- ------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John B. Mowell 15,900 9/26/00 $5.66 11,925 7.55 205,706 115,712
John E. Pippin 95,400 1/01/99 3.77 71,550 5.03 1,234,238 874,580
Don T. Scartz - 19,875 9/26/02 5.66 14,906 7.55 257,133 144,640
- 2,000 4/24/98 15.25 1,500 20.33 25,875 -
Thomas E. Sharon 40,893 1/01/99 3.77 30,670 5.03 529,053 374,887
William S. Jacobs 5,000 3/13/98 18.25 3,750 24.33 64,688 -
John J. Farrell, Jr. 20,000 5/15/04 15.00 15,000 20.00 258,750 -
All Executive
Officers as a Group
(4 persons) 87,768 1/01/99 - 3.77 - 65,826 5.03 - 1,135,499 519,371
5/15/04 18.25 24.33
Non-Executive
Directors as a
Group
(2 persons) 111,300 1/01/99 - 3.77 - 83,475 5.03 - 1,439,944 989,942
9/26/00 5.66 7.55
Non-Executive
Employees as
a Group:
Market price exceeds
exercise price 116,925 1/01/99 - 3.77 - 87,694 7.65 - 1,512,717 944,065
9/26/00 11.25 15.13
Exercise price exceeds
market price 50,550 7/26/97 - 13.75 - 37,912 17.63 - 653,973 -
4/24/98 18.25 22.13
- --------------------------
</TABLE>
*Based on the $17.25 final sales price of the ELMG Shares on October 3, 1996.
------------------------
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table discloses, for the years ended December 31, 1995, 1994
and 1993, the cash compensation paid by the Company and its subsidiaries, as
well as certain other compensation paid, accrued or granted for those years,
to the Chief Executive Officer and to each of the four most highly
compensated other executive officers whose combined salary and bonus
compensation for 1995 exceeded $100,000.
Summary Compensation Table
<TABLE>
Long-Term Compensation All Other
Annual Compensation Awards Compensation(1)
Securities
Underlying
Name and Restricted Options/SAR's
Principal Position Year Salary Bonus Other(2) Stock(3) (No. Of Shares)
<S> <C> <C> <C> <S> <C> <C> <C>
Thomas E. Sharon 1995 $228,082 $ -0- -0- $ -0- 12,000 $21,412
President, Chief 1994 185,589 100,000 -0- 24,969 -0- 20,367
Executive Officer 1993 173,579 30,000 -0- -0- 7,500 19,920
(from July 1994)
and Director
Don T. Scartz 1995 146,931 -0- -0- -0- 7,000 26,801
Senior Vice President 1994 60,000 -0- 14,981 -0- 23,906
and Chief Financial 1993 132,505 20,000 -0- -0- 5,000 21,982
Officer, Treasure 124,697
William S. Jacobs 1995 139,160 -0- -0- -0- 4,000 26,269
Vice President, 1994 133,803 30,000 -0- 9,988 -0- 23,621
General Counsel and 1993 130,065 15,000 -0- -0- 4,000 16,427
Secretary
Jeffrey A. Leddy 1995 111,931 28,000 -0- -0- -0- 5,466
President, EMS 1994 98,095 37,500 -0- 12,455 5,000 4,413
Technologies, Inc. 1993 90,922 20,000 -0- -0- 4,000 3,734
Neilson A. Mackay 1995 130,548 15,000 -0- -0- -0- 5,673
President, CAL 1994 119,971 22,500 -0- 7,461 2,500 7,034
Corporation 1993 103,227 20,000 -0- -0- 20,000 -0-
</TABLE>
Footnotes to Summary Compensation Table:
(1) For 1995, includes in the case of Dr. Sharon, $2,310 in
matching contributions under the 401(k) plan, $8,118 in benefits
associated with a split-dollar life insurance arrangement, and
$10,984 under the defined contribution retirement plan; in the
case of Mr. Scartz, $2,939 in matching contributions under the
401(k) plan and Employee Stock Purchase Plan, $9,753 under split-dollar
insurance arrangements, and $14,109 under the defined
contribution retirement plan; in the case of Mr. Jacobs, $3,826
in matching contributions under the 401(k) and stock purchase
plans, $12,236 under split-dollar insurance arrangements, and
$10,207 under the defined contribution retirement plan; in the
case of Dr. Mackay, $2,572 in matching contributions under the
stock purchase plan and $3,101 under the separate defined
contribution retirement plan maintained by CAL Corporation; and
in the case of Mr. Leddy, $1,679 in matching contributions under
the 401(k) plan and $3,787 under the defined contribution
retirement plan. In each case, the split-dollar insurance
arrangement benefit is the sum of (i) the premiums paid by the
Company attributable to the term insurance portion of the policy,
plus (ii) the implicit value of the balance of the premium,
treating such balance as an interest-free loan to the scheduled
termination date of the arrangement, based on interest and
discount rates of 8%. The defined contribution retirement plan
was first implemented in 1993; prior to 1993, retirement benefits
accrued under a defined benefit plan that has been terminated.
(2) Does not include personal benefits that do not exceed the
applicable reporting threshold for any officer.
(3) Represents the value, based on an $11.75 market price on the
date of award, of 2,125 shares awarded in January 1995 to Dr.
Sharon, 1,275 shares to Mr. Scartz, 850 shares to Mr. Jacobs, 635
shares to Dr. Mackay and 1,060 shares to Mr. Leddy. None of the
named executive officers holds any other shares of restricted
stock. The shares of restricted stock vested one year after the
award date, subject to continued service for such year. Any
dividends paid on shares of restricted stock would be subject to
the same restrictions as the shares.
------------------------
Option Exercises During Last Fiscal Year and Year-End Option
Values
The following chart sets forth certain information with
respect to the named executives concerning the exercise in
1995 of ELMG Options, and unexercised ELMG Options held as of D
ecember 31, 1995:
<TABLE>
Number of Shares Under- Value of Unexercised
Year Ended lying Unexercised Options In-the-Money Options at
December 31, 1995 Held at December 31, 1995 December 31, 1995
---------------------- ---------------------------- --------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Sharon 75,551 $542,162 118,591 19,500 465,748 34,688
Don T. Scartz 4,000 43,000 37,000 12,000 187,750 23,125
William S. Jacobs -0- -0- 5,000 8,000 12,500 18,500
Neilson A. Mackay -0- -0- -0- 22,500 -0- 99,375
Jeffrey A. Leddy 4,470 40,658 17,575 17,000 84,391 78,250
</TABLE>
-----------------------
The following chart sets forth certain information
with respect to the named executives concerning the exercise
in 1995 of LXE Options, and unexercised LXE Options held as
of December 31, 1995:
<TABLE>
Number of Shares Under- Value of Unexercised
Year Ended lying LXE Options Held at In-the-Money LXE Options
December 31, 1995 December 31, 1995 at December 31, 1995
------------------------- ---------------------------- ------------------------------
LXE Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <S> <C> <C> <S> <C> <S>
Thomas E. Sharon -0- $ -0- 40,893 -0- $118,312 -0-
Don T. Scartz -0- -0- 2,000 19,875 -0- 53,961
William S. Jacobs -0- -0- 5,000 -0- -0- -0-
</TABLE>
Option Grants During the Last Fiscal Year
The following named executives were granted ELMG
Options during 1995:
<TABLE>
Percentage of
Total Options Exercise
Number of Granted to Or
Shares Underlying Employees in Base Price Expiration Grant Date
Options Granted Fiscal 1995 Per Share Date Present Value*
---------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Thomas E. Sharon 12,000 17.4% $11.75 1/27/01 $47,880
Don T. Scartz 7,000 10.1 11.75 1/27/01 27,930
William S. Jacobs 4,000 5.8 11.75 1/27/01 15,960
</TABLE>
* Based upon the Black-Scholes option pricing model, assuming 0.44 expected
volatility, a 4.9% risk-free rate of return, no dividend yield, and three
years to time of exercise.
No option grants in LXE's stock were made during 1995 to the named executives.
Employment Agreement
The Company has an employment agreement with Dr. Sharon for
services as an executive officer. This agreement originally
would have expired on December 31, 1993, but during 1992 was
extended to December 31, 1996, and in 1994 was further extended
to December 31, 1998. The specified minimum annual salary, as
amended in 1994, is $200,000. In addition, Dr. Sharon is
entitled to bonuses in amounts determined by the Board of
Directors. In the event of disability, the salary would be
continued at 100% less the amount of any other Company-sponsored
disability benefits. In the event of death, 50% of the salary
amount would be paid to Dr. Sharon's estate for the remainder of
the contract term. In the event of a change in control of the
Company after which Dr. Sharon resigned or his employment was
terminated other than for cause or breach of the agreement, or
due to death or disability, the Company would be obligated to pay
to Dr. Sharon an amount determined by obtaining the product of
(a) the greater of (i) his aggregate taxable compensation for the
calendar year preceding the calendar year in which his employment
expires, or (ii) his annualized salary for the calendar year in
which his employment expires plus the greater of his aggregate
bonus paid during either such year or the prior calendar year,
and (b) the period expressed in years from the date his
employment expires to the latest to occur of (i) December 31,
1998, (ii) the latest extension, if any, of the expiration date
of his term of employment, or (iii) the third anniversary of the
date on which the change of control occurs, which product shall
be discounted to present value. However, the amount payable to
Dr. Sharon in connection with a change in control may not exceed
the maximum amount that the Company would be entitled to deduct
as compensation expense for federal income tax purposes.
Compensation and Other Arrangements with Directors
Each director who is not an employee of the Company is paid
$1,000 per meeting attended (excluding telephonic meetings) plus
$3,000 per quarter served. Each director who is also an employee
of the Company is paid $500 per meeting attended (excluding
telephonic meetings) and $500 per quarter served. Committee
meetings that are not held in conjunction with a full Board
meeting are separately compensated at the rate of $500 per
meeting. Travel expenses are paid to out-of-town directors.
Non-employee directors receive, effective on their first
date of election, an option under the ELMG Stock Plan for the
purchase of 10,000 shares of common stock. These options have
an exercise price equal to the fair market value of the ELMG
Shares on the date of grant, and become exercisable as to 2,000
shares on the date six months following the date of grant and as
to an additional 2,000 shares on each of the first through fourth
anniversaries of such six-month date. However, these options
become immediately exercisable in the event of a third-party
tender or exchange offer for the ELMG Shares, or if any person
becomes the beneficial owner of 50% or more of the outstanding
ELMG Shares. The exercise price (together with any applicable
taxes) may be paid in cash, by delivery of ELMG Shares (valued at
their fair market value at the time of exercise), or by a
combination of cash and Shares. Upon the optionee ceasing to be
a director for any reason, these options terminate and are
forfeited to the extent that they are not exercisable at that
time. Once exercisable, these options are non-forfeitable and
remain exercisable until the tenth anniversary of the date of
grant.
During 1995, the foregoing options were automatically
granted to Messrs. Iorillo and Levergood, who were first elected
as directors during that year. Because Dr. Pippin was already a
member of the Board of Directors at the time he retired as an
employee, he did not receive the automatic option grant received
by other non-employee directors. Accordingly, the Board of
Directors, pursuant to the recommendation of the Compensation
Committee, awarded Dr. Pippin an option, not under any plan, for
10,000 shares, on terms substantially identical to the
automatically granted options (including an exercise price equal
to fair market value on the date of grant, or $11.75), except
that in view of Dr. Pippin's age and duties as Chairman, the
options vest in three increments over three terms of service as a
director.
At the time of Dr. Pippin's retirement as CEO, he and the
Company entered into a consulting arrangement under which he
provides consulting services to the Company's current CEO for a
period of three years. Such services are to be provided one day
per week, plus additional days as requested by the CEO and agreed
to by Dr. Pippin, and generally relate to the Company's strategic
planning, proposed acquisitions, restructuring and integration of
acquired businesses, and management organization and performance.
Compensation is $5,000 per month, plus $1,000 per day for
additional days. During the consulting period, Dr. Pippin will
be included in the Company's group life and health insurance
plans for executive officers, but will not otherwise participate
in employee benefit plans. He will also continue to be provided
an office and secretarial services, an automobile, and certain
tax planning and return services. If during the three-year
period Dr. Pippin becomes unable to provide services due to his
death or disability, the basic monthly payments would be
continued until the end of the three years.
The Company has a consulting arrangement with Mr. Mowell,
who provides assistance to the Company in connection with
presentations to the investment community, reviews of potential
financial transactions, and relations with financial analysts.
For his services, Mr. Mowell receives a consulting fee of $12,000
per year plus reimbursement of expenses. The other members of
the Compensation Committee have reviewed and approved the terms
of this consulting arrangement.
Dr. Pippin and Mr. Mowell have served as directors of LXE
since 1989. They are currently compensated as non-employee
directors of LXE at the rate of $3,000 per quarter plus $1,000
per meeting attended, and $500 for attending any committee
meetings not held in conjunction with a meeting of the LXE board.
Dr. Pippin and Mr. Mowell also have served since 1993 as
directors of CAL Corporation, another subsidiary of the Company,
for which they and other non-employee directors are currently
compensated at the rate of Can$1,500 per year plus Can$500 per
meeting attended.
Compensation Committee Interlocks and Insider Participation.
During a portion of 1995, William F. Evans, a former officer
of the Company and its Senior Vice President from 1985 to 1988,
served as a member of the Compensation Committee. Mr. Evans
retired as a member of the ELMG Board on April 21, 1995, the date
of the 1995 Annual Meeting of Shareholders. Thereafter, the
Compensation Committee did not include any current or former
Company officer or employee.
AMENDMENT OF THE ELMG STOCK PLAN
Proposed Amendment
As described above at the at "The Proposal -- The Proposed
Merger," if the Merger occurs outstanding LXE Options will be
converted into ELMG Options to acquire .75 ELMG Shares for each
LXE Share under option, at exercise prices adjusted
proportionately upwards by one-third such that both the aggregate
exercise price and aggregate "spread" for each option remains
equal before and after the conversion. If none of the
outstanding LXE Options are exercised prior to the Merger, an
aggregate of 274,907 ELMG Shares would become issuable upon
conversion of the LXE Options.
Of the 500,000 ELMG Shares available for grant or option
under the ELMG Stock Plan, 426,720 Shares have been issued or are
subject to outstanding options, leaving only 73,280 Shares
available for option under that Plan. In order to convert the
LXE Options into ELMG Options under the ELMG Stock Plan, the ELMG
Board has amended that Plan, subject to shareholder approval, to
increase the number of issuable shares from 500,000 to 500,000
plus that number required to convert LXE Options in the proposed
Merger. The maximum number of additional ELMG Shares that could
become issuable is 774,907, and this number would be reduced to
the extent that any LXE Options are exercised prior to the
Merger.
In some cases, holders of LXE Options are not currently LXE
employees, because they are either non-employee directors of LXE
or are former employees. However, the ELMG Stock Plan does not
provide for grants of ELMG Options to persons who are not ELMG
directors or current employees of either ELMG or its
subsidiaries. For this reason, the ELMG Board has amended the
Plan, subject to shareholder approval, to permit the conversion
of all outstanding LXE Options into ELMG Options, regardless of
whether the holder is otherwise currently eligible to receive an
Option under the Plan.
Shareholder approval of the Proposal will constitute
shareholder approval of each of the foregoing Plan amendments.
The outstanding LXE Options have been granted under the LXE
1989 Stock Incentive Plan (the "LXE Stock Plan"). A maximum of
228,752 LXE Shares remain available for option under the LXE
Stock Plan. No additional LXE Shares will be awarded or optioned
prior to the Merger, and if the Merger occurs the LXE Stock Plan
will be terminated without any issuance or other use of these
remaining 228,752 LXE Shares.
Disregarding ELMG Shares that would be issuable upon
exercise of ELMG Options issued in the proposed Merger, 73,280
ELMG Shares remain available under the ELMG Stock Plan, and this
number will not be affected by whether or not the Merger occurs.
The ELMG Stock Plan by its terms expires on January 24, 1997.
The ELMG Board of Directors believes that options are an
important component of the Company's compensation and incentive
programs, and expects that a proposal will be presented to the
shareholders at the 1997 Annual Meeting for an amended or new
stock plan for use in future years. However, the terms of any
such plan or have not yet been determined.
Description of the ELMG Stock Plan.
The ELMG Stock Plan was adopted by the ELMG Board of
Directors and approved by its shareholders in 1992. This Plan
provides for the grant of options ("ELMG Options" or "Options")
to purchase ELMG Shares, and for the issuance of ELMG Shares
("Awards"). Any Shares issued pursuant to Awards may be subject
to a number of restrictions, including the possibility of
forfeiture under certain circumstances. The Plan will expire on
January 24, 1997, but ELMG Options or Awards granted prior to
that date will remain in effect according to their terms.
The ELMG Stock Plan was adopted because the Board believes
that stock-based incentive compensation is critical to the
Company's ability to employ and retain qualified managerial and
other key personnel. The Plan is intended to provide
participants with an opportunity to increase their stock
ownership in the Company and to give them an additional incentive
to achieve the Company's objectives. Options may be granted and
Awards may be made only to employees of the Company or a
subsidiary and to directors of the Company. The Plan is
administered by the Stock Incentive Committee of the Board of
Directors, which selects the recipients of Options and Awards.
However, the Compensation Committee, which consists solely of
non-employee members of the ELMG Board, serves as the
administering committee with respect to Options and Awards for
directors and executive officers. The appropriate Committee has
the authority to determine the terms of Options and Awards
consistent with requirements of the Plan, to interpret the Plan,
to adopt and amend rules relating to it, and to amend or replace
outstanding Options and Awards, subject to grantee approval and
the requirements of the Plan. The Plan provides that Committee
members shall not be liable to any person for any actions taken
in good faith.
The Board of Directors has the right at any time to
terminate or amend the ELMG Stock Plan, but no such action may
terminate Options already granted or otherwise affect the rights
of any holder of an outstanding Option or shares issued pursuant
to an Award, without the holder's consent. Except with
shareholder approval, the Board may not amend the Plan to
materially increase the total number of shares of stock subject
to the Plan, to materially change or modify the class of eligible
participants, or to otherwise materially increase the benefits to
participants. In addition, the provisions governing automatic
grants of Options to non-employee directors, as described below,
may not be amended more frequently than once every six months.
Stock Options. The Company receives no consideration upon
the granting of an Option. Options may be granted either as
incentive stock options (which qualify for certain favorable tax
consequences, as discussed below) or as non-qualified stock
options. To date, no Options qualifying as incentive stock
options have been issued under the Plan. The appropriate
Committee determines the number of shares, exercise price, the
term, any conditions on exercise, the consequences of any
termination of employment, and other terms of each Option. In
the case of an Option intended to be an incentive stock option,
the term of the Option may not exceed ten years from the date of
grant and the exercise price may not be less than 100% of the
fair market value of the common stock on the date of grant. With
respect to non-qualified stock options, there is no limit on the
term of the Option, and the exercise price may be as low as 50%
of fair market value on the date of grant; in practice,
discretionary Options granted under the Plan have had terms of
six years and exercise prices equal to fair market value on the
date of grant. Any Options granted at a price below the fair
market value per share on the date of grant would result in a
compensation expense to the Company in the year of grant (or
during any period of service required for vesting of the Option)
equal to the "discount," which is the amount by which the
aggregate fair market value of the optioned shares on the date of
grant exceeded the aggregate exercise price for those shares;
this accounting expense is essentially the same as for a cash
bonus equal to the amount of the discount, but no cash payments
by the Company are involved. For Options granted at an exercise
price equal to the fair market value on the date of grant, no
compensation expense is incurred, either at the time of grant or
upon exercise.
The exercise price (together with any applicable taxes) is
payable in full upon exercise, and payment may be made in cash,
by delivery of ELMG Shares (valued at their fair market value at
the time of exercise), or by a combination of cash and Shares.
In the discretion of the appropriate Committee, Options
under the ELMG Stock Plan my include a "reload option," but no
such provision has been included in any Options. A reload
option, if included in the original Option, would be triggered
when an optionee paid the exercise price of, or withholding taxes
related to, all or a portion of the original Option by delivering
ELMG Shares. In that event, the optionee would automatically be
granted an additional Option to acquire the same number of Shares
as had been so delivered or withheld. The reload option would be
subject to all of the terms and conditions of the original
Option, except that the exercise price per share would be equal
to the fair market value of the ELMG Shares on the date the
original Option was exercised, and except that the Committee
could specify additional conditions or contingencies, such as
continued employment by the Company or holding of the Shares
acquired upon exercise of the original Option for a specified
period of time.
Options granted under the Plan may not be transferred by an
optionee other than by will or by the laws of descent and
distribution, or pursuant to certain orders which may be issued
in connection with a divorce proceeding.
Options for Non-Employee Directors. Each person who is
elected a director, and who is not an employee of the Company or
any subsidiary, is automatically granted an Option for the
purchase of 10,000 ELMG Shares. These Options have an exercise
price equal to the fair market value of the ELMG Shares on the
date of grant, and become exercisable as to 2,000 shares on the
date six months following the date of grant and as to an
additional 2,000 shares on each of the first through fourth
anniversaries of such six-month dates. However, these Options
become immediately exercisable in the event of a third-party
tender or exchange offer for the ELMG Shares, or if any person
becomes the beneficial owner of 50% or more of the outstanding
ELMG Shares. The exercise price (together with any applicable
taxes) may be paid in cash, by delivery of ELMG Shares (valued at
their fair market value at the time of exercise), or by a
combination of cash and Shares. Upon the optionee ceasing to be
a director for any reason, these Options terminate and are
forfeited to the extent that they are not exercisable at that
time. Once exercisable, these Options are non-forfeitable and
remain exercisable until the tenth anniversary of the date of
grant.
Awards of Restricted Shares. Under the ELMG Stock Plan, up
to 100,000 ELMG Shares may be issued as Awards of restricted
stock, but the actual number issued to date is 12,370. The
recipient of an Award is issued ELMG Shares ("Restricted Shares")
in consideration of services performed or to be performed as a
condition to the lapse of restrictions applicable to the
Restricted Shares. Recipients do not make any payment to the
Company in exchange for the Restricted Shares. Each Award is
governed by a restriction agreement containing such conditions
and restrictions applicable to the Restricted Shares as the
appropriate Committee may determine. The restrictions may
include forfeiture of some or all of the Restricted Shares in
certain circumstances, such as termination of employment.
The appropriate Committee may require that Restricted Shares
be held by the Company or in escrow pending the lapse of any
restrictions. Until any restrictions on Restricted Shares have
lapsed, the Restricted Shares are not transferrable except by the
laws of descent and distribution or pursuant to certain orders
which may be issued in connection with a divorce proceeding.
Unless the appropriate Committee determines otherwise, recipients
of Restricted Shares have the right to vote the Restricted Shares
and to receive dividends or distributions made with respect to
them.
An Award of Restricted Shares results in compensation
expense to the Company in an amount equal to the fair market
value of the Restricted Shares (calculated without considering
any restrictions imposed in connection with the Award) at the
time of the Award. Such expense may be recognized ratably over
the period during which the restrictions continue in effect.
Federal Income Tax Consequences
Incentive Stock Options. There are no federal income tax
consequences to an optionee or to the Company on the granting of
an incentive stock option. When an optionee exercises an
incentive stock option, the optionee will not recognize any
taxable income, and the Company will not be entitled to a
deduction. The optionee will recognize capital gain or loss at
the time of disposition of shares acquired through the exercise
of an incentive stock option if the shares have been held for at
least two years after the option was granted and one year after
it was exercised. The Company will not be entitled to a tax
deduction if the optionee satisfies these holding-period
requirements. The federal income tax advantage of incentive
stock options to the holder who meets the holding-period
requirements is a deferral, until the acquired stock is sold, of
taxation of any increase in the stock's value from the time of
grant of the option to the time of its exercise, and taxation of
such gain, at the time of sale, as capital gain rather than
ordinary income.
For the purpose of calculating tax upon disposition where
stock is surrendered in payment of the option price, the capital
gains holding period and basis of the new shares, to the extent
of the old shares surrendered, is the same as for the old shares;
the holding period for the additional shares (that is, the shares
received on exercise in excess of the old shares surrendered)
begins on the date the option is exercised, and such additional
shares have a basis equal to the amount, if any, of the price of
the optioned shares paid in cash.
If the holding period requirements are not met, then upon
sale of the shares the optionee generally recognizes as ordinary
income the excess of the fair market value of the shares at the
date of exercise over the option price; any increase in the value
of the optioned stock subsequent to exercise is long or short-term
capital gain to the optionee depending on the optionee's
holding period for the Shares. However, if the sale is for a
price less than the value of the shares on the date of exercise,
the optionee may recognize ordinary income only to the extent the
sales price exceeded the option price. In either case, the
Company is entitled to a deduction to the extent of ordinary
income recognized by the optionee.
Non-Qualified Stock Options. Generally, when a non-qualified
stock option is exercised, the optionee recognizes
income in the amount of the aggregate fair market value of the
shares received upon exercise, less the aggregate amount paid for
those shares, and the Company may deduct as an expense the amount
of income so recognized by the optionee, if the Company satisfies
certain tax withholding requirements. The holding period of the
acquired shares begins upon the exercise of the option, and the
optionee's basis in the shares is equal to the fair market value
of the acquired shares on the date of the exercise.
If the optionee pays all or part of the purchase price by
delivering shares of common stock, there are no federal income
tax consequences to the optionee or the Company to the extent of
the number of shares so delivered. As to any additional shares
issued, the optionee recognizes income equal to the aggregate
fair market value of the additional shares received, less any
cash paid to the Company, and the Company is allowed to deduct
the amount of such income, if the Company satisfies certain tax
withholding requirements. The holding period and basis of the
new shares, to the extent of the number of old shares delivered,
is the same as for the old shares. The holding period for the
additional shares begins on the date the option is exercised, and
the basis in those additional shares is equal to their fair
market value on the date of exercise.
Restricted Shares. The grantee of an Award is required to
provide for the payment of withholding taxes at the time his or
her Award results in taxable income. In the discretion of the
appropriate Committee, payment of taxes resulting from any award
may be made by delivering already-owned Shares, or by authorizing
the Company to withhold and cancel a portion of the Restricted
Shares, in each case based on the fair market value of the shares
at that time.
(In thousands, except per share amounts)
<TABLE>
Nine Months
Ended Years Ended
September 30 December 31
ELMG 1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Consolidated results of
operations for period:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 93,930 128,950 117,993 99,004 71,822 75,340
Gain on initial public
offering of LXE common
stock, net of income
taxes $ - - - - - 3,638
Earnings from continuing
operations $ 1,434 2,310 4,263 1,391 924 7,456
Earnings from continuing
operations per common
and common equivalent
share $ .20 .32 .58 .20 .10 .98
Weighted average number
of common and common
equivalent shares
outstanding 7,124 7,266 7,043 6,856 7,331 7,605
Consolidated financial
condition at end of
period:
Total assets $ 100,934 104,954 96,751 87,861 72,970 75,147
Long-term debt
(excluding current
installments) 4,262 10,989 4,592 5,060 927 1,104
Minority interest in
LXE 9,236 9,274 8,681 7,155 7,012 5,971
Stockholders' equity 60,209 60,209 56,431 51,548 50,079 52,063
No cash dividends have been declared or paid during any of the periods presented.
</TABLE>
(In thousands, except per share amounts)
<TABLE>
Nine Months
Ended Years Ended
September 30 December 31
LXE 1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
Consolidated results of
operations for period:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 45,188 62,291 63,142 45,643 44,401 38,721
Net earnings (loss) $ (299) (165) 4,122 336 3,310 3,236
Net earnings (loss)
per common
and common equiva-
lent shares $ (.05) (.03) .71 .06 .57 .60
Weighted average number
of common and common
equivalent shares
outstanding 5,525 5,532 5,766 5,721 5,786 5,398
Consolidated financial
condition at end of
period:
Total assets $ 48,295 49,481 45,741 37,865 37,115 32,718
Long-term debt
(excluding
current install-
ments) 144 6,925 350 594 827 1,004
Long-term debt to
parent and due to
parent - non current 1,466 1,397 1,672 1,946 2,221 2,473
Stockholders' equity 32,478 32,611 32,298 27,713 27,264 23,663
No cash dividends have been declared or paid during any of the periods presented.
</TABLE>
ELECTROMAGNETIC SCIENCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
[To be revised to include interim period discussion]
Results of Operations
Consolidated net sales increased to $129 million in 1995 from
$118 million in 1994 and $99 million in 1993, reflecting changes
in the Company's two business segments. In the segment for
advanced communications and signal processing products, sales
increased to $67 million in 1995 from $55 million in 1994 and $53
million in 1993. Space and satellite programs and cellular
antenna systems made significant contributions to the 1995
increase. The 1994 sales increase in this segment also included
growth from space and satellite programs, as well as from other
core applications; however, these increases were mostly offset by
a reduction in revenues resulting from disposal of the defense
electronics group of the CAL Corporation subsidiary late in 1993.
In the segment for wireless logistics systems (sold through the
Company's LXE Inc. subsidiary), revenues were $62 million in 1995
compared with $63 million in 1994 and $46 million in 1993. The
1995 change was especially affected by a third quarter revenue
shortfall associated with LXE beginning the transition to an
expanded product line. The 1994 increase was attributable to
sales growth through European sales subsidiaries and U.S.-based
third party distributors.
Cost of sales increased to 65% of consolidated net sales in 1995
compared with 62% in both 1994 and 1993. The increase was
attributable to LXE products, for which the cost of sales
percentage has increased in each of the last three years (56%,
50%, and 48% of net LXE sales in 1995, 1994 and 1993,
respectively) due to increased distribution through indirect
channels that typically carry lower gross profit margins and to a
more competitive pricing environment. The LXE-related increases
in the cost of sales percentage were partially offset by
improvement in the advanced communication and signal processing
business segment, which had a more profitable mix of contracts.
Selling, general and administrative expenses were 24% of sales in
1995, compared with 23% in 1994 and 27% in 1993. The growth from
1994 to 1995 related to expansion of European sales and marketing
efforts for LXE products, marketing support for the Company's new
cellular antenna products, and additional personnel to support
management information systems. The decrease from 1993 to 1994
in the selling, general and administrative expense percentage
resulted mainly from the benefit of a higher sales base to absorb
fixed costs.
Research and development expenses represent the cost of the
Company's internally funded efforts. Significant research and
development costs are also incurred with many specific customer
orders for advanced communications and signal processing
equipment and, accordingly, are included in cost of sales. The
1995 increase in internally funded research and development
related to new LXE products with DOS and Windows capabilities
that support client/server networks and emerging software
standards. The Company also increased its efforts to develop
antennas, aeronautical terminals and other products for advanced
mobile communications markets.
Interest and other income did not change significantly in 1995
compared with 1994, because an increase in the gains from foreign
currency transactions and remeasurement associated with LXE's
European subsidiaries more than offset a decrease in interest
income from lower cash available for investment. In 1994, higher
levels of cash available for investment as well as gains from
foreign currency transactions and remeasurement resulted in
higher interest and other income compared with 1993. Interest
expense increased in 1995 compared with 1994 and 1993 due to
increased borrowing during the year at LXE.
The effective income tax rate was 38% in 1995, 41% in 1994, and
38% in 1993. The change in 1995 reflected the effect of tax
credits for research and development. The increase in 1994 was
related to profit growth from certain LXE operations in Europe
and to the reduced effect of tax credits for research and
development.
Liquidity and Capital Resources
Cash and cash equivalents decreased as a result of several
factors during 1995, including an increase in inventory levels
that resulted from lower LXE sales in the second half of the
year. Additionally, the timing of billings on several long-term
contracts for advanced communications products resulted in higher
unbilled receivables compared with the prior year end. More cash
was also used in investing activities in 1995 compared with 1994
as a result of increases in capital expenditures for purchases of
equipment, facility expansion, development of product software,
and the acquisition of a minority interest in a strategic
business partner. Capital expenditures were financed by existing
cash and cash equivalents and by borrowing under the revolving
credit agreements.
During 1995, the Company amended its existing revolving credit
mortgage agreement with a bank to extend the term five years to
December 2000 and to increase available borrowing under the
agreement from $5.4 million to $10 million. In addition, the LXE
subsidiary entered into a $10 million, three-year revolving
credit agreement with a bank, which replaced an existing $5
million short-term line of credit.
At December 31, 1995, the Company had available four immediate
sources of credit: $6.2 million remaining under the revolving
credit mortgage agreement, an unused $5 million line of credit,
$3.2 million remaining under the LXE revolving credit agreement,
and approximately $430,000 available under a CAL line of credit.
Management believes that the Company's present liquidity,
together with cash from operations and sources of external
financing, will support its current business activities and
capital investment plans.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statements of
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company's fiscal
year ended December 31, 1996. Management believes that adoption
of this new accounting standard will not have a material effect
on the Company's financial statements.
LXE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
[To be revised to include interim period discussion]
Results of Operations
The Company operates in two business segments. One segment,
produces advanced communications and signal processing . Net
sales in this segment increased to $66.7 million in 1995 from
$54.9 million in 1994, and $53.4 million in 1993. The other
business segment provides wireless data communications for
commercial materials handling markets through the Company's LXE
Inc. subsidiary. Net sales of LXE systems and services was
$62.3 million in 1995 compared to $63.1 million in 1994 and $45.6
million in 1993.
Increased sales from space and satellite programs at EMS and CAL,
as well as sales of EMS Wireless Division's cellular antenna
systems were the main contributors to growth in the Company's
advanced communications and signal processing electronics
segment. LXE sales were slightly lower in 1995 than in 1994
primarily due to lower third quarter sales that resulted from a
transition to an expanded product line that will support DOS,
Windows, and client/server networks. Efforts to stimulate orders
of existing products in the second half of the year were
successful in increasing sales of LXE systems in the fourth
quarter of 1995 to $17.1 compared to sales of $11.3 million in
the third quarter.
1994 sales increased over 1993 mainly because of LXE's revenue
growth from its European sales subsidiaries and U.S. based third-party
distributors. EMS Technologies also achieved substantial
sales increases in 1994 from space communications programs and
other core applications: however, this increase was mostly offset
by a reduction in CAL's 1994 revenues related to the disposal of
CAL's defense electronics group late in 1993.
Cost of sales increased to 65% of net sales in 1995 as compared
with 62% in both 1994 and 1993. The increase was attributable to
LXE, whose cost of sales has increased in each of the last three
years (56%, 50%, and 48% of net sales in 1995,1994 and 1993,
respectively) mainly due to increased distribution through
indirect channels, which typically carry lower profit margins,
and a more competitive pricing environment. The increase in
LXE's cost of sales has been partially offset by decreasing costs
of sales, as a percentage of net sales, at EMS an CAL which has
benefited from a more profitable contract mix, including more
cost-plus and production contracts.
Selling, general, and administrative expenses increased $3.2
million in 1995 to 24% of sales compared with 23% in 1994 and 27%
in 1993. Continued growth of LXE's European sales and marketing
efforts, increased marketing support for the Company's cellular
antenna products, and increases in management information system
personnel contributed to the 1995 increase. The percentage
decrease from 1993 to 1994 resulted primarily from the benefit of
spreading fixed costs over a higher sales base.
Research and development costs represent the result of the
Company's internally funded efforts. For EMS and CAL, a large
percentage of research and development is related to specific
customer orders, and accordingly, is included in cost of sales.
Research and development costs increased in 1995 by $2.3 million
to 8.1% of sales, compared with 6.9% of sales in 1994 and 8.3%
in 1993. The 1995 increase resulted from efforts at LXE to
develop new product lines that support DOS, Windows and
client/server networks, and at EMS to further enhance its
cellular and PCS antenna product line and other advanced mobile
communications technologies.
Interest and other income increased slightly in 1995 as compared
to 1994 as a result of an increase in foreign currency
translation gains associated with LXE's European subsidiaries
which more than offset a decrease in interest income for the year
caused by lower cash and investment levels than in 1994. In
1994, higher levels of cash available for investment as well as
foreign currency translation gains at LXE resulted in higher
interest and other income versus 1993. Interest expense
increased in 1995 as compared with 1994 and 1993 due to increased
borrowings during the year at LXE.
The effective income tax rate was 38% in 1995, 41% in 1994, and
38% in 1993. The change in the 1995 rate resulted from the
effect of tax credits for research and development. The increase
in the tax rate from 1993 to 1994 reflects higher marginal tax
rates on European earnings by LXE and the reduced effects of
research and development credits in 1994.
Liquidity and Capital Resources
Cash and cash equivalents decreased as a result of several
factors during 1995. Operations used $2.2 million of cash in
1995 compared to generating $8.3 million in 1994. Lower
profitability on LXE's sales, as well as, expansion of its
product line, which resulted in a $4.1 million increase in
inventory levels, contributed to the decrease in operating cash
flow. In addition, timing of billing on several long-term
contracts in the advanced communications and signal processing
business segment resulted in an increase in unbilled receivable
balances as compared with the prior year. Capital expenditures
for purchases of equipment, facility expansion, development of
product software, and the acquisition of a minority interest in a
strategic business partner amounted $12.1 million for the year,
compared with $5.3 million in 1994. Capital expenditures were
financed by existing cash and cash equivalents and by borrowings
under the revolving credit agreements.
During 1995, the Company amended its existing revolving credit
mortgage agreement with a bank to extend the term five years to
December 2000 and to increase available borrowing under the
agreement from $5.4 million to $10 million. In addition, LXE
entered into a $10 million, three-year revolving credit agreement
with a bank, which replaced an existing $5 million short-term
line of credit.
At December 31, 1995, the Company had available four immediate
sources of credit: $6.2 million remaining under the revolving
credit mortgage agreement, an unused $5 million line of credit,
$3.2 million remaining under the LXE revolving credit agreement,
and approximately $430,000 available under a CAL line of credit.
Management believes that the Company's present liquidity,
together with cash from operations and sources of external
financing, will support its current business activities and
capital investment plans.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statements of
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company's fiscal
year ended December 31, 1996. Management believes that adoption
of this new accounting standard will not have a material effect
on the Company's financial statements.
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information presented is
for informational purposes only and is not necessarily indicative
of either future results of operations or financial position or
of the results of operations or financial position that would
have been reported had the Exchange Offer and Merger been
completed at the beginning of the respective periods or as of the
dates for which such unaudited pro forma information is
presented. For additional detail, see "PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION -- UNAUDITED."
The following unaudited Pro Forma Consolidated Condensed
Financial Statements for ELMG has been prepared based upon the
historical consolidated results of operations of both ELMG and
LXE and the historical financial condition of ELMG. LXE is a 81%
owned subsidiary of ELMG and, accordingly, has been consolidated
and included in the historical consolidated financial statements
of ELMG. The pro forma consolidated financial data give effect
to (i) the Exchange Offer, assuming that all of the outstanding
LXE Shares held by shareholders other than ELMG (excluding
293,868 shares under exercisable options) are tendered and
accepted by ELMG in the Exchange Offer, and (ii) the Proposed
Merger, resulting in LXE being a wholly owned subsidiary of ELMG.
The Exchange Offer and Merger are accounted for as a purchase
based upon the conversion of each LXE Share into .75 ELMG Shares.
The Pro Forma Consolidated Condensed Balance Sheet as of
September 30, 1996 assumes that the Exchange Offer and Merger
occurred effective as of the date presented. The Pro Forma
Consolidated Condensed Income Statements assume that the Exchange
Offer and Merger occurred effective as of the first day of each
period presented.
The Pro Forma Consolidated Condensed Balance Sheet should be
read in conjunction with the accompanying pro forma notes and the
separate historical consolidated financial statements and related
notes thereto of ELMG and LXE reported in Annual Reports on Form
10-K for the fiscal year ended December 31, 1995, and Quarterly
Reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1996, which are incorporated herein by reference.
See "INCORPORATION OF DOCUMENTS BY REFERENCE."
ELMG
Pro Forma Consolidated Statement of Income -- Unaudited
Nine Months Ended September 30, 1996
(In thousands)
Pro Forma
As Reported Adjustments As Adjusted
----------- ----------- -----------
Net sales $
Cost of sales
Selling, general and
administrative expenses
Research and development
expenses
----------- ---------- ----------
Operating income
----------- ---------- ----------
Interest and other income,
net of foreign exchange
gains and losses
Interest expense
Income before income
taxes and LXE
minority interest
Income taxes
LXE minority interest
----------- ---------- ----------
Net earnings $
=========== ========== ==========
Net earnings per
common and
common equivalent
share $
=========== ========== ==========
Weighted average number of
common and common
equivalent shares
See accompanying notes to Unaudited Pro Porma Consolidated Financial
Statements.
ELMG
Pro Forma Consolidated Statement of Income --Unaudited
Year Ended December 31, 1995
(In thousands, except per share amounts)
Pro Forma
As Reported Adjustments As Adjusted
----------- ----------- -----------
Net sales $ 123,950 123,950
Cost of sales 83,865 83,865
Selling, general and
administrative expenses 30,836 (a) 369
(b) (420)
Research and development
expenses 10,392 10,392
----------- ---------- ----------
Operating income 3,857 3,908
----------- ---------- ----------
Interest and other income,
net of foreign exchange
gains and losses 675 675
Interest expense (864) (864)
Income before income
taxes and LXE
minority interest 3,668 3,719
----------- ---------- ----------
Income taxes (note 2) 1,402 (c) 160 1,562
LXE minority interest 144 (d) 44 -
----------- ---------- ----------
Net earnings $ 2,310 2,157
=========== ========== ==========
Net earnings per
common and
common equivalent
share $ .32 .26
=========== ========== ==========
Weighted average number of
common and common
equivalent shares 7,266 (e) 774
(f) 142 8,182
Pro Forma adjustments:
(a) Amortization of goodwill
(b) Expense savings
(c) Income tax effect of expense savings
(d) Elimination of minority interest
(e) ELMG shares issued in the Exchange Offer
(f) Common equivalent shares derived from LXE
Options converted to ELMG Options
See accompanying notes to Unaudited Pro Forma Consolidated Financial
Statements
ELMG
Pro Forma Consolidated Balance Sheet -- Unaudited
September 30, 1996
(In thousands)
Pro Forma
As Reported Adjustments As Adjusted
----------- ----------- -----------
ASSETS
Current assets
Cash and cash equivalents $
Trade accounts receivable,
net
Inventories
Deferred income taxes
----------- ---------- ----------
Total current assets
----------- ---------- ----------
Net property, plant and
equipment
Other assets
Goodwill, net of accumulated
amortization (a) 8,249
----------- ---------- ----------
$
=========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current installments of
long-term debt $
Accounts payable and
accrued liabilities
Other current liabilities
----------- ---------- ----------
Total current
liabilities
----------- ---------- ----------
Longer-term debt, excluding
current installments
Deferred income taxes
----------- ---------- ----------
Total liabilities
----------- ---------- ----------
Minority interest in LXE
Stockholders' equity:
Paid-in capital
Retained earnings
----------- ---------- ----------
Total stockholders'
equity
----------- ---------- ----------
$
=========== ========== ==========
Pro Forma adjustments:
(a) Goodwill from exchange offer
See accompanying notes to Unaudited Pro Forma Consolidated Financial
Statements
ELMG
Notes to Unaudited Pro Forma Financial Statements
(1) Basis of Presentation
The Unaudited Pro Forma Consolidated Financial Statements for ELMG
presented in this document have been prepared based upon the historical
consolidated results of operations and the historical financial condition
of ELMG and LXE. LXE is a 81% owned subsidiary of ELMG and, accordingly,
has been consolidated and included in the historical consolidated financial
statements of ELMG. The pro forma consolidated financial data give effect
to (I) the Exchange Offer, assuming that all of the outstanding LXE Shares
held by shareholders other than ELMG (excluding 293,118 shares under
exercisable options) are tendered and accepted by ELMG in the Exchange
Offer, and (ii) the proposed Merger, resulting in LXE being a wholly owned
subsidiary of ELMG. The Exchange Offer and Merger are accounted for as a
purchase based upon the conversion of each LXE Share into .75 ELMG Shares.
The Pro Forma Consolidated Balance Sheet as of September 30, 1996 assumes
that the Exchange Offer and Merger occurred effective as of the date
presented. The Pro Forma Consolidated Income Statements assume that the
Exchange Offer and Merger occurred effective as of the first day of each
period presented.
The Unaudited Pro Forma Consolidated Financial Statements should be
read in conjunction with the accompanying pro forma notes and the separate
historical consolidated financial statements and related notes thereto of
ELMG and LXE reported in Annual Reports on Form 10-K for the fiscal year
ended December 31, 1995, and Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 1996, which are
incorporated herein by reference. See "INCORPORATION OF DOCUMENTS BY
REFERENCE."
(2) Assumptions
The Unaudited Pro Forma Financial Statements include certain
assumptions concerning the effects of the Exchange and Merger:
Goodwill - ELMG will establish a new accounting basis for the
portion of LXE's assets and liabilities attributable to the minority
shareholders' interests being purchased. The combined value of the ELMG
Shares (based upon the October 3, 1996 closing price of $17.25) and the
exercisable ELMG Options (based upon the Black-Scholes option pricing
model) being exchanged for LXE Shares held by the minority shareholders and
LXE Options is expected to exceed the fair value of the net assets being
acquired in the Exchange; this excess will be allocated to goodwill, which
will be amortized on a straight-line basis over a 25-year period from the
date of acquisition.
Expense Savings - As a 100% owned subsidiary, LXE would no longer
incur separate SEC reporting, shareholder reporting, tax reporting, annual
meeting and independent board expenses, as well as other certain separate
corporate expenses. Elimination of these expenses would result in initial
savings of approximately $420,000 per year.
Conversion of LXE Options - LXE Options will be converted into
options to acquire a proportionate number of ELMG Shares under ELMG's 1992
Stock Incentive Plan. The option prices of the ELMG Options would be
adjusted such that the value of the options (as determined by multiplying
the number of shares by the difference between the option exercise price
and the market price on the date of conversion) would be identical before
and after the conversion. Under Statement of Financial Accounting
Standards 123, there is no compensation charge for the conversion of the
LXE Options, however, the value of converted ELMG options that are
exercisable (based upon the Black-Scholes option pricing model) will
increase the amount of goodwill associated with the Exchange and Merger.
In addition, those converted ELMG Options that have an exercise price below
the current market price of ELMG Shares will increase the common equivalent
shares utilized in the calculation of earnings per share.
(3) Write-off of Deferred Income Taxes
In 1991, ELMG recognized a pre-tax gain of approximately $5.9 million
pre-tax, representing ELMG's share of the increase in LXE's book value
following LXE's initial public offering of common stock. ELMG provided
approximately $2.2 million of deferred income tax expense on the gain,
which will be written off as a result of the tax-free Exchange Offer and
Merger; this write-off will be reflected in ELMG's consolidated income
statement as a $2.2 million reduction of income tax expense for the year in
which the Exchange Offer and Merger become effective.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP acted as the independent public accountants
during the last fiscal year for both ELMG and LXE, and is also acting as
such during the current fiscal year. A representative of KPMG Peat Marwick
LLP is expected to be present at the Special Meeting to respond to
appropriate questions, and will have the opportunity to make a statement if
he desires to do so.
INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS
The following documents heretofore filed with the Securities and
Exchange Commission are hereby incorporated in this Proxy Statement by
reference as of their respective dates:
Electromagnetic Sciences, Inc.
1. Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
2. Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1996.
LXE Inc.
1. Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.*
2. Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30,* 1996.
* Copies of these items are being delivered to shareholders with the
Proxy Statement.
--------------------
In addition, all documents filed by ELMG or LXE pursuant to Sections
13(a),13(c), 14, or 15(d) of the Exchange Act after the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to
be incorporated by reference in this Proxy Statement and to be a part
hereof from the date of filing of any such documents. Any statement
contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes
of this Proxy Statement to the extent that a statement contained herein or
in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
ELMG hereby undertakes to provide without charge to each person to
whom a Proxy Statement is delivered, on the written or oral request of such
person, a copy of any or all of the documents referred to above, other than
certain exhibits to such documents. Written requests should be addressed
to William S. Jacobs, Secretary, Electromagnetic Sciences, Inc., 660
Engineering Dr., Technology Park/Atlanta, Norcross, Georgia 30092, and oral
requests may be made to Mr. Jacobs by telephone (770-263-9200), or in
person at the above address.
Norcross, Georgia
November , 1996
