UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
Commission File Number 0-6072
ELECTROMAGNETIC SCIENCES, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1035424
------------------------------ ----------------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation of organization)
660 Engineering Drive
Norcross, Georgia 30092
-------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (770) 263-9200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has bee
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on November 14, 1997:
Class Number of Shares
Common Stock, $.10 par Value 8,616,185
FORM 10-Q
-2-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1997 and 1996 3
Consolidated Balance Sheets - September 30,
1997 and December 31, 1996 4-5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997
and 1996 6
Notes to Interim Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 10
FORM 10-Q
-3-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
Three months ended Nine months ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
Net sales $42,306 37,908 122,983 106,771
Cost of sales 27,986 24,926 80,731 69,094
Selling, general and
administrative expenses 8,083 7,377 25,546 23,053
Research and development
expenses 2,406 3,062 7,145 9,136
------ ------ ------ ------
Operating income 3,831 2,543 9,561 5,488
Interest income net of
other non-operating items
(note 4) (66) (39) 36 102
Interest expense (506) (293) (1,297) (831)
------ ------ ------ ------
Earnings before income
taxes and LXE
minority interest 3,259 2,211 8,300 4,759
Income tax expense (1,307) (897) (3,299) (1,943)
Minority interest in LXE
net (earnings) loss - (93) - 100
------ ------ ------ ------
Net earnings $ 1,952 1,221 5,001 2,916
====== ====== ====== ======
Net earnings per common
and common equivalent
share $ .22 .16 .56 .38
====== ====== ====== ======
Weighted average number
of common and common
equivalent shares 8,990 7,808 8,950 7,669
See accompanying notes to interim consolidated financial statements.
FORM 10-Q
-4-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance sheets (Unaudited)
(In thousands)
September 30 December 31
1997 1996
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 2,321 4,321
Trade accounts receivable, net 55,827 45,452
Inventories:
Work in process 8,054 5,688
Parts and materials 14,422 14,548
------- -------
Total inventories 22,476 20,236
------- -------
Deferred income taxes 2,098 2,098
------- -------
Total current assets 82,722 72,107
------- -------
Property, plant and equipment:
Land 1,150 1,150
Building and leasehold improvements 15,026 14,829
Machinery and equipment 58,923 59,137
Furniture and fixtures 4,215 4,426
------- -------
Total property, plant
and equipment 79,314 79,542
Less accumulated depreciation and
amortization 47,012 49,107
------- -------
Net property, plant and
equipment 32,302 30,435
Other assets 7,707 7,304
Goodwill, net of accumulated amortization 17,291 17,231
------- -------
$140,022 127,077
======= =======
See accompanying notes to interim consolidated financial statements.
FORM 10-Q
-5-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance sheets (Unaudited)
(In thousands except share data)
September 30 December 31
1997 1996
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 4,505 4,497
Accounts payable 13,122 14,798
Income taxes payable 2,767 -
Accrued compensation costs 4,529 3,404
Accrued retirement costs 506 327
Deferred revenue 2,130 1,340
Other liabilities 1,652 1,104
------- -------
Total current liabilities 29,211 25,470
Long-term debt, excluding current
installments 17,001 12,230
Deferred income taxes 2,127 2,127
------- -------
Total liabilities 48,339 39,827
------- -------
Stockholders' equity:
Preferred stock of $1.00 par value
per share. Authorized 10,000,000
shares; none issued - -
Common stock of $.10 par value per
share. authorized 75,000,000 shares;
issued and outstanding 8,609,000 in
1997 and 8,445,000 in 1996 861 844
Additional paid-in capital 33,225 32,581
Foreign currency translation adjustment
(note 4) (1,276) (47)
Retained earnings 58,873 53,872
------- -------
Total stockholders' equity 91,683 87,250
------- -------
$140,022 127,077
======= =======
See accompanying notes to interim consolidated financial statements.
FORM 10-Q
-6-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended September 30
1997 1996
-------- --------
Cash flow from operating activities:
Net earnings $ 5,001 2,916
Adjustments to reconcile net earnings
to net cash from operating activities:
LXE minority interest - (100)
Depreciation and amortization 4,212 4,219
Goodwill amortization 712 379
Changes in operating assets and liabilities:
Trade accounts receivable (11,198) (5,394)
Inventories (2,373) (1,865)
Accounts payable (1,290) 2,933
Income taxes 2,578 84
Accrued costs, deferred revenue
and other current liabilities 2,445 1,351
Other (373) (1,638)
------ ------
Net cash provided by (used in)
operating activities (286) 2,885
------ ------
Cash flows from investing activities:
Purchase of property, plant and equipment (6,079) (5,269)
Purchase of subsidiary common stock from
minority shareholders (773) (500)
------ ------
Net cash used in investing
activities (6,852) (5,769)
------ ------
Cash flows from financing activities (note 3):
Borrowing of long-term debt 4,779 916
Proceeds from exercise of stock options 661 412
------ ------
Net cash provided by
financing activities 5,440 1,328
------ ------
Net change in cash and cash
equivalents (1,698) (1,556)
Effect of exchange rates on cash (302) -
Cash and cash equivalents at January 1 4,321 5,766
------ ------
Cash and cash equivalents at September 30 $ 2,321 4,210
====== ======
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 1,297 831
Cash paid for income taxes $ 1,192 1,558
See accompanying notes to interim consolidated financial statements.
FORM 10-Q
-7-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
The interim consolidated financial statements include the accounts
of Electromagnetic Sciences, Inc., and its wholly-owned subsidiaries, EMS
Technologies, Inc., LXE Inc. and CAL Corporation (collectively, "the
Company"). In the opinion of management, the interim consolidated
financial statements reflect all normal and recurring adjustments
necessary for a fair presentation of results for such periods. The
results of operations for any interim period are not necessarily
indicative of results for the full year. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996. Certain reclassification
of 1996 financial data were made to conform to classifications adopted in
1997.
(2) Earnings per Share
Earnings per common and common equivalent share for the interim
periods were based on the weighted average number of shares outstanding
and equivalent shares derived from dilutive stock options.
(3) Acquisition of LXE Minority Shares
On October 3, 1996, the Company announced its offer to exchange .75
shares of its common stock (ELMG stock) for each of the 1.0 million
outstanding shares of the common stock of LXE Inc., held by third
parties. The exchange offer expired on December 30, 1996, at which time
approximately 800,000 shares had been tendered; upon acceptance of those
shares, the Company held 96% of the outstanding LXE shares. On December
31, 1996, the Company exercised its right as the holder of at least 90%
of the LXE shares to cause a merger in which all remaining LXE shares not
held by the Company were each converted into .75 ELMG shares.
The acquisition of LXE shares was accounted for as a purchase
transaction, resulting in additional goodwill of approximately $12.5
million that will be amortized on the straight-line method over twenty-
five years.
(4) Accounting Policy on Currency Translation for Foreign Subsidiaries
In 1997, the accounting policy was changed for currency translation
and remeasurement of the European subsidiaries' financial statements.
Prior to 1997, the functional currency of the European subsidiaries was
considered to be the U.S. dollar. These subsidiaries have experienced
continued growth, and more recently, greater operational autonomy and
expanding business activity, and beginning in 1997, the functional
currency is now considered to be the local currency. As a result of this
change in accounting policy, remeasurement adjustments arising from the
translation of the subsidiaries' financial statements are now reflected
as a separate component of stockholders' equity, rather than as a non-
operating gain or loss in the results of operations.
FORM 10-Q
-8-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
ITEM 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Results of Operations
- ---------------------
Consolidated net sales for the third quarter and first nine months of
1997 were $42.3 million and $123.0 million respectively, compared with
$37.9 million and $106.8 million for the same respective periods in 1996.
Wireless infrastructure (PCS/cellular antenna) products and wireless
local area network products for logistics applications made the most
significant contributions to the Company's net growth in revenues.
Revenues from the healthcare business slowed in the third quarter due to
a product transition, but the Company expects this business to recover in
the fourth quarter.
Cost of sales, as a percentage of net sales, was approximately 66% for
the interim periods in both 1997 and 1996, despite a changing product
mix. The benefits from sales growth in higher-margin products for
wireless infrastructure and certain space applications helped offset the
adverse effects of comparatively higher distribution of wireless local
area network products through indirect channels (which typically have a
lower gross profit margin), as well as costs incurred for increased
proposal efforts in the space business.
Selling, general and administrative expenses decreased in 1997, as a
percentage of net sales, mainly as a result of low growth in the expense
base related to wireless local area networks. Research and development
expenses, which represent internally-funded efforts, decreased in 1997 as
the Company directed a higher proportion of its total R&D effort toward
customer-funded projects, the cost of which is reported in cost of sales.
Interest expense increased with the Company's higher level of borrowing
in 1997 compared with 1996. The effective income tax rate for the first
nine months of 1997 was 40%, which is comparable with the rate for 1996
and previous years, excluding the beneficial effect in 1996 of a non-recurring
adjustment of deferred income tax liability.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity and capital resources have been affected
primarily by an increase in accounts receivable related to unbilled
revenues under certain long-term development contracts. In addition, the
Company has made significant expenditures in 1997 for property, plant and
equipment to support continued sales growth. As a result, the Company's
cash has decreased and its long-term debt has increased from the levels
reported at the beginning of the year. However, the Company generated
positive net cash flow in the third quarter, which was utilized to reduce
long-term debt. The Company expects to generate further positive cash
flow in the fourth quarter, as certain unbilled revenues are expected to
be billed and collected during that period. Management believes that the
Company's present liquidity, together with cash from operations and
FORM 10-Q
-9-
sources of external financing, will support its current business
activities and near-term capital investment plans, but expects that
additional sources of liquidity will be needed over the next few years if
sales and production levels continue to grow at rates similar to those of
the past two years.
Business Risk Factors
- ---------------------
Forward-looking statements with respect to the potential development of
various markets and products, as well as expected cash flows, are
included in management's discussion and analysis of financial condition
and results of operations. Actual results could differ materially from
those suggested in any forward-looking statements as a result of a wide
variety of factors. Such factors include, but are not limited to, the
availability of third-party-manufactured hardware for integration into
Company products, the Company's ability to achieve product development
and manufacturing objectives within the cost and timing parameters
created by customers and end-users, and timeliness of orders and payments
from customers. Additional information concerning such factors is
contained in the Company's Report on Form 8-K dated October 15, 1997.
FORM 10-Q
-10-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed as part of this report:
10.1 Electromagnetic Sciences, Inc. 1997 Stock Incentive Plan,as
adopted January 24, 1997 and amended effective August 29, 1997.
27.1 Financial Data Schedule
(b) Reports on Form 8-K - The Company has not filed any reports on Form
8-K during the three months ended September 30, 1997.<PAGE>
FORM 10-Q
-11-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ELECTROMAGNETIC SCIENCES, INC.
By: /s/ Date: 11/14/97
----------------------------- -----------
Thomas E. Sharon
President and Chief Executive
Officer
By: /s/ Date: 11/14/97
----------------------------- -----------
Don T. Scartz
Treasurer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000032198
<NAME> ELECTROMAGNETIC SCIENCES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 2,321
<SECURITIES> 0
<RECEIVABLES> 55,827
<ALLOWANCES> 0
<INVENTORY> 22,476
<CURRENT-ASSETS> 82,722
<PP&E> 79,314
<DEPRECIATION> 47,012
<TOTAL-ASSETS> 140,022
<CURRENT-LIABILITIES> 29,211
<BONDS> 0
0
0
<COMMON> 861
<OTHER-SE> 90,822
<TOTAL-LIABILITY-AND-EQUITY> 140,022
<SALES> 122,983
<TOTAL-REVENUES> 122,983
<CGS> 80,731
<TOTAL-COSTS> 80,731
<OTHER-EXPENSES> 32,691
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,297)
<INCOME-PRETAX> 8,300
<INCOME-TAX> 3,299
<INCOME-CONTINUING> 5,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,001
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
As adopted January 24, 1997
and amended effective
August 29, 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. Persons who are not
Employees but who serve as directors of any Subsidiary of the
Company shall also be eligible to participate in this Plan, and
references herein to "Employee" shall be deemed to include any
such persons to the extent appropriate for him or her to become a
Grantee.
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 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.
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.
