Via: EDGAR
March 28, 1997
Securities and Exchange Commission
Judiciary Plaza
455 Street N.W.
Washington D.C. 20549
Attention: Filing Desk
Re: Electromagnetic Sciences, Inc. (the "Company")
File No. 0-6072 -- Definitive Proxy Material
Ladies and Gentlemen:
Accompanying this letter is the definitive form of Proxy
Statement being used in connection with the solicitation of
proxies for the Company's Annual Meeting to be held on May 2,
1997, together with the form of Proxy being used in connection
with such solicitation. These documents are submitted for filing
pursuant to Rule 14a-6(b) under the Securities Exchange Act of
1934. The filing fee is on deposit in the Company's CIK account.
The enclosed proxy materials are being released to the Company's
shareholders on the date hereof, accompanied by the Company's
1996 Annual Report to its shareholders. Seven copies of that
report are being forwarded by mail to the Commission on the date
hereof.
Pursuant to Instruction 3 to Item 10 of Schedule 14A, the
Company's 1997 Stock Incentive Plan, which is being presented for
approval by the shareholders at the Annual Meeting, is attached
as an appendix to the filed version of the Proxy Statement. The
common stock to be offered under that Plan will be registered on
Form S-8 during 1997, prior to any such securities being issued
or becoming subject to exercisable options.
Please direct any inquiries concerning this filing to the
undersigned.
Very truly yours,
ELECTROMAGNETIC SCIENCES, INC.
By: /s/William S. Jacobs
William S. Jacobs
Vice President and General Counsel
ELECTROMAGNETIC SCIENCES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 2, 1997
Notice is hereby given that the Annual Meeting of
Shareholders of Electromagnetic Sciences, Inc. (the "Company")
will be held at 4:00 p.m. local Atlanta time on May 2, 1997, at
the Atlanta Marriott Norcross, 475 Technology Parkway, N.W.,
Norcross, Georgia, for the following purposes:
(1) To elect seven members of the Board of Directors to
serve during the ensuing year;
(2) The proposal to approve the Company's 1997 Stock
Incentive Plan; and
(3) To transact such other business as may properly come
before the Meeting or any adjournment thereof.
Only holders of record of common stock of the Company at the
close of business on March 24, 1997, 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
March 25, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL 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
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 2, 1997
GENERAL INFORMATION
Shareholders' Meeting
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Electromagnetic Sciences,
Inc. (the "Company") of proxies to be used at the Annual Meeting of
Shareholders to be held at 4:00 p.m. local Atlanta time on May 2,
1997, at the Atlanta Marriott Norcross, Norcross, Georgia. This
Proxy Statement is being mailed to shareholders on approximately
March 27, 1997.
Matters to be Acted Upon
The following matters will be acted upon at the Annual Meeting
of Shareholders:
(1) The election of seven members of the Board of Directors,
each to serve a term of one year and thereafter until his successor
is duly elected and qualified;
(2) To consider approval of the Company's 1997 Stock Incentive
Plan; and
(3) 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 Annual Meeting by any shareholder present at the Annual Meeting
who 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 Annual 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 seven nominees for election to the Board of Directors,
and in favor of approval of the 1997 Stock Incentive Plan. 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 shares of
common stock of the Company at the close of business on March 24,
1997, are entitled to notice of, or to vote at, the Annual Meeting.
Each holder is entitled to one vote for each share of common stock
held on the record date. On March 24, 1997, there were 8,513,268
shares of common stock outstanding and entitled to 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.
1998 Shareholder Proposals
Any proposals by shareholders intended for presentation at the
1998 Annual Meeting must be received by the Company at its principal
executive offices, attention of the Secretary, no later than December
1, 1997, in order to be included in the proxy materials for that
Meeting.
ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of members of the
Board of Directors shall be determined by the Board, which has set
that number at seven. Unless otherwise directed, it is the
intention of the persons named in the enclosed form of proxy to vote
such proxy in favor of the election of the seven persons named below
as directors of the Company. Each such person will serve until the
next Annual Meeting of Shareholders and thereafter until his
successor is elected and has qualified. In case any of the named
nominees should become unable to serve, or for good cause will not
serve, the persons named in the proxy will have the right to use
their discretion to vote for a substitute or substitutes or to vote
only for the remaining nominees.
Assuming the presence of a quorum at the Meeting, the nominees
will be elected by favorable vote of a plurality of the shares
actually voted. Abstentions and broker non-vote shares 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. Shares for which authority to cast a favorable
vote is affirmatively withheld will be treated as voting shares in
determining whether the requisite plurality has been achieved.
The table on the following page lists the nominees and their
ages, their other positions with the Company, their principal
occupations at present and during the past five years, and the year
each was first elected as a director. All nominees are currently
directors of the Company and were elected by the shareholders at the
last Annual Meeting.
Year First
Name and Principal Occupations Elected
for the Last Five Years Age Director
- ------------------------------------------- ---- ----------
Anthony J. Iorillo 59 1995
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. From 1994
until 1996, he served as Chairman of the
Board, American Mobile Satellite
Corporation, Reston, Virginia, a major
provider of satellite-based communications
for ground vehicles, ships and aircraft
in the United States and surrounding
areas and waters. Mr. Iorillo is also
a director of Ortel Corp.
Jerry H. Lassiter 66 1978
Private investor organizing and managing
interests in finance and real estate.
John H. Levergood 62 1995
President, Broadband Communications
Group and Corporate Senior Vice President,
Scientific-Atlanta, Inc., Atlanta, Georgia,
which designs and produces a broad range
of advanced cable television equipment and
satellite-based video, voice and data
communications networks (since 1992).
Previously, Mr. Levergood had served
as a consultant to the Broadband Communi-
cations Group following his retirement,
in 1989, as President and Chief Operating
Officer of Scientific-Atlanta. Mr.
Levergood is also a director of Golden
Poultry, Inc.
John B. Mowell 62 1984
President, Mowell Financial Group, Inc.,
Tallahassee, Florida, an investment
counseling firm.
John E. Pippin 69 1968
Chairman of the Board of the Company;
until 1994, Dr. Pippin also served as
Chief Executive Officer.
Don T. Scartz 54 1995
Senior Vice President and Chief
Financial Officer, Treasurer of the
Company.
Thomas E. Sharon 51 1984
President and Chief Executive Officer
of the Company (since 1994); previously
President and Chief Operating
Officer of the Company.
Committees and Meetings of the Board of Directors
The Board of Directors has designated a Compensation Committee,
which during the past year has been composed of Messrs. Iorillo,
Lassiter, Levergood, and Mowell. This committee reviews and
recommends to the Board compensation and benefits for the Company's
executive officers, administers the Company's stock option plans with
respect to the participation of employees who are officers and
directors, and is responsible for reviewing and approving any
related party transactions involving the Company. The Compensation
Committee met four times during the last fiscal year, and its members
participated in additional meetings and conferences in connection
with the development of the executive compensation program as
described in the Committee's Report included elsewhere in this Proxy
Statement. The Board has also designated an Audit Committee composed
during the past year of Messrs. Lassiter and Mowell; the principal
functions of this committee are to meet with the Company's
independent auditors, to review the Company's consolidated fiscal
year financial statements, to review the independence, qualifications
and activities of the independent auditors, and to recommend to the
Board of Directors the appointment of the independent auditors; this
Committee did not formally meet during 1996, but its members
consulted on various occasions during the year with members of the
accounting staff and the independent auditors. The Company does not
have a separate nominating committee. The Stock Incentive Plan
Committee of the Board consists of Drs. Pippin and Sharon and Messrs.
Lassiter and Scartz; this committee is generally responsible for
administering the Company's stock option plans with respect to the
participation of employees who are not officers or directors. The
Stock Incentive Plan Committee met five times during the last fiscal
year. The Strategic Plan Committee meets from time to time with the
Company's senior officers to review and discuss the Company's
strategic plan and strategic planning process; this Committee
consists of Dr. Pippin and Messrs. Iorillo and Levergood, and met
twice during the last fiscal year.
During the last fiscal year, there were five meetings of the
Company's Board of Directors. No director attended fewer than 75% of
the aggregate of all meetings of the Board and of all committees on
which he served.
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.
Each non-employee director has previously received an option for
the purchase of 10,000 shares of common stock. These options have
an exercise price equal to the fair market value of the common stock
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 (except that the options granted
to Dr. Pippin become exercisable over three years of service).
However, these options become immediately exercisable in the event of
a third-party tender or exchange offer for the Company's common
stock, or if any person becomes the beneficial owner of 50% or more
of the outstanding common stock. The exercise price (together with
any applicable taxes) may be paid in cash, by delivery of shares of
common stock (valued at their fair market value at the time of
exercise), or by a combination of cash and stock. 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.
The 1997 Stock Incentive Plan (the "1997 Plan"), for which
shareholder approval is being sought as described elsewhere in this
Proxy Statement, would provide similar option grants to future non-
employee directors at the time of their initial election. The 1997
Plan would also provide to both future and current non-employee
directors annual grants, beginning after five years of service, of
options to acquire 2,500 shares. The terms of these annual grants
are described herein under the caption "Approval of the 1997 Stock
Incentive Plan -- Background and Description -- Options for Non-Employee
Directors." Such grants are conditioned upon shareholder
approval of the 1997 Plan.
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.
During 1996, Dr. Pippin and Mr. Mowell served as directors of
LXE Inc., a subsidiary of the Company, and were 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. LXE
is now a wholly-owned subsidiary of the Company, and these director
arrangements are not in effect for 1997. 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. Effective in 1997, Dr. Pippin and
Mr. Mowell will also receive from the Company a supplement of $2,000
for attending a CAL meeting conducted in Canada, and $1,000 for a
meeting in Atlanta if taking place on a day other than that on which
a Company board meeting is held.
SECURITY OWNERSHIP
The following table sets forth certain information concerning
shares of the Company's common stock beneficially owned as of March
24, 1997, by the Company's directors and named officers, and as of
December 31, 1996 by persons who beneficially own more than 5% of the
common stock. Except as otherwise indicated, each person possessed
sole voting and investment power with respect to the shares shown.
Electromagnetic Sciences, Inc. Common Stock
Amount of Approximate
Beneficial Percent of
Ownership Class
Kopp Investment Advisors, Inc. 1,686,939 (1) 20.0%
6500 Wedgewood Road
Maple Grove, MN 55311
Brinson Partners, Inc. 528,400 6.3%
209 South LaSalle
Chicago, IL 60604-1295
Dimensional Fund Advisors, Inc. 498,999 (2) 5.9%
1299 Ocean Avenue
Santa Monica, CA 90401
David A. Rocker 440,200 (3) 5.2%
Suite 1759
45 Rockefeller Plaza
New York, NY 10111
Anthony J. Iorillo 4,000 (4) *
Jerry H. Lassiter 17,672 (4) *
John H. Levergood 4,000 (4) *
John B. Mowell 49,469 (4) *
John E. Pippin 258,824 (4) 2.9%
Don T. Scartz 49,999 (4) *
Thomas E. Sharon 137,961 (4) 1.6%
William S. Jacobs 23,632 (4) *
John J. Farrell 4,792 (4) *
Jeffrey A. Leddy 31,801 (4) *
All directors and executive officers
as a group (11 persons) 605,679 6.8%
* Percentage of shares beneficially owned does not exceed 1%
(1) Kopp Investment Advisors, Inc. has advised that it exercises
investment discretion as to 1,676,939 shares, but does not vote the
shares nor is it the owner of record.
(2) 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.
(3) David A. Rocker has advised that the shares of which he is
deemed to have beneficial ownership are owned by Rocker Partners, L.
P., a New York limited partnership (397,000 shares), and Compass
Holdings, Ltd., a corporation organized under the Business Companies
Ordinance of the British Virgin Islands (43,200 shares).
(4) Includes shares that are subject to currently exercisable
options in the amounts of 4,000 for Mr. Iorillo, 10,782 for Mr.
Lassiter, 4,000 for Mr. Levergood, 9,500 for Mr. Mowell, 127,064 for
Dr. Pippin, 33,500 for Mr. Scartz, 73,546 for Dr. Sharon, 12,750 for
Mr. Jacobs, 2,000 for Mr. Farrell and 25,500 for Mr. Leddy. For
Mr. Mowell, Dr. Pippin and Mr. Jacobs, these totals also include
9,500, 42,593 and 6,325 shares, respectively, as to which each person
shares voting and investment power with family members but disclaims
beneficial interest.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table discloses, for the years ended December 31,
1996, 1995 and 1994, 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 1996 exceeded
$100,000.
<TABLE>
Summary Compensation 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 Stock (No. of Shares)
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas E. Sharon 1996 $252,603 $ 25,000 $ -0- $ -0- 20,000 $21,344
President, Chief 1995 228,082 -0- -0- -0- 12,000 21,412
Executive Officer 1994 185,589 100,000 -0- 24,969 -0- 20,367
(from July 1994)
and Director
Don T. Scartz 1996 157,321 20,000 -0- -0- 10,000 27,134
Senior Vice Presi- 1995 146,931 -0- -0- -0- 7,000 26,801
dent and Chief 1994 132,505 60,000 -0- 14,981 -0- 23,906
Financial Officer,
Treasurer
William S. Jacobs 1996 144,398 15,000 -0- -0- 6,000 27,221
Vice President, 1995 139,160 -0- -0- -0- 4,000 26,269
General Counsel and 1994 133,803 30,000 -0- 9,988 -0- 23,621
Secretary
John J. Farrell 1996 180,863 20,000 -0- -0- 9,500 21,918
President and Chief 1995 107,699 -0- -0- 78,000 35,000 10,677
Operating Officer,
LXE Inc. (since May
1995)
Jeffrey A. Leddy 1996 129,626 25,000 -0- -0- 8,000 5,778
President, EMS 1995 111,931 28,000 -0- -0- -0- 5,466
Technologies, Inc. 1994 98,095 37,500 -0- 12,455 5,000 4,413
</TABLE>
See Footnotes to Summary Compensation Table on page 10.
Footnotes to Summary Compensation Table:
(1) For 1996, includes in the case of Dr. Sharon, $2,310 in
matching contributions under the 401(k) plan, $7,111 in benefits
associated with a split-dollar life insurance arrangement, and
$11,923 under the defined contribution retirement plan; in the
case of Mr. Scartz, $2,775 in matching contributions under the
401(k) plan and Employee Stock Purchase Plan, $8,724 under
split-dollar insurance arrangements, and $15,635 under the
defined contribution retirement plan; in the case of Mr. Jacobs,
$3,974 in matching contributions under the 401(k) and stock
purchase plans, $11,751 under split-dollar insurance
arrangements, and $11,496 under the defined contribution
retirement plan; in the case of Mr. Farrell, $4,640 in matching
contributions under the stock purchase plan, $9,895 under split-
dollar insurance arrangements, and $7,383 under the defined
contribution retirement plan; and in the case of Mr. Leddy,
$1,018 in matching contributions under the 401(k) plan and $4,760
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%.
(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 and
1,060 shares to Mr. Leddy, and based on a market price of $13 for
6,000 shares awarded to Mr. Farrell at the commencement of his
employment in May 1995. 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, except that those awarded to Mr.
Farrell vest over three years beginning in May 1996. 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 options in the Company's common stock, and unexercised options
in the Company's stock held as of December 31, 1996:
<TABLE>
Number of Shares Under- Value of Unexercised
Year Ended lying Unexercised Options In-the-Money Options at
December 31, 1996 Held at December 31, 1996 December 31, 1996
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Sharon 63,244 $636,971 73,546 12,000 $862,017 90,000
Don T. Scartz -0- -0- 33,500 21,906 474,875 226,945
William S. Jacobs -0- -0- 12,750 4,000 105,250 -0-
John J. Farrell -0- -0- -0- 35,000 -0- 125,000
Jeffrey A. Leddy 4,075 44,342 17,500 13,000 235,750 167,000
</TABLE>
Option Grants During the Last Fiscal Year
No options in the Company's stock were granted to the named
executive officers during 1996, but certain options were
thereafter granted to them with respect to 1996 service and are
included in the Summary Compensation Table. In addition, by
operation of the merger acquisition of 100% of the outstanding
shares of LXE Inc., previously-granted LXE options held by
certain named executive officers were converted into options for
ELMG shares, as described below at "Acquisition of Minority LXE
Shares."
Employment Agreement
The Company has an employment agreement with Dr. Sharon for
services as an executive officer. This agreement originally
expires on December 31, 1998, and specifies minimum annual salary
of $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 would 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 Committee Report
on Executive Compensation
The Compensation Committee of the Board of Directors has
furnished the following report with respect to certain aspects of
executive compensation:
The Compensation Committee believes it is important to
adopt compensation policies that attract and retain
experienced and well-qualified executive officers, and that
provide significant incentives for financial and business
achievements that benefit the Company's shareholders. As a
result, the Compensation Committee seeks to maintain the
salary component of each officer's compensation at a
moderate level, provides bonuses based heavily on financial
performance, and also provides stock options whose value
depends on appreciation in the market value of the Company's
common stock.
Through 1996, the Committee did not employ any formulas
that tie executive compensation to specific performance
measures in a pre-determined manner. During 1996, the
Committee engaged Arthur Andersen & Co. as compensation
consultant to assist the Committee in reviewing the
Company's executive compensation program, and in developing
a more formalized structure for determining annual and long-
term incentive arrangements. The following discussion
reflects changes to the executive compensation program
resulting from this review.
Base Salary. The Committee received a report from its
compensation consultant with respect to the median level of
competitive salary ranges for comparably sized companies in
similar industries. The Committee also considered, as it
has in the past, information provided through the American
Electronics Association annual compensation survey,
particularly data for companies having revenues similar to
those of the Company. In exercising its judgment with
respect to base salary adjustments, the Committee has not
used these survey materials in any pre-determined
mathematical manner. However, the Committee has sought to
maintain executive officer base salaries at levels near the
median for comparable positions in comparable companies,
with modest deviations based on evaluations of the
experience, qualifications and contributions of individual
officers.
Annual Incentive Compensation. Following the
Committee's review, the Committee has recommended to the
Board of Directors, and the Board has adopted, the Company's
Executive Annual Incentive Compensation Plan. Under this
Plan, a target bonus is designated, as a percentage of base
salary, for each executive officer at the beginning of each
calendar year. As implemented for 1997, actual incentive
compensation can vary from zero to 150% of the target. The
extent (from zero to 150%) to which 70% of the target is
paid depends upon achievement by the Company of specified
levels of profit before tax for the year and, in the case of
operating subsidiary officers, on attainment by the
subsidiary of specified profit before taxes. The extent to
which the remaining 30% is paid is determined by reference
to performance against individual qualitative goals, as
judged by the CEO (as to other officers) and the Committee.
The Committee retains the right to modify, either up or
down, the incentive compensation otherwise payable based on
achievement of financial goals, in the event of unusual
circumstances, as determined by the Committee, affecting the
Company's or subsidiary's financial performance during the
year.
The Executive Annual Incentive Compensation Plan was
not in effect for 1996. However, the Committee sought to
award incentive compensation consistent with the Plan's
approach. The incentive compensation awards to executive
officers, as set forth in the Summary Compensation Table,
reflect the Committee's conclusion that individual efforts
of the officers merited awards based on qualitative
considerations, and the facts that earnings and shareholder
value significantly improved during the year but beginning-of-
the-year earnings objectives were not fully achieved.
Long-Term Incentives -- Stock Options. The Company has
from time to time granted stock options to the CEO and other
executive officers, in order to provide long-term incentive
compensation directly linked to growth in shareholder value.
As a result of the Committee's review and the
recommendations of its compensation consultant, the
Committee believes that options should be granted annually
and on a systematic basis at levels determined to be
competitively appropriate. However, the Committee has not
adopted a formal program for automatically granting options,
and annual grants will remain in the Committee's discretion.
In general, the Committee believes that early in each year
options should be granted having a calculated value, based
on the Black-Scholes model, equal to a substantial
percentage of each officer's base salary. All options would
be granted at exercise prices equal to market value on the
date of grant, and would require a substantial period of
service before they could be exercised. The Committee also
believes that the percentage of base salary that should be
used in determining annual stock option awards should
increase with an officer's level of responsibility and his
or her potential to affect shareholder value. The option
awards included in the Summary Compensation Table reflect
the Committee's approach to annual option grants. The grant
date for the options specified in the Table was deferred
until January 1997, following completion of the compensation
program review. These grants have been included in the
Table because, in the Committee's view, they relate to 1996
service, and it is the Committee's intention to consider a
further grant with respect to 1997 service, following action
by the shareholders on the proposed 1997 Stock Incentive
Plan.
Compensation of the Chief Executive Officer. During
1996, Dr. Sharon's base salary was increased from $225,000
to $245,000 per year. This increase occurred following
review by the Committee of compensation data for other
public companies engaged in similar businesses, and for
companies included in the American Electronics Association's
1995 executive compensation survey. In each case, the data
was analyzed based on company revenues. Following the
increase, Dr. Sharon's base salary remained below the
midpoint for CEO's of similar-sized companies included in
the AEA survey. The Committee based Dr. Sharon's salary
increase on the available comparative data, and on its
favorable view of Dr. Sharon's efforts to identify emerging
commercial wireless communications markets and to organize
the Company's various technical and marketing resources to
better address potential opportunities.
As discussed above, Dr. Sharon's bonus compensation for
1996, like that of other executive officers, reflects the
Committee's conclusion that while the Company's financial
performance significantly improved during 1996 and
shareholder value increased significantly during the year,
the Company did not attain beginning-of-the-year earnings
objectives. As a result, Dr. Sharon's bonus was based on
the Committee's favorable evaluation of his qualitative
contributions during the year, particularly with respect to
leadership in identifying and addressing opportunities in
emerging commercial wireless communications markets; this
bonus does not include any specific amount related to the
Company's 1996 financial performance.
Following review of the report of its compensation
consultant, the Committee has concluded that at the present
time an annual grant of stock options, having a Black-Scholes
valuation of approximately 90% of base salary,
constitutes an appropriate level of long-term incentive
compensation for the CEO. The stock options included in the
Summary Compensation Table were granted based on this
approach.
Submitted by the members of the Compensation Committee:
John B. Mowell, Chairman
Anthony J. Iorillo
Jerry B. Lassiter
John H. Levergood
Shareholder Return
The annual changes for the five-year period shown in the
following graph are based on the assumption that $100 had been
invested in the common stock of Electromagnetic Sciences, Inc.
and each index on December 31, 1991.
Comparison of Five-Year Cumulative Total Return
Electromagnetic Sciences, Inc. Common Stock (ELMG)
S&P Composite-500 and S&P High Technology Composite Indices
Base Years Ending
Period
12/91 12/92 12/93 12/94 12/95 12/96
----- ----- ----- ----- ----- -----
S&P 500 Index 100 107.62 118.46 120.03 165.13 203.05
Technology-500 100 104.13 128.09 149.29 215.04 305.07
ELMG 100 58.18 60.91 88.18 80.00 140.00
Acquisition of Minority LXE Shares
During 1996, the Company acquired all shares of LXE Inc.
that had previously been held by other shareholders. The
acquisition of 548,200 LXE shares (approximately 10% of those
outstanding) occurred in February 1996, in a transaction with two
partnerships controlled by David A. Rocker. See "Security
Ownership." In this transaction, the Company delivered to the
Rocker partnerships .8337 Company shares plus $.912 for each LXE
share acquired, and also received the agreement from 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 Company
shares had a closing market value of $12.25 per share, or $10.21
for each .8337 Company share. The Company shares delivered in
this 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.
On November 27, 1996, the Company initiated its offer to
acquire all remaining minority-owned LXE shares in exchange for
.75 Company shares for each LXE share acquired. The exchange
ratio offered by the Company had been determined by its Board of
Directors, based on the recommendation of a Special Committee
comprising Messrs. Iorillo, Lassiter and Levergood, none of whom
had an ownership interest in LXE. With the assistance of a
financial advisor, the Special Committee and the Board each
concluded that the exchange ratio was reasonable and appropriate
in light of numerous factors, principally including: relative
historical and anticipated contributions to the Company's
earnings; trading prices for the LXE and Company shares, market
valuations of comparable companies as multiples of selected
operating results, including projected revenues and earnings per
share; the terms of comparable minority buy-out transactions; the
fact that tendering LXE shareholders would continue to
participate in the business of LXE as holders of Company shares;
management's perception of LXE's business prospects; and the
perceived benefits to the Company of obtaining 100% ownership of
LXE.
At a special meeting held on December 30, 1996, the
acquisition of the LXE minority shares on the foregoing terms was
approved by the Company's shareholders. On December 31, 1996,
the Company accepted tenders of sufficient LXE shares to increase
its ownership of LXE to approximately 96%. Immediately
thereafter, the Company exercised its right to cause a merger in
which all remaining LXE minority shares were each converted into
.75 Company shares. As a result of this transaction, the
following directors, officers and holders of in excess of 5% of
the Company's shares received the specified numbers of Company
shares in exchange for previously held LXE shares:
No. of LXE No. of ELMG
Shares Exchanged Shares
Name Or Converted Received
---- ---------------- ------------
Kopp Investment Advisors, Inc. 295,312 221,484
Dimensional Fund Advisors, Inc. 171,000 128,250
John B. Mowell 11,000 8,250
John E. Pippin 18,810 14,107
Thomas E. Sharon 7,326 5,494
Don T. Scartz 2,092 1,569
William S. Jacobs 2,000 1,500
As part of the merger acquisition of remaining LXE minority shares,
each option previously granted by LXE under its 1989 Stock Incentive Plan
was converted into an option under the Company's 1992 Stock Incentive Plan.
The following table sets forth information concerning the conversion of such
options held by the Company's directors and officers:
<TABLE>
Number of Number of
LXE Shares ELMG Shares
Underlying Exercise Underlying Exercise
Options Before Price Per Options Before Price Per Expiration
Name Merger Conversion LXE Share Merger Conversion ELMG Share Dates
---- ------------------ --------- ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Thomas E. Sharon 40,893 $ 3.77 30,669 $ 5.03 1/27/01
Don T. Scartz: 19,875 5.66 14,906 7.55 9/26/02
2,000 15.25 1,500 20.33 4/24/98
William S. Jacobs 5,000 18.25 3,750 24.33 3/13/98
</TABLE>
APPROVAL OF 1997 STOCK
INCENTIVE PLAN
Background and Description
On January 24, 1997, the Board of Directors adopted the
Electromagnetic Sciences, Inc. 1997 Stock Incentive Plan (the
"1997 Plan"), subject, as to participation by directors and
executive officers, to subsequent approval by the shareholders.
The 1997 Plan provides for the grant of options to purchase
common stock ("Options"), and for the issuance of shares of
common stock ("Awards"). Any shares issued pursuant to Awards
will be subject to restrictions, including the possibility of
forfeiture under certain circumstances. Subject to adjustment
upon changes in capitalization, up to 400,000 shares of common
stock may be issued under the 1997 Plan, although no more than
80,000 shares may be issued as Awards of restricted stock, and no
more than 50,000 shares may be optioned to a single participant
during a single calendar year. The 1997 Plan will expire on
January 24, 2007, but Options or Awards granted prior to that
date will remain in effect according to their terms. For the
purpose of calculating the shares remaining available for issue
under the 1997 Plan, shares that had been optioned or awarded but
thereafter forfeited, and shares either withheld or surrendered
in payment of the exercise price of Options or of withholding
taxes related to an Option or Award, will not be considered as
having been optioned or awarded and will be available for future
Options or Awards.
The 1997 Plan has been 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, and because the Company's 1992 Stock
Incentive Plan has expired. The 1997 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 1997 Plan is
administered by a committee (the "Committee") of the Board of
Directors which will select the recipients of Options and Awards.
With respect to Options and Awards for directors and executive
officers, the Committee will consist solely of directors who are
"non-employee directors" for the purposes of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "1934 Act").
Under such Rule as currently in effect, such directors are those
who are not currently officers or employees of the Company or its
subsidiaries, and who do not receive compensation for services
(except as a director), or otherwise have an interest in business
transactions or relationships, requiring proxy statement
disclosure. The Committee has the authority to determine the
terms of Options and Awards to the extent not inconsistent with
requirements of the 1997 Plan, to interpret the 1997 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 1997 Plan. The 1997 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 1997 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. Without shareholder
approval, the Board may not amend the 1997 Plan to materially
increase the total number of shares available to directors or
executive officers. 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. The 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, but the exercise price may not be less
than 100% of fair market value on the date of grant. Under
applicable accounting rules as currently in effect, no
compensation expense is incurred by the Company, either at the
time of grant or upon exercise, with respect to an Option granted
at an exercise price equal to or exceeding the fair market value
of the common stock on the date of grant.
The exercise price (together with any applicable taxes) is
payable in full upon exercise, and payment may be made in cash,
by delivery (or withholding in lieu of delivery) of shares of
common stock (valued at their fair market value at the time of
exercise), or by a combination of cash and stock. The market
value per share of the common stock on March 24, 1997, was
$18.875, as determined by reference to the closing sales price as
reported in the National Market System.
In the discretion of the Committee, Options under the 1997
Plan may include a "reload option." 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 or authorizing the
withholding of shares of common stock. 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
common stock 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. No reload options were
granted under the 1992 Plan, and the Committee has no current
plans to issue reload options under the 1997 Plan.
Options granted under the 1997 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, or, in the discretion
of the Committee, to family members or family trusts or similar
estate-planning entities.
No Options have been granted under the 1997 Plan. As
discussed in the Report of the Compensation Committee included in
this Proxy Statement, that Committee (whose members also serve as
the Committee under the 1997 Plan with respect to Grants or
Awards to executive officers) believes that regular annual Option
grants, in amounts related to an officer's base salary and level
of responsibility, constitute a competitively appropriate and
effective method of long-term incentive compensation. The
Company believes that similar regularity of Option grants is an
important element of the compensation package for other key
technical and managerial personnel. Neither the Committee nor
the Company has formed any specific plans for the grant of
additional Options during 1997. However, shares optioned under
the 1992 Plan during or with respect to 1996 service included
53,500 shares optioned to executive officers (as reflected in the
Summary Compensation Table), and 91,750 shares optioned to other
employees. During 1996, an additional 20,500 shares were
optioned to a total of four new employees as part of negotiated
initial employment terms. Although the 1997 Plan remains in
effect through 2007, grants of similar numbers of Options in
future years would exhaust the shares available under 1997 Plan
at an earlier date, and would require amendment of the Plan to
increase the number of available shares; no such amendment could
be effective as to participation of directors or executive
officers without further shareholder approval.
Options for Non-Employee Directors. Each current member of
the Board of Directors who is not an employee of the Company or
any subsidiary has previously been granted an Option for the
purchase of 10,000 shares of common stock. These Options have
an exercise price equal to the fair market value of the common
stock 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 (except that such options
held by Dr. Pippin become exercisable over a three-year period).
However, these Options become immediately exercisable in the
event of a third-party tender or exchange offer for the Company's
common stock, or if any person becomes the beneficial owner of
50% or more of the outstanding common stock. The exercise price
(together with any applicable taxes) may be paid in cash, by
shares of common stock (valued at their fair market value at the
time of exercise), or by a combination of cash and stock. Upon
the optionee ceasing to be a director for any reason, these
Options will terminate and be 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.
If the 1997 Plan is approved by the shareholders, each
person who is thereafter elected as a director, and who is not an
employee of the Company or any subsidiary, will automatically be
granted a similar option for the purchase of 10,000 shares of
common stock. In addition, each person who is serving as a
director, and is not an employee of the Company or any
subsidiary, will, on each date of election to an additional one-year
term as a director, following the completion of five one-year
terms (or their equivalent) after the grant of such
director's 10,000-share option, be granted an additional Option
for 2,500 shares, becoming exercisable six months after the date
of grant. Such additional options would otherwise be on the same
terms as the 10,000-share Options. Under these provisions,
Messrs. Lassiter and Mowell would first receive additional 2,500-share
Options upon their elections as directors at the Annual
Meeting, and Dr. Pippin and Messrs. Iorillo and Levergood would
be eligible to receive such additional Options beginning at the
annual meeting to be held in 2000.
Awards of Restricted Shares. The recipient of an Award will
be issued shares of common stock ("Restricted Shares") in
consideration of services performed or to be performed as a
condition to the lapse of specified restrictions. Recipients
will not make any payment to the Company in exchange for the
Restricted Shares. Each Award will be governed by a restriction
agreement containing such conditions and restrictions applicable
to the Restricted Shares as the 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 1992 Plan, which has expired, provided for Awards of up
to 100,000 Restricted Shares. The actual number issued under the
1992 Plan was 12,370 shares, awarded in lieu of a portion of
bonuses otherwise payable in cash to senior officers, and in one
case in connection with negotiated employment terms for a new
officer. The Company believes that Restricted Shares can be a
valuable tool in particular circumstances, but the Committee does
not have either current plans to award additional shares or an
intention of doing so on a frequent basis.
In the event of an Award of Restricted Shares, the 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 Committee
determines otherwise, recipients of Restricted Shares will have
the right to vote the Restricted Shares and to receive dividends
or distributions made with respect to them.
An Award of Restricted Shares will result in a 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 at that time (although the exercise may impact the
optionee's alternative minimum tax calculation), 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 to the holder of incentive stock options 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.
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 stock. 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.
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 stock paid in cash.
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, provided that 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 to the Company 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, provided that 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.
Awards of Restricted Shares. At the time of an Award a
recipient may elect to recognize taxable income equal to the fair
market value of the Restricted Shares (computed without regard to
the adverse effect on market value of any restrictions) on the
date of issuance. If such an election is made by the recipient,
the Company will be entitled at that time to a deduction equal to
the amount of taxable income recognized by the recipient. In the
absence of such an election, a recipient of Restricted Shares
will not recognize taxable income until the restrictions imposed
with respect to the Award lapse. At that time, the recipient
will recognize income equal to the fair market value of the
Restricted Shares on the date the restrictions lapse and the
Company will obtain a corresponding deduction. The amount of
income recognized by a recipient of Restricted Shares will
constitute the basis of his or her shares for income tax
purposes.
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 Committee, an award
may provide for a payment of taxes by delivering already-owned
shares of common stock, 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 common stock at that time.
Vote Required and Recommendation of the Board
Shareholder approval of the Plan is not required by the
Company's Articles of Incorporation or Bylaws, or by Georgia law.
The 1997 Plan is being submitted for shareholder approval
pursuant to the requirements of the National Association of
Securities Dealers for securities traded on the National Market
System, and of Sections 162(m) and 422 of the Internal Revenue
Code. Section 162(m) of the Internal Revenue Code limits the
Company's tax deduction for compensation expense for any one
executive officer to $1 million per year, except that
compensation under certain shareholder-approved incentive
compensation plans is not subject to this limit; the 1997 Plan
has been structured with respect to option grants to conform with
the exception to Section 162(m), if the Plan receives shareholder
approval. Section 422 of the Internal Revenue Code requires
shareholder approval in order for Options under the 1997 Plan to
be treated as incentive stock options. See "Federal Income Tax
Consequences -- Incentive Stock Options," above.
The affirmative vote of the holders of a majority of the
shares of common stock present at the Annual Meeting and voting
on the matter is required to approve the 1997 Plan, assuming the
presence of a quorum. 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. Until such time as the 1997
Plan is approved by the shareholders, no Options or Awards will
be granted to directors or executive officers and no incentive
stock options may be granted to any participant. Otherwise, the
grant of Options or Awards under the 1997 Plan is not subject to
shareholder approval.
The Board of Directors unanimously recommends a vote "FOR"
approval of the adoption of the Electromagnetic Sciences, Inc.
1997 Stock Incentive Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act,
each executive officer, director and beneficial owner of 10% or
more of the Company's common stock is required to file certain
forms with the Securities and Exchange Commission. A report of
beneficial ownership of the Company's common stock on Form 3 is
due at the time such person becomes subject to the reporting
requirement and a report on Form 4 or 5 must be filed to reflect
changes in beneficial ownership occurring thereafter. Based on
written statements and copies of forms provided to the Company
during and for 1996 by persons subject to the reporting
requirements, the Company believes that all Forms 3, 4 and 5
required to be filed by such reporting persons during 1995 were
filed on a timely basis.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP acted as the Company's independent
public accountants during the last fiscal year and, it is
anticipated, will continue to act as such during the current
fiscal year. A representative of KPMG Peat Marwick LLP is
expected to be present at the Annual Meeting to respond to
appropriate questions, and will have the opportunity to make a
statement if he desires to do so.
AVAILABLE INFORMATION
The Company files Annual Reports on Form 10-K with the
Securities and Exchange Commission. A copy of the Annual Report
for the fiscal year ended December 31, 1996 (except for exhibits
thereto) may be obtained, free of charge, upon written request by
any shareholder to Electromagnetic Sciences, Inc., Attn: Don T.
Scartz, Treasurer, 660 Engineering Drive, P. O. Box 7700,
Norcross, Georgia 30091-7700. Copies of all exhibits to the
Annual Report are available upon a similar request, subject to
payment of a $.15 per page charge to reimburse the Company for
its expenses.
Norcross, Georgia
March 25, 1997
PROXY CARD
----------
ELECTROMAGNETIC SCIENCES, INC.
The undersigned hereby appoints John E. Pippin, Thomas E.
Sharon and William S. Jacobs, and each of them with individual
power of substitution, proxies to appear and vote all shares of
the common stock of Electromagnetic Sciences, Inc. that the
undersigned may be entitled to vote at the Annual Meeting of
Shareholders to be held on the 2nd day of May, 1997, and at all
adjournments thereof, as indicated with respect to the following
matters:
(1) To vote FOR or WITHHOLD AUTHORITY to vote for electing
the following seven members of the Board of Directors, except as
marked to the contrary.
Anthony J. Iorillo, Jerry H. Lassiter, John H. Levergood, John B.
Mowell, John E. Pippin, Don T. Scartz, Thomas E. Sharon
INSTRUCTIONS: If he or she so chooses, any shareholder may
withhold authority to vote for any nominee by lining through or
otherwise striking out the name of such nominee. The above-named
proxies will vote for the election of any nominee whose name is
not deleted.
(2) Proposal to approve adoption of the Electromagnetic
Sciences, Inc. 1997 Stock Incentive Plan, as described in the
Proxy Statement for the Annual Meeting under the heading
"Approval of 1997 Plan." FOR AGAINST ABSTAIN
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
NOMINEES AND PROPOSAL LISTED.
(3) In accordance with their best judgment upon such other
matters as may properly come before the Annual Meeting or any
adjournment thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY INSTRUCTIONS
INDICATED HEREON. IF NO INDICATION IS MADE, IT WILL BE VOTED
"FOR" THE LISTED NOMINEES AND PROPOSAL.
The Board of Directors is not aware of any matters to be
presented for action at the Annual Meeting of Shareholders,
other than the election of Directors and the listed Proposal.
This proxy is revocable at any time prior to its use.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE.
ELECTROMAGNETIC SCIENCES, INC.
To Shareholders:
Please mark this proxy on the reverse side, date and sign
this proxy below, and return it to us promptly in the enclosed
envelope, which requires no postage. Please sign exactly as
your name appears below and indicate any change of address.
Dated: , 1997
------------
BE SURE TO DATE THIS PROXY
----------------------- (L.S.)
----------------------- (L.S.)
Signature(s) should correspond
with name(s) on reverse side.
When signing in a fiduciary or
representative capacity, give
full title as such.
APPENDIX I As adopted
January 24, 1997
ELECTROMAGNETIC SCIENCES, INC.
1997 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
(a) "Award" 1
(b) "Board" 1
(c) "Code" 1
(d) "Committee" 1
(e) "Company" 1
(f) "Director" 2
(g) "Disinterested Person" 2
(h) "Employee" 2
(i) "Employer" 2
(j) "Fair Market Value" 3
(k) "Grantee" 3
(l) "ISO" 3
(m) "1934 Act" 3
(n) "Officer" 3
(o) "Option" 3
(p) "Option Agreement" 4
(q) "Optionee" 4
(r) "Option Price" 4
(s) "Parent" 4
(t) "Plan" 4
(u) "Purchasable" 4
(v) "Qualified Domestic Relations Order" 4
(w) "Reload Option" 4
(x) "Restricted Stock" 5
(y) "Restriction Agreement" 5
(z) "Stock" 5
(aa) "Subsidiary" 5
ARTICLE II THE PLAN 5
Section 2.1 Name 5
Section 2.2 Purpose 5
Section 2.3 Effective Date 5
Section 2.4 Termination Date 5
ARTICLE III ELIGIBILITY 6
ARTICLE IV ADMINISTRATION 6
Section 4.1 Duties and Powers of the Committee 6
Section 4.2 Interpretation; Rules 6
Section 4.3 No Liability 7
Section 4.4 Majority Rule 7
Section 4.5 Company Assistance 7
ARTICLE V SHARES OF STOCK SUBJECT TO PLAN 7
Section 5.1 Limitations 7
Section 5.2 Antidilution 8
ARTICLE VI OPTIONS 9
Section 6.1 Types of Options Granted 9
Section 6.2 Option Grant and Agreement 10
Section 6.3 Optionee Limitations 10
Section 6.4 $100,000 Limitation 11
Section 6.5 Option Price 11
Section 6.6 Exercise Period 11
Section 6.7 Option Exercise 12
Section 6.8 Nontransferability of Option 13
Section 6.9 Termination of Employment 14
Section 6.10 Employment Rights 14
Section 6.11 Certain Successor Options 14
Section 6.12 Conditions to Issuing Option Stock 15
Section 6.13 Automatic Option Grants to Certain
Directors 15
ARTICLE VII RESTRICTED STOCK 17
Section 7.1 Awards of Restricted Stock 17
Section 7.2 Non-Transferability 18
Section 7.3 Lapse of Restrictions 18
Section 7.4 Termination of Employment 18
Section 7.5 Treatment of Dividends 18
Section 7.6 Delivery of Shares 18
Section 7.7 Payment of Withholding Taxes 19
ARTICLE VIII TERMINATION, AMENDMENT AND MODIFICATION OF PLAN 20
ARTICLE IX MISCELLANEOUS 20
Section 9.1 Replacement or Amended Grants 20
Section 9.2 Forfeiture for Competition 20
Section 9.3 Plan Binding on Successors 21
Section 9.4 Headings Not a Part of Plan 21
ELECTROMAGNETIC SCIENCES, INC.
1997 STOCK INCENTIVE PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the meanings
hereinafter set forth unless the context clearly indicates to the
contrary:
(a) "Award" shall mean a grant of Restricted Stock.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Code" shall mean the United States Internal
Revenue Code of 1986, as amended, including effective date
and transition rules (whether or not codified). Any
reference herein to a specific section or sections of the
Code shall be deemed to include a reference to any
corresponding provision of future law.
(d) "Committee" shall mean a committee of at least two
Directors appointed from time to time by the Board, having
the duties and authority set forth herein in addition to any
other authority granted by the Board; provided, however,
that with respect to any Options or Awards granted to an
individual who is also an Officer or Director, the Committee
shall consist of at least two Non-Employee Directors (who
need not be members of the Committee with respect to Options
or Awards granted to any other individuals), and all
authority and discretion shall be exercised by such Non-
Employee Directors, and references herein to the "Committee"
shall mean such Non-Employee Directors insofar as any
actions or determinations of the Committee shall relate to
or affect Options or Awards made to or held by any Officer
or Director.
(e) "Company" shall mean Electromagnetic Sciences,
Inc., a Georgia corporation.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any employee of the Company
or any Subsidiary of the Company.
(h) "Employer" shall mean the corporation that employs
a Grantee.
(i) "Fair Market Value" of the shares of Stock on any
date shall mean
(i) the closing sales price, regular way, or in
the absence thereof the mean of the last reported
bid and asked quotations, on such date on the
exchange having the greatest volume of trading in
the shares during the thirty-day period preceding
such date (or if such exchange was not open for
trading on such date, the next preceding date on
which it was open); or
(ii) if there is no price as specified in (i),
the final reported sales price, or if not reported
in the following manner, the mean of the closing
high bid and low asked prices, in the
over-the-counter market for the shares as reported
by the National Association of Securities Dealers
Automatic Quotation System or, if not so reported,
then as reported by the National Quotation Bureau
Incorporated, or if such organization is not in
existence, by an organization providing similar
services, on such date (or if such date is not a
date for which such system or organization
generally provides reports, then on the next
preceding date for which it does so); or
(iii) if there also is no price as specified in
(ii), the price determined by the Committee by
reference to bid-and-asked quotations for the
shares provided by members of an association of
brokers and dealers registered pursuant to
subsection 15(b) of the 1934 Act, which members
make a market in the shares, for such recent dates
as the Committee shall determine to be appropriate
for fairly determining current market value; or
(iv) if there also is no price as specified in
(iii), the amount determined in good faith by the
Committee based on such relevant facts, which may
include opinions of independent experts, as may be
available to the Committee.
(j) "Grantee" shall mean an Employee, former employee
or other person who is an Optionee or who has received an
Award of Restricted Stock.
(k) "ISO" shall mean an Option that complies with and
is subject to the terms, limitations and conditions of Code
section 422 and any regulations promulgated with respect
thereto.
(l) "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
(m) "Non-Employee Director" shall have the meaning set
forth for such term or corresponding concept in Rule 16b-3
under the 1934 Act, as the same may be in effect from time
to time, or in any successor rule thereto, and shall be
determined for all purposes under the Plan according to
interpretative or "no-action" positions with respect thereto
issued by the Securities and Exchange Commission or its
staff; provided, however, that to the extent it is
determined and intended that Options qualify as
"performance-based compensation" within the meaning of
section 162(m) of the Code, a person shall be a "Non-
Employee Director" only if he or she is also an "outside
director" within the meaning of such section 162(m).
(n) "Officer" shall mean a person who constitutes an
officer of the Company for the purposes of Section 16 of the
1934 Act, as determined by reference to such Section 16 and
to the rules, regulations, judicial decisions, and
interpretative or "no-action" positions with respect thereto
of the Securities and Exchange Commission or its staff, as
the same may be in effect or set forth from time to time.
(o) "Option" shall mean a contractual right to
purchase Stock granted pursuant to the provisions of
Article VI hereof.
(p) "Option Agreement" shall mean an agreement between
the Company and an Optionee setting forth the terms of an
Option.
(q) "Optionee" shall mean a person to whom an Option
has been granted hereunder.
(r) "Option Price" shall mean the price at which an
Optionee may purchase a share of Stock pursuant to an
Option.
(s) "Parent", when used with respect to any
subject corporation, shall mean any other corporation that
owns stock possessing 50% or more of the total combined
voting power of all classes of stock of the subject
corporation or that owns such stock of another corporation
in an unbroken chain of corporations having such ownership
of the stock of another corporation and ending with the
subject corporation.
(t) "Plan" shall mean the 1997 Stock Incentive Plan of
the Company.
(u) "Purchasable," when used to describe Stock, shall
refer to Stock that may be purchased by an Optionee under
the terms of this Plan on or after a certain date specified
in the applicable Option Agreement.
(v) "Qualified Domestic Relations Order" shall have
the meaning set forth in the Code or in the Employee
Retirement Income Security Act of 1974, as amended, or the
rules and regulations promulgated under the Code or such
Act.
(w) "Reload Option" shall mean an Option that is
granted, without further action of the Committee, (i) to an
Optionee who surrenders or authorizes the withholding of
shares of Stock in payment of amounts specified in
paragraphs 6.7(c) or 6.7(d) hereof, (ii) for the same number
of shares as is so paid, (iii) as of the date of such
payment and at an Option Price equal to the Fair Market
Value of the Stock on such date, and (iv) otherwise on the
same terms and conditions as the Option whose exercise has
occasioned such payment, subject to such contingencies,
conditions or other terms as the Committee shall specify at
the time such exercised Option is granted.
(x) "Restricted Stock" shall mean Stock issued,
subject to restrictions, to an Employee pursuant to Article
VII hereof.
(y) "Restriction Agreement" shall mean the agreement
setting forth the terms of an Award, and executed by a
Grantee as provided in Section 7.1 hereof.
(z) "Stock" shall mean the $.10 par value common stock
of the Company or, in the event that the outstanding shares
of such stock are hereafter changed into or exchanged for
shares of a different class of stock or securities of the
Company or some other corporation, such other stock or
securities.
(aa) "Subsidiary", when used with respect to any
subject corporation, shall mean any other corporation as to
which the subject corporation is a Parent.
ARTICLE II
THE PLAN
2.1 Name. This plan shall be known as the "Electromagnetic
Sciences, Inc. 1997 Stock Incentive Plan."
2.2 Purpose. The purpose of the Plan is to advance the
interests of the Company, its shareholders, and any Subsidiary of
the Company, by offering certain Employees and Directors an
opportunity to acquire or increase their proprietary interests in
the Company. Options and Awards will promote the growth and
profitability of the Company and any Subsidiary of the Company,
because Grantees will be provided with an additional incentive to
achieve the Company's objectives through participation in its
success and growth.
2.3 Effective Date. The Plan shall become effective on
January 24, 1997.
2.4 Termination Date. No further Options or Awards shall
be granted hereunder on or after January 24, 2007, but all
Options or Awards granted prior to that time shall remain in
effect in accordance with their terms.
ARTICLE III
ELIGIBILITY
The persons eligible to participate in this Plan shall
consist only of Directors and those Employees whose participation
the Committee determines is in the best interests of the Company.
However, no ISO's may be granted, and no Options or Awards may be
granted to any Director or Officer, prior to the approval of this
Plan by the Company's shareholders.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be
administered by the Committee. The Committee shall select one of
its members as its Chairman and shall hold its meetings at such
times and places as it may determine. The Committee shall keep
minutes of its meetings and shall make such rules and regulations
for the conduct of its business as it may deem necessary. The
Committee shall have the power to act by unanimous written
consent in lieu of a meeting, and shall have the right to meet
telephonically. In administering the Plan, the Committee's
actions and determinations shall be binding on all interested
parties. The Committee shall have the power to grant Options or
Awards in accordance with the provisions of the Plan. Subject to
the provisions of the Plan, the Committee shall have the
discretion and authority to determine those individuals to whom
Options or Awards will be granted and whether such Options shall
be accompanied by the right to receive Reload Options, the number
of shares of Stock subject to each Option or Award, such other
matters as are specified herein, and any other terms and
conditions of an Option Agreement or Restriction Agreement. To
the extent not inconsistent with the provisions of the Plan, the
Committee shall have the authority to amend or modify an
outstanding Option Agreement or Restriction Agreement, or to
waive any provision thereof, provided that the Grantee consents
to such action.
4.2 Interpretation; Rules. Subject to the express
provisions of the Plan, the Committee also shall have complete
authority to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to it, and to make all other
determinations necessary or advisable in the administration of
the Plan, including, without limitation, the amending or altering
of any Options or Awards granted hereunder as may be required to
comply with or to conform to any federal, state or local laws or
regulations.
4.3 No Liability. Neither any member of the Board nor any
member of the Committee shall be liable to any person for any act
or determination made in good faith with respect to the Plan or
any Option or Award granted hereunder.
4.4 Majority Rule. A majority of the members of the
Committee shall constitute a quorum, and any action taken by a
majority at a meeting at which a quorum is present, or any action
taken without a meeting evidenced by a writing executed by all
the members of the Committee, shall constitute the action of the
Committee.
4.5 Company Assistance. The Company shall supply full and
timely information to the Committee on all matters relating to
eligible persons, their employment, death, retirement, disability
or other termination of employment, and such other pertinent
facts as the Committee may require. The Company shall furnish
the Committee with such clerical and other assistance as is
necessary in the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Shares subject to an Option or issued as
an Award may be either authorized and unissued shares or shares
issued and later acquired by the Company. Subject to any
antidilution adjustment pursuant to the provisions of Section 5.2
hereof, the maximum number of shares of Stock that may be issued
hereunder shall be 400,000 (of which a maximum of 80,000 shares
may be issued as Restricted Stock). Shares (i) covered by any
unexercised portion of an Option that has terminated for any
reason; (ii) covered by any forfeited portion of an Award (except
any portion as to which the Grantee has received, and not
forfeited, dividends or other benefits of ownership other than
voting rights); (iii) withheld in payment of the Option Price or
withholding taxes; or (iv) issued hereunder but equal to the
number of shares surrendered in payment of the Option Price or
withholding taxes or purchased by the Company for an aggregate
price not exceeding the aggregate cash received from Grantees in
payment of Option Prices or withholding taxes, may each again be
optioned or awarded under the Plan, and such shares shall not be
considered as having been optioned or issued in computing the
number of shares of Stock remaining available for option or award
hereunder.
5.2 Antidilution.
(a) In the event that the outstanding shares of Stock
are changed into or exchanged for a different number or kind
of shares or other securities of the Company by reason of
merger, consolidation, reorganization, recapitalization,
reclassification, combination or exchange of shares, stock
split or stock dividend, or in the event that any spin-off,
spin-out or other distribution of assets materially affects
the price of the Company's stock:
(i) The aggregate number and kind of shares of
Stock for which Options or Awards may be granted
hereunder shall be adjusted proportionately by the
Committee; and
(ii) The rights of Optionees (concerning the
number of shares subject to Options and the Option
Price) under outstanding Options and the rights of the
holders of Awards (concerning the terms and conditions
of the lapse of any then-remaining restrictions), shall
be adjusted proportionately by the Committee.
(b) If the Company shall be a party to any
reorganization in which it does not survive, involving
merger, consolidation, or acquisition of the stock or
substantially all the assets of the Company, the Committee,
in its discretion, may:
(i) notwithstanding other provisions hereof,
declare that all Options granted under the Plan shall
become exercisable immediately notwithstanding the
provisions of the respective Option Agreements
regarding exercisability, that all such Options shall
terminate a specified period of time after the
Committee gives written notice of the immediate right
to exercise all such Options and of the decision to
terminate all Options not exercised within such period,
and that all then-remaining restrictions pertaining to
Awards under the Plan shall immediately lapse; or
(ii) notify all Grantees that all Options or
Awards granted under the Plan shall be assumed by the
successor corporation or substituted on an equitable
basis with options or restricted stock issued by such
successor corporation.
(c) If the Company is to be liquidated or dissolved in
connection with a reorganization described in paragraph
5.2(b), the provisions of such paragraph shall apply.
In all other instances, the adoption of a plan of
dissolution or liquidation of the Company shall,
notwithstanding other provisions hereof, cause all
then-remaining restrictions pertaining to Awards under
the Plan to lapse, and shall cause every Option
outstanding under the Plan to terminate to the extent
not exercised prior to the adoption of the plan of
dissolution or liquidation by the shareholders,
provided that, notwithstanding other provisions hereof,
the Committee may declare all Options granted under the
Plan to be exercisable at any time on or before the
fifth business day following such adoption
notwithstanding the provisions of the respective Option
Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a)
through (c) of this Section 5.2, and the manner of
their application, shall be determined solely by the
Committee, and any such adjustment may provide for the
elimination of fractional share interests. The
adjustments required under this Article V shall apply
to any successors of the Company and shall be made
regardless of the number or type of successive events
requiring such adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. Within the limitations
provided herein, Options may be granted to one Employee at one or
several times or to different Employees at the same time or at
different times, in either case under different terms and
conditions, as long as the terms and conditions of each Option
are consistent with the provisions of the Plan. Without
limitation of the foregoing, Options may be granted subject to
conditions based on the financial performance of the Company or
any other factor the Committee deems relevant.
6.2 Option Grant and Agreement. Each Option granted or
modified hereunder shall be evidenced (a) by either minutes of a
meeting or a written consent of the Committee, and (b) by a
written Option Agreement executed by the Company and the
Optionee. The terms of the Option, including the Option's
duration, time or times of exercise, exercise price, whether the
Option is intended to be an ISO, whether the Option is
transferable under paragraph 6.8(b), and whether the Option is to
be accompanied by the right to receive a Reload Option, shall be
stated in the Option Agreement. Separate Option Agreements shall
be used for Options intended to be ISO's and those not so
intended, but any failure to use such separate Agreements shall
not invalidate, or otherwise adversely affect the Optionee's
rights under and interest in, the Options evidenced thereby.
6.3 Optionee Limitations. The Committee shall not grant an
ISO to any person who, at the time the ISO would be granted:
(a) is not an Employee; or
(b) owns or is considered to own stock possessing more
than 10% of the total combined voting power of all classes
of stock of the Employer, or any Parent or Subsidiary of the
Employer; provided, however, that this limitation shall not
apply if at the time an ISO is granted the Option Price is
at least 110% of the Fair Market Value of the Stock subject
to such Option and such Option by its terms would not be
exercisable after the expiration of five years from the date
on which the Option is granted. For the purpose of this
paragraph (b), a person shall be considered to own (i) the
stock owned, directly or indirectly, by or for his brothers
and sisters (whether by the whole or half blood), spouse,
ancestors and lineal descendants, (ii) the stock owned,
directly or indirectly, by or for a corporation,
partnership, estate, or trust in proportion to such person's
stock interest, partnership interest or beneficial interest
therein, and (iii) the stock which such person may purchase
under any outstanding options of the Employer or of any
Parent or Subsidiary of the Employer.
6.4 Certain Limitations
(a) Limitation on Number of Shares. No Optionee shall
be granted, during any calendar year, Options to purchase in
excess of 50,000 shares of stock.
(b) $100,000 Limitation on ISO's. Except as provided
below, the Committee shall not grant an ISO to, or modify
the exercise provisions of outstanding ISO's held by, any
person who, at the time the ISO is granted (or modified),
would thereby receive or hold any incentive stock options
(as described in Code section 422) of the Employer and any
Parent or Subsidiary of the Employer, such that the
aggregate Fair Market Value (determined as of the respective
dates of grant or modification of each option) of the stock
with respect to which such incentive stock options are
exercisable for the first time during any calendar year is
in excess of $100,000; provided, that the foregoing
restriction on modification of outstanding ISO's shall not
preclude the Committee from modifying an outstanding ISO if,
as a result of such modification and with the consent of the
Optionee, such Option no longer constitutes an ISO; and
provided that, if the $100,000 limitation described in this
Section 6.4 is exceeded, an Option that otherwise qualifies
as an ISO shall be treated as an ISO up to the limitation
and the excess shall be treated as an Option not qualifying
as an ISO. The preceding sentence shall be applied by
taking options intended to be ISO's into account in the
order in which they were granted.
6.5 Option Price. The Option Price under each Option shall
be determined by the Committee. However, the Option Price shall
not be less than the Fair Market Value of the Stock on the date
that the Option is granted (or, in the case of an ISO that is
subsequently modified, on the date of such modification).
6.6 Exercise Period. The period for the exercise of each
Option granted hereunder shall be determined by the Committee,
but the Option Agreement with respect to each Option intended to
be an ISO shall provide that such Option shall not be exercisable
after a date not more than ten years from the date of grant (or
modification) of the Option. In addition, no Option granted to
an Employee who is also an Officer or Director shall be
exercisable prior to the expiration of six months from the date
such Option is granted, other than in the case of the death or
disability of such Employee.
6.7 Option Exercise.
(a) Unless otherwise provided in the Option Agreement,
an Option may be exercised at any time or from time to
time during the term of the Option as to any or all whole
shares that have become Purchasable under the provisions of
the Option, but not at any time as to less than 100 shares
unless the remaining shares that have become so Purchasable
are less than 100 shares. The Committee shall have the
authority to prescribe in any Option Agreement that the
Option may be exercised only in accordance with a vesting
schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to
the Treasurer of the Company at its principal office of
written notice of exercise with respect to a specified
number of shares of Stock, and (ii) payment to the Company
at that office of the full amount of the Option Price for
such number of shares.
(c) The Option Price shall be paid in full upon the
exercise of the Option. The Committee may provide in an
Option Agreement that, in lieu of cash, all or any portion
of the Option Price may be paid by (i) tendering to the
Company shares of Stock duly endorsed for transfer and
owned by the Optionee, or (ii) delivering to the Company an
attestation of the Optionee's then-current ownership of a
number of shares equal to the number thereby authorized to
be withheld by the Company from the shares otherwise
deliverable upon exercise of the Option, in each case to be
credited against the Option Price at the Fair Market Value
of such shares on the date of exercise (however, no
fractional shares may be so transferred, and the Company
shall not be obligated to make any cash payments in
consideration of any excess of the aggregate Fair Market
Value of shares transferred over the aggregate Option
Price).
(d) In addition to and at the time of payment of the
Option Price, the Optionee shall pay to the Company in cash
the full amount of any federal, state and local income,
employment or other taxes required to be withheld from the
income of such Optionee as a result of such exercise.
However, in the discretion of the Committee any Option
Agreement may provide that all or any portion of such tax
obligations, together with additional taxes not exceeding
the actual additional taxes to be owed by the Optionee as a
result of such exercise, may, upon the irrevocable election
of the Optionee, be paid by (i) tendering to the Company
whole shares of Stock duly endorsed for transfer and owned
by the Optionee, (ii) delivering to the Company an
attestation of the Optionee's then-current ownership of a
number of shares equal to the number thereby authorized to
be withheld by the Company from the shares otherwise
deliverable upon exercise of the Option, or (iii)
authorizing the Company to withhold shares of Stock
otherwise issuable upon exercise of the Option, in either
case in that number of shares having a Fair Market Value on
the date of exercise equal to the amount of such taxes
thereby being paid, in all cases subject to such
restrictions as the Committee may from time to time
determine, including any such restrictions as may be
necessary or appropriate to satisfy the conditions of the
exemption set forth in Rule 16b-3 under the 1934 Act.
(e) The holder of an Option shall not have any of the
rights of a shareholder with respect to the shares of Stock
subject to the Option until such shares have been issued
upon exercise of the Option.
6.8 Nontransferability of Option.
(a) Except as provided in paragraph 6.8(b), no Option
or any rights therein shall be transferable by an Optionee
other than by will or the laws of descent and distribution,
or (except for an ISO) pursuant to a Qualified Domestic
Relations Order. During the lifetime of an Optionee, an
Option granted to that Optionee shall be exercisable only by
such Optionee, by such Optionee's guardian or other legal
representative, should one be appointed, or by such
Optionee's transferee permitted under paragraph 6.8(b).
(b) The Committee may, in its discretion, provide that
all or a portion of an Option (other than an ISO) may be
transferred by the Optionee to (i) the spouse, children or
grandchildren of the Optionee ("Immediate Family Members"),
(ii) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or (iii) a partnership in which
the Optionee and or such Immediate Family Members are the
only partners. Following transfer, any such Option shall
continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, including
those terms and conditions governing transfer and the effect
on such Option of the termination of employment of the
Optionee. The Company shall have no obligation to any
transferee to provide notice of any termination of an Option
as a result of termination of the Optionee's employment.
The Committee may specify as a condition of any such
transfer the manner in which the Optionee shall remain
responsible for the payment of taxes required to be withheld
as a result of the exercise of such transferred Option.
6.9 Termination of Employment. The Committee shall have
the power to specify, with respect to the Options granted to any
particular Optionee, the effect upon such Optionee's right to
exercise an Option of the termination of such Optionee's
employment under various circumstances, which effect may include
(but is not limited to) immediate or deferred termination of such
Optionee's rights under an Option, or acceleration of the date at
which an Option may be exercised in full. With respect to an
ISO, such effects shall be consistent with applicable
requirements for treatment as an ISO.
6.10 Employment Rights. Options granted under the Plan
shall not be affected by any change of employment so long as the
Optionee continues to be an Employee. Nothing in the Plan or in
any Option Agreement shall confer on any person any right to
continue in the employ of the Company or any Subsidiary of the
Company, or shall interfere in any way with the right of the
Company or any such Subsidiary to terminate such person's
employment at any time.
6.11 Certain Successor Options. To the extent not
inconsistent with the terms, limitations and conditions of Code
section 422, and any regulations promulgated with respect
thereto, an Option issued in respect of an option held by an
employee to acquire stock of any entity acquired, by merger or
otherwise, by the Company (or by any Subsidiary of the Company)
may contain terms that differ from those stated in this Article
VI, but solely to the extent necessary to preserve for any such
employee the rights and benefits contained in such predecessor
option, or to satisfy the requirements of Code section 424(a).
6.12 Conditions to Issuing Option Stock. The Company shall
not be required to issue or deliver any Stock upon the full or
partial exercise of any Option prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all
stock exchanges on which the Stock is then listed;
(b) The completion of any registration or other
qualification of such shares that the Company shall
determine to be necessary or advisable under any federal or
state law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental
regulatory body, or the Company's determination that an
exemption is available from such registration or
qualification;
(c) The obtaining of any approval or other clearance
from any federal or state governmental agency that the
Company shall determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time
following exercise as shall be appropriate for reasons of
administrative convenience.
Unless the shares of Stock covered by the Plan shall be the
subject of an effective registration statement under the
Securities Act of 1933, as amended, stock certificates issued and
delivered to Optionees shall bear such restrictive legends as the
Company shall deem necessary or advisable pursuant to applicable
federal and state securities laws.
6.13 Automatic Option Grants to Certain Directors.
(a) Options for New Directors. Each person who is not
an Employee, or an employee of any Parent of the Company,
shall automatically, and without any action of the Board or
the Committee, be granted, on the first day on which such
person serves as a Director, an Option for the purchase of
10,000 shares of Stock (subject to automatic proportionate
adjustment for stock splits or stock dividends, and
otherwise to proportionate adjustment by the Committee as
provided in Section 5.2). Each such Option shall become
exercisable as to 2,000 shares on the date that is six
months after the date of grant, and as to an additional
2,000 shares on each of the first, second, third and fourth
anniversaries of such six-month date.
(b) Additional Options for Continuing Service. Each
person who is not at that time an Employee, or an employee
of any Parent of the Company, shall automatically and
without any action of the Board or the Committee, be
granted, on the date on which such person is elected to a
new one-year term of service beginning after such person has
completed five one-year terms of service (or its equivalent)
following the grant (whether under this Plan or otherwise)to
such person of options for 10,000 shares that become
exercisable based on continued service as a Director, and on
each subsequent date on which such person is elected to a
further term of service as a Director, an Option for the
purchase of 2,500 shares of Stock (subject to automatic
proportionate adjustment for stock splits or stock
dividends, and otherwise to proportionate adjustment by the
Committee as provided in Section 5.2). Each such Option
shall become exercisable on the date that is six months
after the date of grant.
(c) Other Terms of Automatic Options. Each Option
automatically granted under this Section 6.13 shall not be
an ISO, shall not include the right to receive a Reload
Option, and shall have an Option Price equal to the Fair
Market Value of the Stock on the date of grant. Each such
Option shall become immediately exercisable in the event a
party other than the Company or any Parent or Subsidiary of
the Company purchases or otherwise acquires shares of Stock
pursuant to a tender offer or exchange offer for such
shares, or any person or group becomes the beneficial owner
(for the purposes of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) of 50% or more of the
outstanding shares of the Stock. To the extent such an
Option shall have become exercisable, it shall be non-
forfeitable and shall remain exercisable until the tenth
anniversary of its date of grant, but if the Grantee ceases
to be a Director for any reason, any portion of such Option
that is not at that time exercisable shall immediately
terminate and shall not thereafter become exercisable. The
Option Price for each such Option may be paid in cash or in
the manners specified in the second sentence of paragraph
6.7(c) hereof. In addition, any taxes related to the
exercise of each such Option may be paid in the manner
contemplated in the second sentence of paragraph 6.7(d)
hereof.
ARTICLE VII
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee may grant
Awards of Restricted Stock upon determination by the Committee,
acting pursuant to the delegation hereby of the Board's authority
to make such determinations, that the value or other benefit to
the Company of the services of a Grantee theretofore performed or
to be performed as a condition of the lapse of restrictions
applicable to such Restricted Stock, or the benefit to the
Company of the incentives created by the issuance thereof, is
adequate consideration for the issuance of such shares. Each
such Award shall be governed by a Restriction Agreement between
the Company and the Grantee. Each Restriction Agreement shall
contain such restrictions, terms and conditions as the Committee
shall, in its discretion, determine, and may require that an
appropriate legend be placed on the certificates evidencing the
subject Restricted Stock.
Shares of Restricted Stock granted pursuant to an Award
hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted, provided that
the Grantee has executed the Restriction Agreement governing the
Award, the appropriate blank stock powers and, in the discretion
of the Committee, an escrow agreement and any other documents
which the Committee may require as a condition to the issuance of
such shares. If a Grantee shall fail to execute the foregoing
documents, within any time period prescribed by the Committee,
the Award shall be null and void. At the discretion of the
Committee, shares of Restricted Stock issued in connection with
an Award shall be held by the Company or deposited together with
the stock powers with an escrow agent designated by the
Committee. Unless the Committee determines otherwise and as set
forth in the Restriction Agreement, upon issuance of such shares,
the Grantee shall have all of the rights of a shareholder with
respect to such shares, including the right to vote the shares
and to receive all dividends or other distributions paid or made
with respect to them.
7.2 Non-Transferability. Until any restrictions upon
Restricted Stock awarded to a Grantee shall have lapsed in a
manner set forth in Section 7.3, such shares of Restricted Stock
shall not be transferable other than by will or the laws of
descent and distribution, or pursuant to a Qualified Domestic
Relations Order, nor shall they be delivered to the Grantee.
7.3 Lapse of Restrictions. Restrictions upon Restricted
Stock awarded hereunder shall lapse at such time or times (but,
with respect to any award to an Employee who is also a Director
or Officer, not less than six months after the date of the Award)
and on such terms and conditions as the Committee shall, in its
discretion, determine at the time the Award is granted or
thereafter.
7.4 Termination of Employment. The Committee shall have
the power to specify, with respect to each Award granted to any
particular Employee, the effect upon such Grantee's rights with
respect to such Restricted Stock of the termination of such
Grantee's employment under various circumstances, which effect
may include (but is not limited to) immediate or deferred
forfeiture of such Restricted Stock or acceleration of the date
at which any then-remaining restrictions shall lapse.
7.5 Treatment of Dividends. At the time an Award of
Restricted Stock is made the Committee may, in its discretion,
determine that the payment to the Grantee of any dividends, or a
specified portion thereof, declared or paid on such Restricted
Stock shall be (i) deferred until the lapsing of the relevant
restrictions, and (ii) held by the Company for the account of the
Grantee until such time. In the event of such deferral, there
shall be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the
year at a rate per annum determined by the Committee. Payment of
deferred dividends, together with interest thereon, shall be made
upon the lapsing of restrictions imposed on such Restricted
Stock, and any dividends deferred (together with any interest
thereon) in respect of Restricted Stock shall be forfeited upon
any forfeiture of such Restricted Stock.
7.6 Delivery of Shares. Within a reasonable period of time
following the lapse of the restrictions on shares of Restricted
Stock, the Committee shall cause a stock certificate or
certificates to be delivered to the Grantee with respect to such
shares. Such shares shall be free of all restrictions hereunder,
except that if the shares of stock covered by the Plan shall not
be the subject of an effective registration statement under the
Securities Act of 1933, as amended, such stock certificates shall
bear such restrictive legends as the Company shall deem necessary
or advisable pursuant to applicable federal and state securities
laws.
7.7 Payment of Withholding Taxes.
(a) The Restriction Agreement may authorize the
Company to withhold from compensation otherwise due to the
Grantee the full amount of any federal, state and local
income, employment or other taxes required to be withheld
from the income of such Grantee as a result of the lapse of
the restrictions on shares of Restricted Stock, or otherwise
as a result of the recognition of taxable income with
respect to an Award. At the time of and as a condition to
the delivery of a stock certificate or certificates pursuant
to Section 7.6, the Grantee shall pay to the Company in cash
any balance owed with respect to such withholding
requirements.
(b) In the discretion of the Committee, any
Restriction Agreement may provide that all or any portion of
the tax obligations otherwise payable in the manner set
forth in paragraph 7.7(a), together with additional taxes
not exceeding the actual additional taxes to be owed by the
Grantee with respect to the Award, may, upon the irrevocable
election of the Grantee, be paid by tendering to the Company
whole shares of Stock duly endorsed for transfer and owned
by the Grantee, or by authorizing the Company to withhold
and cancel shares of Stock otherwise deliverable pursuant to
Section 7.6, in either case in that number of shares having
a Fair Market Value on the date that taxable income is
recognized equal to the amount of such taxes thereby being
paid, in all cases subject to such restrictions as the
Committee may from time to time determine.
ARTICLE VIII
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
The Board may at any time, (i) cause the Committee to cease
granting Options and Awards, (ii) terminate the Plan, or (iii) in
any respect amend or modify the Plan. However, the Board (unless
its actions are approved or ratified by the shareholders of the
Company within twelve months of the date the Board amends the
Plan) may not amend the Plan to materially increase the number of
shares of Stock available under the Plan to Directors or
Officers, or as otherwise may be legally required.
No termination, amendment or modification of the Plan shall
affect adversely a Grantee's rights under an Option Agreement or
Restriction Agreement without the consent of the Grantee or his
or her legal representative.
From and after the first date on which an Option is
automatically granted pursuant to Section 6.13, the provisions of
such Section 6.13 may not be amended in any manner more
frequently than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act
of 1974, as amended, or the rules and regulations promulgated
under the Code or such Act.
ARTICLE IX
MISCELLANEOUS
9.1 Replacement or Amended Grants. At the sole discretion
of the Committee, and subject to the terms of the Plan, the
Committee may modify outstanding Options or Awards or accept the
surrender of outstanding Options or Awards on terms specified by
the Committee, which terms may include the grant of new Options
or Awards in substitution for them. However no modification of
an Option or Award shall adversely affect a Grantee's rights
under an Option Agreement or Restriction Agreement without the
consent of the Grantee or his or her legal representative.
9.2 Forfeiture for Competition. If a Grantee provides
services to a competitor of the Company or any of its
Subsidiaries, whether as an employee, officer, director,
independent contractor, consultant, agent or otherwise, such
services being of a nature that can reasonably be expected to
involve the skills and experience used or developed by the
Grantee while a Director or an Employee, then that Grantee's
rights under any Options outstanding hereunder shall be forfeited
and terminated, and any shares of Restricted Stock held by such
Grantee subject to remaining restrictions shall be forfeited,
subject in each case to a determination to the contrary by the
Committee.
9.3 Plan Binding on Successors. The Plan shall be binding
upon the successors of the Company.
9.4 Headings Not a Part of Plan. Headings of Articles and
Sections hereof are inserted for convenience and reference, and
do not constitute a part of the Plan.
