UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
Commission File #0-6072
EMS TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1035424
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(State of incorporation) (IRS Employer ID No.)
or organization)
660 Engineering Drive
Norcross, Georgia 30092
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(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, Including Area Code - (770) 263-9200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of Class)
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 been subject to
such filing requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
amendment to this Form 10-K: [X]
The aggregate market value of voting stock held by persons other than
directors or executive officers on March 23, 2000 was $191.5 million, based
on a closing price of $22.38 per share. The basis of this calculation does
not constitute a determination by the registrant that all of its directors
and executive officers are affiliates as defined in Rule 405.
As of March 10, 2000, the number of shares of the registrant's common stock
outstanding was 8,751,581 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Company's 1999 Annual Report to
Shareholders and definitive proxy statement for the 2000 Annual Meeting of
Shareholders of the registrant is incorporated herein by reference in Parts
II, III and IV of this Annual Report on Form 10-K.
PART I
ITEM 1. Business.
GENERAL
SUMMARY
EMS Technologies, Inc. (the "Company") designs, manufactures and markets
products that are important in many kinds of wireless communications. The
Company focuses on the needs of the mobile information user, with an
increasing emphasis on broadband applications for high-data-rate, high-
capacity wireless communications.
The Company is organized around two reportable business segments: Space
and Technologies, and Wireless Products. Each segment is separately managed
and comprises products and services that share distinct operating
characteristics. However, the Company believes that one of its competitive
strengths is the technological and marketing synergy that occurs between
the segments, as well as between the Company's various product lines. The
Company believes that this synergy creates a path for highly advanced
technologies to migrate to products for broader markets.
(1) Space and Technologies
This segment manufactures custom-designed, highly engineered hardware
for use in space and satellite communications, radar, surveillance and
military counter-measures. A major strategic emphasis in this segment
is the development of broadband technologies for use in high-data-rate,
high-capacity satellite communications systems. The Company believes
such systems will have an important role in the future delivery of a
wide range of services, including Internet access, and that these
systems will have technical features that make them competitive with
hard-wired alternatives. Orders in this segment typically involve
long-term contracts with production schedules that can extend a year or
more, and most revenues are recognized under percentage-completion
accounting. Hardware is sold to prime contractors or systems
integrators rather than end-users. The Space and Technologies segment
accounted for 49%, 33% and 37% of consolidated net sales in 1999, 1998
and 1997, respectively.
(2) Wireless Products
The Wireless Products segment manufactures standardized antennas,
terminals, and other wireless network products for use in logistics,
healthcare information management, transportation, PCS/cellular
communications, and satellite communications. The manufacturing cycle
for each order is generally just a few days, and revenues are
recognized upon shipment of hardware. Hardware is marketed to end-
users and to third-parties who incorporate their products and services
with the Company's hardware for delivery to an end-user. The Wireless
Products segment accounted for 51%, 67% and 63% of consolidated net
sales in 1999, 1998 and 1997, respectively.
The discussion of the Company's business set forth in this Item 1 is
qualified by the materials appearing below under the heading "RISK FACTORS
AND FORWARD-LOOKING STATEMENTS."
BACKGROUND
In its Space and Technologies segment, the Company has developed strong
expertise in components and subsystems. In the mid-1970's, the Company
pioneered the use of electronic beam-forming networks ("BFNs"). A BFN
allows a satellite to electronically adjust its antenna pattern in orbit.
BFN technology was originally used by defense communications satellites to
combat interference from the ground, but it has become important in a wide
range of modern communications satellites. The Company's heritage in BFN
technology has led to the development of "spot-beam" technology that allows
commercial satellites to cover specific areas on the earth's surface; when
coupled with the use of high frequencies such as the Ka band, this spot-
beam technology allows for high-data-rate communications and very high
capacity. The Company also produced the first all-electronic switch matrix
to provide flexible interconnectivity between uplink and downlink channels
in a commercial communications satellite.
In 1999, the Company added expertise in space systems, payload integration
and ground terminal technologies by acquiring the Space Systems and
Products Division of Spar Aerospace Limited, based in Montreal. This
division has long been one of the leading competitors in the Canadian and
international space industries. It has produced payloads and full antenna
systems for major communications and remote sensing satellites, as well as
robotics for NASA's Space Shuttle.
In the Wireless Products segment, there are three main product lines: (1)
wireless networks, (2) wireless infrastructure, and (3) SATCOM. In the
first of these, the Company has developed wireless local-area computer
networks that provide mobility and real-time data communications. These
products enhance productivity of mobile workers and improve accuracy of
transaction processing operations. The principal market is for material
management functions in warehouses and distribution centers (the
"logistics" market). Another important market relates to automation of
patient care records in the healthcare environment (the "healthcare"
market). More recently, the Company has applied its technologies in route-
accounting and transportation (the "transportation" market), in which
mobile computers are used by delivery and trucking personnel to track sales
and inventory.
The Company's fastest growing wireless product line over the past three
years has been a line of cellular/PCS base station antennas ("wireless
infrastructure"). The leading product in this line (marketed under the
"DualPol" trademark) employs polarization-diversity technology. These
antennas allow cell-site tower structures that are much simpler and less
obtrusive than conventional antenna towers. In addition, these antennas
offer superior coverage and resistance to signal-fading, as compared with
networks with conventional vertical polarization antennas. The Company also
offers a full line of lower-priced, conventional antennas for both cellular
and PCS networks. These products, along with a family of accessory
products, are marketed to service providers and to original equipment
manufacturers ("OEMs") domestically and internationally.
The Company has also established an industry-leading position in the market
for SATCOM (satellite communications) antennas and terminals. Initially
these products were developed for international search and rescue, in which
satellite technology helps locate downed aircraft or oceangoing ships in
distress. The most successful component of the Company's SATCOM product
lines was developed for advanced communications by corporate jets. In
these aeronautical applications, the Company's antennas are mounted atop
the jet's stabilizer and automatically change position to remain pointed at
a communications satellite during flight; these systems provide voice, data
and video communications via satellite. The Company has recently begun
introducing other SATCOM products, including an airborne antenna system to
deliver multi-channel video to commercial aircraft, a packet-data terminal
to provide messaging/tracking services to over-the-road trucks, and an
antenna for satellite-based monitoring of locomotives.
MARKETS AND PRODUCTS
Space and Technologies Markets.
In the U.S., satellite technology was historically funded by the military
for defense applications. Commercial use was cost-effective only for
specialized high-capacity applications in the telecommunications and
broadcast industries. However, satellite-based voice and data networks are
increasingly being used for a variety of lower-cost, high-volume commercial
applications as a result of improvements in satellite technology. New
commercial applications include mobile telephony and data communications.
Satellites provide a number of advantages over terrestrial facilities for
many high-speed communications service applications:
(1) Satellites enable high-speed communications service where a
terrestrial alternative is not available or is not adequate.
(2) Unlike the cost of terrestrial networks, the cost to provide
services by satellite does not increase with the distance between sending
and receiving stations.
(3) Finally, in contrast to the installation of fiber optic cable,
satellite networks can be rapidly and cost-effectively deployed.
Demand for commercial satellites will be determined by several factors,
including:
(1) growth in demand for new satellite-based applications, such as
mobile communications or data services,
(2) growth in business networking,
(3) growth in direct-to-home television and related voice, video and
data systems,
(4) development of new satellite-based communications architectures to
provide basic telephone and television services in developing regions of
the world, and
(5) replenishment of orbiting satellite constellations nearing the end
of their useful lives.
Several large-scale telecommunications projects are in various stages of
development and implementation. They are contributing to the projected
demand for commercial satellites. Satellite size and weight have a direct
effect on launch cost and capacity. As a result, for these new systems to
be commercially viable, the satellite designs must use systems and
components that are lighter, smaller, and more highly integrated than in
the past.
Proposed system architecture is also affecting the design of ground-based
terminals for future satellite networks. New proposed systems will operate
at high frequencies. Several systems will be based on a constellation of
satellites, each with its own complicated antenna system, to produce
coverage patterns on the earth that are similar to cellular telephone
systems. Because of the high frequencies and small cells used by these new
systems, the ground terminals will be much smaller and more affordable than
their lower-frequency predecessors, and will require smaller antennas with
lower transmitter power. Ground terminals for LEO (low earth orbiting)
systems will also need to include low-cost scanning antennas to track the
satellites as they move overhead, handing-off from one satellite to the
next as the constellation progresses.
Space and Technologies Products.
The Company designs and manufactures innovative satellite communications
products. These products include satellite systems, subsystems and
components that address the need for reliable, high-speed communications
systems. The Company believes that the next generation of commercial
communications satellites will be able to utilize technologies, such as
multiple spot-beam antennas, highly integrated on-board switching, and
advanced hub-and-terminal equipment, in which the Company has significant
experience. The products developed by the Company for Space and
Technologies comprise six main lines:
1. Antenna products
2. Microwave and power products
3. Ferrite products
4. Digital command and control products
5. Optical products, and
6. Broadband products.
- - Antenna Products
For over thirty years, EMS has been providing innovative products for
satellite antennas. The Company has experience in a variety of frequency
ranges, including UHF, S, C, X, Ku, Ka, Q, V and W bands. Employing a wide
variety of technologies and architectures for fixed, mobile and broadcast
applications, the Company's antenna products include:
- shaped reflectors,
- dual aperture shaped reflectors,
- direct radiating arrays,
- steerable antennas,
- omni antennas,
- Gregorian and Cassegrain antennas,
- lens antennas,
- deployable reflectors,
- dual polarized antennas, and
- phased arrays.
EMS is providing or has provided antenna products to such prominent space
programs as Radarsat, TDRSS, MSAT, Inmarsat, International Space Station,
Koreasat, SkyBridge and Anik-B,C,D and E. Currently under development are
antennas systems for the anticipated high-capacity multimedia satellite
systems such as SkyBridge.
- - Microwave and Power Products
Microwave products and subsystems are an instrumental part of many
commercial, defense and space systems. Microwave products control the
microwave communications signals processed in a spacecraft. Microwave
products include low-noise amplifiers, repeaters, transponders, and solid-
state power amplifiers.
Power products provide highly efficient (up to 95%) conditioning of
electric power aboard a spacecraft. In addition to their efficiency, the
Company's power products have low mass, very low noise and are hardened
against the radiation that spacecraft experience at various orbit levels.
The Company is providing or has provided microwave and power products to
such programs as ACeS, Brazilsat, Anik-E, TDRSS, ERS-1, Radarsat,
International Space Station, MSAT, Telstar, Intelsat, Galaxy and Astolink.
- - Ferrite Products
EMS pioneered the use of ferrite materials in space and defense systems.
Ferrite products provide phase and amplitude control of communications
signals. The design, development and manufacture of ferrite products
requires considerable specialized in-house capabilities. These products
include ferrite circulators, isolators, phase shifters, switches and
switching networks, and transmit-receive networks. Ferrite products are
integrated into satellite, shipboard, ground-based and airborne
applications, including
- direct broadcast,
- direct audio,
- commercial and military communications,
- earth observation,
- multimedia, and
- defense systems.
The Company's ferrite products have been utilized in such programs as
GEOSAT, ENVISAT, TDRS, MILSTAR, and ACTS.
- - Digital Command and Control Products
The Company has a long heritage of supplying space-qualified computers,
controllers and digital signal processors. This equipment is used for
antenna pointing mechanism electronics, payload control, attitude control,
power switching, command decoding, and telemetry gathering. Major space
programs that use the Company's products include Brazilsat, Intelsat IV,
TEDRSS, ERS-1, Radarsat, the Space Shuttle, the International Space
Station, and Anik B and E.
- - Optical Products
The Company has developed optical instruments and components for space
agencies and commercial customers. The Company's latest optical product is
a high-speed star tracker, which uses the position of the stars to provide
attitude control information for stabilizing a satellite's flight. The
Company has provided optical instruments to such programs as WINDII,
Viking, and NASA Image.
- - Broadband Products
The latest Space and Technologies product line is devoted to emerging
broadband, multimedia satellite applications. The Company is developing
products for both the satellite payload and the ground terminal/hub station
elements of future broadband systems. An important element of EMS's
terminal products is the MF-TDMA (multi-frequency time division multiple
access) architecture that the Company has developed to enhance system
capacity. Another key element in the Company's broadband initiative is its
experience in the development of high-frequency (Ka) antenna and beam-
shaping technology that allows for frequency re-use and high capacity.
The Company is currently developing a new broadband application for SES
Astra, Europe's largest provider of direct-to-home satellite broadcast
services. The new system will utilize existing SES satellites, and it will
create the first commercial Ka-band system for high-speed two-way
communications - including Internet access - via satellite. EMS will
supply the up-link system that provides a packet data, "bandwidth-on-
demand" protocol.
Wireless Products and Markets.
The Company's wireless products are focused on the markets for (1) wireless
local area computer networks for logistics and healthcare,
(2) wireless infrastructure, and (3) SATCOM products.
Wireless Local Area Networks.
Markets for Wireless Local Area Networks
Major technological advances and changes in the regulatory environment have
led to the development and proliferation of wireless computer networks that
extend the reach of existing wired networks. Wireless local area networks
(LANs) now accommodate notebook computers, pen-based notepads and handheld
computer terminals. By providing network connectivity for mobile users,
these products increase the accuracy, timeliness and convenience of data
collection and information access. Traditionally, these wireless LAN
systems were developed for operation using narrow band UHF radios at 450
MHz. The current generation of wireless LAN systems typically operate at
900 MHz with data rates in the range of 56-64 Kbps. The next generation of
wireless LAN systems support even higher data rates of 1 Mbps and operate
at 2.4 GHz. Future video transmissions and conferencing systems will
likely use the 5.7 GHz frequency band where transmission rates of up to 25
Mbps are foreseen.
The development of these advanced products has created new applications in
established industrial markets and in vertical markets, such as healthcare.
In healthcare, for example, wireless LANs now allow medical professionals
to access clinical data and input patient charting information at the
point-of-care anywhere in a hospital environment. Data-intensive
applications in markets such as healthcare require robust and scalable
wireless networks that can support an increasing number of applications and
users over time.
Healthcare systems are typically sold by software providers that have the
direct relationship with end-user customers. To enhance its role with the
software providers, the Company provides other hardware and accessories
needed for complete wireless systems.
Wireless Local Area Network Products.
The Company's wireless LANs provide mobility and real-time data
communications to enhance productivity. The Company's wireless LANs have
been installed at more than 5,000 sites world wide, including the
facilities of many Fortune 500 companies and some of the world's largest
materials handling installations, such as distribution centers and
seaports.
The Company's wireless logistics systems, which generally incorporate bar-
code scanning capabilities, are compatible with commonly used customer-
owned computers and can be configured for a variety of applications. A
typical system consists of mobile computer terminals that incorporate
radio transmitters and receivers, a base station that communicates with
these terminals, a controller that provides an interface between the base
station and host computer, and software that manages and facilitates the
communications process.
- - Mobile Computers.
The Company offers several types of mobile computers, all of which utilize
radio frequency technology:
(1) Hand-held mobile computers are small, lightweight and intended to
be carried by people,
(2) Vehicle-mounted mobile computers are larger, heavy-duty products
for use on fork-lifts, cranes and other mobile materials handling
equipment,
(3) A table-top model is used for fixed positions where computer
cabling is not practical, and
(4) Wireless modems provide wireless communication capabilities for
other devices, such as small computers or process controllers.
All mobile computers incorporate built-in radios that operate either in a
licensed, narrow frequency band or in an unlicensed broader, "spread
spectrum" frequency band. The Company's mobile computers incorporate Intel
(registered trademark) processors that allow support for either terminal
emulation or client-server applications.
- - Radio Base Stations and Controllers.
The wireless communications link between the mobile computer terminal and
the host computer or network is completed by a radio base station and
controller. The radio base station and controller may be integrated into a
single unit for smaller systems. A base station converts the radio signals
from a mobile computer terminal to digital signals recognizable by the host
computer, and also converts data from the host computer into radio signals
for transmission to the terminals. Radio base stations can operate
effectively in facilities of many sizes and structural designs.
Controllers provide the critical interface between the radio base station
and the host computer. The Company's controllers provide transparent
connectivity to all widely accepted computer architectures without
modifications of existing applications software and network structure.
Controllers also manage complex transmission traffic with sophisticated
programming algorithms.
- - Other Logistics Products.
In addition to the basic system hardware, the Company offers various
accessories:
(1) Bar code scanners,
(2) Battery chargers,
(3) Portable printers,
(4) Software products for system communications, integrated
applications and terminal emulation, and
(5) Repair and maintenance services.
- - Healthcare Products and Services.
The Company designs and implements wireless networks for healthcare
information applications, which involve integration of its own products
with specialized terminals and radios from other manufacturers. The
Company's leading healthcare product is a mobile clinical workstation. This
mobile computer provides full desktop functionality, a wireless connection
to the host network, and the mobility of an adjustable cart with its own
power supply.
The Company has strategic alliances or VAR (value added reseller)
arrangements with several of the leading healthcare information management
companies that incorporate EMS products in their systems. The Company has
completed wireless LAN installations in a significant number of hospitals
and healthcare facilities.
Wireless Infrastructure
Wireless Infrastructure Market.
National and international infrastructure for wireless communications has
been expanding to support growing worldwide demand. This demand is being
fueled by
(1) decreasing prices for wireless handsets,
(2) a more favorable regulatory environment,
(3) greater competition among service providers, and
(4) more availability of services and RF spectrum.
In addition, certain developing countries are installing wireless telephone
networks as an alternative to installing, expanding or upgrading
traditional hard-wired networks. Emerging wireless data applications may
also expand the market by allowing service providers to increase revenue-
generating traffic on their networks.
Specific technological trends are also affecting the wireless industry. For
example, the continuing growth of the wireless communications market has
strained the capacity of traditional analog cellular systems that can carry
only one call per channel of radio spectrum. As a result, many service
providers are installing new digital equipment to increase per-channel
capacity by factors ranging from three to eight. In addition, service
providers have begun to construct PCS digital networks that operate at
twice the frequency level of cellular systems; this provides the greater
bandwidth necessary for an expanded range of voice and data services.
However, PCS technology requires smaller cells than analog technology and,
as a result, approximately four times the number of base stations to
complete its geographical build-out.
Although existing systems have been almost exclusively devoted to the
mobile voice/paging market, several proposed systems would offer high-speed
wireless services to both businesses and consumers as an alternative to
wireline approaches. Initial system applications appear to be in point-to-
multipoint communications, for which several service providers have
licensed spectrum and are conducting field tests. Base station antennas in
point-to-multipoint systems emulate the multiple-beam antennas designed for
space, and TDMA switching technology could be implemented with hardware
very similar to the Company's satellite technologies described previously
in this document.
Wireless Infrastructure Products.
The Company has developed several advanced base station antennas for the
wireless infrastructure market:
- - Dual Polarization Antenna Products.
The Company's "DualPol (trademark)" antenna utilizes polarization diversity
to combine the functionality of three vertically-polarized antennas (two
receive and one transmit) into a single, compact device. With fewer
antennas required, "DualPol (trademark)" technology allows the supporting
antenna tower to be much smaller and less expensive than a traditional
cellular/PCS antenna site, which must support the weight and wind-loading
of a large mounting structure atop the tower. An increasingly important
factor in establishing the location of a cell site is the aesthetics of the
tower structure. Unlike traditional vertical polarization cellular
antennas, the Company's "DualPol (trademark)" antennas can be mounted in a
very compact configuration that can fit on top of existing utility poles,
or be disguised, for example, in a clock tower. The mounting flexibility
not only benefits the service provider in obtaining site approvals, but
also results in lower installation and structure costs. Further, these
antennas offer superior coverage and resistance to signal-fading, as
compared with networks with conventional vertical polarization antennas.
The Company's "AcCELLerator (trademark)" antenna combines multiple "DualPol
(trademark)" antennas pre-packaged in a compact cylindrical enclosure that
provides the same multi-sector coverage as a large, nine-antenna,
spatially-diverse base station, yet with a much smaller, less visually-
obtrusive structure.
- - Vertical Polarization Antenna Products.
The Company's lower-cost vertical polarization antennas apply "beam-
shaping" techniques of amplitude and phase weighting to achieve the most
effective antenna performance for specific applications. The Company's
"OptiFill (trademark)" antennas are designed for use in a typical crowded
coverage area. These antennas utilize null filling, upper sidelobe
suppression and electronic down tilt to lower co-channel interference,
reduce the number of dropped calls, and improve sound quality. The
Company's "OptiRange (trademark)" antennas are designed to maximize "gain"
and are useful in systems that have large cells, such as rural areas or
initial urban system roll-outs with a small number of base stations.
The Company leases a 60,000 square foot facility specifically designed to
allow high-volume production of its wireless infrastructure antenna
product, as well as quick response to customer orders.
SATCOM Products
Market for SATCOM Products.
The first aeronautical systems for telephony utilized a ground-based
network of antennas. These networks were not only limited in the voice-
quality of their communications, but they were unable to provide coverage
over water for international travel. The next step in the evolution of
aeronautical telephony was the use of a special antenna aboard the aircraft
that allowed not only voice but limited data and FAX capabilities. With
the need for mobile communications in the business world, aeronautical
SATCOM systems are now commonly used in corporate jets around the world.
SATCOM Products.
The Company's line of SATCOM products include the following:
- - Aeronautical Antennas.
The Company a family of aeronautical communications products, including an
industry-leading INMARSAT antenna, the AMT-50, which is a mechanically-
steered antenna that is connected to an aircraft's navigational system and
automatically remains directed toward a geostationary communications
satellite for voice and low data-rate communications. This antenna is
mounted under a small, unobtrusive radome atop an aircraft's tail
stabilizer. The Company believes that this product has the leading market
share in the high-end corporate jet market. The Company has also developed
its "CALQUEST (trademark)" product, which is a complete satellite telephone
system for use over North and Central America on a wide range of turbo-prop
and jet aircraft.
The Company has also developed a steerable antenna system designed to
provide live television to jet aircraft by wireless link to a broadcast
satellite. The system includes a low-profile mechanically steerable antenna
system, mechanical positioner, and a beam steering unit to keep the antenna
properly pointed at the satellite during the motion associated with flight.
The DBS antenna and AMT-50 can be mounted together under a single radome
(designed and supplied by the Company) atop a jet's stabilizer. This
antenna system is part of the full system for delivery of live video
service to aircraft, provided by the Company's industrial partner,
Honeywell.
The latest aeronautical antenna from the Company is used in a multi-channel
video system for commercial aircraft. The video systems include small flat-
panel video screens installed in each seat-back, and they are installed and
marketed by industrial partners. In late 1999, the Company began
delivering these antennas for installation with two startup carriers based
in New York and Dallas. Both airlines have put these systems into
certification testing, and they expect to begin offering regular video
service to customers in the second quarter of 2000.
- - Other SATCOM Products.
The Company is a leading provider of the ground station equipment
associated with satellite-based "search and rescue" systems, including the
local-user terminals that process information received from satellites.
The local-user terminal determines the location of the maritime or aviation
beacons that transmit distress signals to the satellite system, and
typically displays the results for intervention by emergency authorities.
This terminal technology can also be adapted for routine tracking and
management of aviation and maritime fleets.
The Company has also developed SATCOM antennas for use aboard locomotives.
These antennas provide the link for satellite-based remote monitoring
services offered by General Electric Transportation Systems.
The latest SATCOM product to be introduced is a new packet-data terminal
for tracking and two-way communications by over-the-road vehicles in North
and Central America. The terminal's omni antenna, with built-in geo-
positioning system and radio circuitry, is packaged in a small, economical
enclosure weighing less than three pounds. The Company has completed
development, as well as type-testing with the satellite service provider.
The Company is beginning beta testing with value-added resellers, and it
expects to begin commercial production of this product by mid-2000.
SALES AND MARKETING
The Company's sales and marketing strategy varies depending upon the
product line. Due to the technical nature of the Company's products, some
of these sales efforts must be conducted primarily by internal personnel
with a strong engineering background. Particularly in the Space and
Technologies group, many of these personnel have other engineering or
management responsibilities within the Company. The Company also utilizes
independent marketing representatives, both in the U.S. and
internationally. These individuals are selected for their knowledge of the
local market and their ability to provide technical support and ongoing,
direct contact with the Company's current and potential customers.
In Space and Technologies, the development of major business opportunities
often involves significant bid and proposal effort; this work can include
complex engineering to determine the technical feasibility and cost
effectiveness of various design approaches. Most of the Company's bid and
proposal costs are reported in cost of sales, although a portion of these
costs is classified as selling, general and administrative expenses. Total
bid and proposal costs were $2.6 million in 1999, $2.5 million in 1998, and
$1.8 million in 1997.
The markets for space and satellite communications comprise a relatively
small number of customers, which are typically well-known large
corporations. The Company's Space and Technology marketing efforts rely on
ongoing communications with this base of potential customers, both to
determine the customers' future needs and to inform customers of the
Company's capabilities. Because the Company can often receive multiple
orders from many of these customers, technical support and service after
the sale are also crucial to maintaining a strong supply relationship.
The Company's sales and marketing strategy for wireless products involves:
(1) direct sales to end users, and
(2) indirect sales through third parties who often incorporate their
products and services with the Company's hardware for delivery to an end-
user. Third parties include:
(a) strategic partners,
(b) value-added re-sellers,
(c) original equipment manufacturers, and
(d) distributors, including representatives in 35 countries.
For wireless infrastructure, sales and marketing are performed by internal
staff plus three regional sales offices in North America. Direct sales of
logistics systems are performed by an internal sales support staff, 20
regional sales persons in North America, and six European subsidiaries. For
healthcare, the Company relies solely on its strategic partners for their
sales efforts, and works closely with them to identify and meet customer
needs and to provide necessary customer support. For marketing of SATCOM
products, the Company relies on its relationships with major airframe
manufacturers, avionics manufacturers, a network of completion centers that
install aeronautical products, and value-added resellers.
BACKLOG
The backlog of consolidated orders at December 31, 1999 was $133 million,
compared with $58 million one year earlier. Wireless Products customers
typically require short delivery cycles, and this segment does not develop
substantial order backlog. However, backlog is very important in the Space
and Technologies segment, due to the long-term nature of that business.
The backlog for Space and Technologies at December 31, 1999 was $112
million, compared with $43 million one year earlier. This increase was
primarily due to the purchase of the Montreal-based operations.
MATERIALS
Materials used in the Company's space and electronics products consist
primarily of magnetic microwave ferrites, metals such as aluminum and
brass, permanent magnet materials, and electronic components such as
transistors, diodes, IC's, resistors, capacitors and printed circuit
boards. Most of the magnetic microwave ferrite materials are purchased
from two suppliers, and permanent magnet materials are purchased from a
limited number of suppliers. Electronic components and metals are
available from a larger number of suppliers and manufacturers.
The electronic components and supplies, printed circuit assemblies, keypad
assemblies and molded parts needed for the Company's wireless products are
generally available from a variety of sources. Bar code scanners are
included in almost all orders, and a significant number of the scanners are
purchased from Symbol Technologies, Inc., which is also a competitor of the
Company; however, there are alternative suppliers that manufacture and sell
bar code scanners under license agreements with Symbol. The Company
believes that its logistics competitors also rely on scanning equipment
purchased from or licensed by Symbol. In addition, Symbol and the Company
have a license agreement, which allows the Company to utilize Symbol's
patented integrated scanning technology in certain future products.
The Company's advanced technology products often require sophisticated
subsystems supplied or cooperatively developed by third parties having
specialized expertise, production skills and economies of scale. Important
examples include application-specific integrated circuitry, and computers
incorporated in wireless network products. In such cases, the performance,
reliability, and timely delivery of the Company's products can be heavily
dependent on the effectiveness of those third parties.
The Company believes that its present sources of required materials are
adequate. The Company does not believe that the loss of any supplier or
subassembly manufacturer would have a material adverse effect on its
business. In the past, shortages of supplies and delays in the receipt of
necessary components have not had a material adverse effect on shipments of
the Company's products. However from time to time, the Company's
introduction of new terminal products for its wireless networks business,
or its performance on Space and Technologies programs, has been affected by
quality and schedule problems with developers/suppliers of critical
subsystems.
COMPETITION
The Company believes itself to be, in sales, a major independent supplier
of (1) satellite components, subsystems and systems,(2) wireless local-
area computer network products, mainly for logistics systems, (3) base
station antennas and other wireless infrastructure products for cellular
and PCS mobile networks, and (4) aeronautical SATCOM communications systems
for voice, telephony and video. However, the Company's markets are highly
competitive. Some of the Company's competitors have substantial resources
and facilities that exceed those of the Company, and the Company also
competes against smaller, specialized firms.
In the Space and Technologies segment, the Company competes with divisions
of certain large U.S. industrial concerns, such as Raytheon, Hughes, Loral,
M/A-Com, Inc., and Rockwell, as well as non-U.S. companies such as COMDEV
and RACAL. Some of these companies, as well as others, are potential
competitors of the Company for certain contracts and potential customers on
other contracts. Certain major customers could also elect to internally
develop and manufacture the products that they presently purchase from the
Company.
In the Wireless Products segment, the Company competes with divisions of
certain large U.S. and international companies, including Allen Telecom and
Ericcson in the wireless infrastructure market, and Unova, Symbol
Technologies, Teklogix Corp. and Telxon Corporation in the logistics
market.
The Company believes that the key competitive factors in both the space and
technology segment and the Wireless Products segment continue to be product
performance, technical expertise and support to customers, adherence to
delivery schedules, and price.
RESEARCH AND DEVELOPMENT
The Company conducts most of its research and development in the Space and
Technologies segment in direct response to the unique technical
requirements of a customer's order, and most of these costs are included
with the overall manufacturing costs for specific orders.
However, the Company also conducts substantial internally funded research
and development activities. In 1999, 1998 and 1997, the Company spent
$21.8 million, $13.1 million and $9.1 million, respectively, in internally
sponsored research and development.
EMPLOYEES
As of December 31, 1999, the Company and its subsidiaries employed a total
of approximately 1,600 persons. Over 70% of the Company's employees are
directly involved in engineering or manufacturing activities.
RISK FACTORS
The business operations of EMS Technologies involve significant risks and
uncertainties that could adversely affect its financial condition, results
of operations, and future development. In addition to domestic economic
conditions, which can change unexpectedly and affect US businesses
generally, these risks and uncertainties include the following:
- - Competitive Technology Could be Superior.
The markets in which EMS competes are very sensitive to technological
advances. As a result, technological developments by competitors can cause
our products to be less desirable to customers, or even to become obsolete.
- - Competitors' Marketing Strategies Can Affect Our Results.
EMS operates in competitive markets. Its competitors may pursue aggressive
marketing strategies, such as significant price discounting. These
competitive activities can reduce EMS's sales and profit margins below
expected levels.
- - Major Potential Sales Require that Customers Find Adequate Funding.
Major communications infrastructure programs, such as proposed
constellations of low-earth-orbiting satellites or PCS/cellular systems for
large urban areas, are important sources of our current and planned future
revenues. We also participate in a number of large defense programs.
Programs of this nature cannot proceed unless the customer can raise
adequate funds, from either governmental or private sources. As a result,
our expected revenues can be affected by political developments or by
conditions in private capital markets. They can also be affected by
whether private capital markets are receptive to a customer's proposed
business plans.
- - Public Acceptance of New Communications Systems Affects Purchases
by Our Customers.
Construction and expansion of new communications systems depends on public
demand for the new services. As a result, growth rates in our revenues
from wireless infrastructure products and proposed high-speed satellite
communications systems are likely to be heavily affected by the timing and
extent of public willingness to buy mobile and/or broadband communications
services.
- - We Often Encounter Technical Problems.
Technical difficulties can cause delays and additional costs for EMS. We
are particularly exposed to this risk in product development efforts, and
in fixed-price contracts on technically advanced programs that require
novel approaches and solutions.
- - We May Be Liable For Financial Damages If We Are Unable To Deliver
On A Customer's Schedule.
The Company's products may perform mission-critical functions in space
applications. If the Company experiences technical problems and is unable
to adhere to a customer's schedule, the customer could experience costly
launch delays or re-procurements from other vendors. The customer may then
be contractually entitled to substantial financial damages from the
Company.
- - New Product Transitions Can Be Costly and Disruptive.
Because our businesses involve constant efforts to improve existing
technology, EMS regularly introduces new generations of products. During
these transitions, customers may reduce purchases of older equipment more
rapidly than we expect, which can cause lower revenues and excessive
inventories. In addition, product transitions create uncertainty about
both production costs and customer acceptance. These potential problems
are generally more severe if our product introduction schedule is delayed
by technical development problems.
- - Our Products May Unexpectedly Infringe on Third-Party Patents.
As we regularly develop and introduce new technology, we have a risk that
our new products or manufacturing techniques infringe on patents held or
currently being processed by others. The US Patent Office does not publish
patents that are in process, and its processing typically takes at least
two years and often even longer. Thus, we may be affected by a patent
granted well after EMS has introduced an infringing product. In addition,
questions of whether a particular product infringes a particular patent can
involve significant uncertainty. As a result of these factors, third-party
patents may interfere with marketing plans, or may from time to time
create significant expense to defend infringement claims or respond to
customer indemnification claims.
- - We Depend on Highly Skilled Employees.
Because our products and programs are technically sophisticated, EMS must
attract and retain employees with advanced technical and program-management
skills. Other employers also often recruit persons with these skills, both
generally and in focused engineering fields.
- - We Depend on Highly Skilled Suppliers.
In addition to our requirements for basic materials and electronic
components, our advanced technological products often require sophisticated
subsystems supplied or cooperatively developed by third parties having
specialized expertise, production skills and economies of scale. In such
cases, our ability to perform according to contract requirements, or to
introduce new products on the desired schedule, can be heavily dependent on
our ability to identify and engage appropriate suppliers, and on the
effectiveness of those suppliers in meeting our development and delivery
objectives.
- - The Export License Process for Space Products Has Become Very Uncertain.
As a result of 1998 legislation, products for use on commercial satellites
are included on the U.S. Munitions List and are subject to State Department
licensing requirements. We experience delays in processing licenses
because the State Department has not yet added staff to handle its
increased workload, and political considerations can also increase the time
and difficulty of obtaining licenses for export of technically advanced
products. The license process may prevent particular sales, and in general
has created schedule uncertainties that are encouraging foreign customers,
such as those in Western Europe, to develop internal or other foreign
sources rather than use US suppliers.
- - Export Controls on Space Technology Restrict our Ability to Hold
Technical Discussions with Customers, Suppliers and Internal
Engineering Resources.
U.S. export controls severely limit unlicensed technical discussions with
any persons who are not US citizens. As a result, the Company is
restricted in its ability to hold technical discussions between US
personnel and current or prospective non-US customers or suppliers, between
Canadian personnel and current or prospective US customers or suppliers,
and between US employees and non-US (including Canadian) employees. These
restrictions reduce the Company's ability to win cross-border space work,
to utilize cross-border supply sources, to deploy technical expertise in
the most effective manner, and to pursue cooperative development programs
involving its US and Canadian space facilities.
- - Conditions in Other Countries Affect Our Revenues.
International sales significantly affect EMS's financial performance.
Economic conditions in customer countries, and exchange rate movements
that affect the local-currency cost of our products, are particularly
important in our wireless local-area network and PCS/cellular
infrastructure businesses.
- - In Some Markets, We Depend on Marketing Relationships with
Other Companies.
In the healthcare, mobile satellite communications, and route accounting
markets, the Company does not have established distribution channels.
Rather, we are seeking to develop marketing relationships with other
companies that have, for example, specialized software and established
customer service systems. EMS's success in these markets will be heavily
affected by whether we can identify and structure effective relationships
with these other companies.
- - The Company's Plan to Acquire Control of NetSat 28 is Subject to
FCC Regulatory Approval.
The Company has signed an agreement to purchase a majority interest in
NetSat 28 Company, LLC, which holds a license from the Federal
Communications Commission to operate a high-capacity Ka-band satellite. As
a result, the Company cannot assume control of NetSat 28 without FCC
approval. The FCC's review process has been extended because several other
parties filed objections with the FCC, primarily based on alleged failures
by NetSat 28 to meet construction milestones included in its license to
operate the proposed satellite. In the meantime, EMS is devoting resources
required to maintain progress in satellite design and construction, and to
develop business plans and financing relationships for the NetSat 28
program. In the event the FCC revokes the NetSat 28 license, or does not
approve EMS's acquisition of control, EMS could be unable to recover much
of this ongoing investment, and could experience a material adverse
financial impact.
- - We May Need To Obtain Substantially More Outside Financing To Support
Our Planned Business Activities.
If the FCC approves the Company's assuming control of NetSat 28 Company
LLC, the Company will need to obtain substantial additional outside
financing to complete the NetSat 28 project. Depending upon market
conditions, the necessary level of financing may not be available to the
Company, or it may be available at a much higher interest rate or with
other less favorable terms than the Company has on its current debt, or at
a higher-than-anticipated cost in terms of equity dilution.
- - The Netsat 28 Business Model Involves Numerous Assumptions About Future
Technical And Market Conditions
If the Company is successful in acquiring a controlling equity interest in
the NetSat 28 program and in obtaining adequate financing to build and
launch the satellite, the revenues and financial returns will depend on
competing technologies and services, and on customer broadband demand and
price sensitivity, in 2003 and later years. Actual conditions at that time
could vary substantially and adversely from those that are assumed for the
purposes of developing and implementing the NetSat 28 program, and in that
case, the program could result in low returns or even substantial losses.
- - EMS's Quarterly Results Are Volatile and Difficult to Predict.
The quarterly earnings contributions of some of our product lines are
heavily dependent on customer orders or product shipments in the final
weeks or days of the quarter. This can create volatility in quarterly
results, and hinders our ability to determine in advance whether quarterly
earnings will meet prevailing analyst expectations.
FORWARD-LOOKING STATEMENTS
The discussions of the Company's business in this Report, and in other
public documents or statements that may from time to time incorporate or
refer to these disclosures, contain various statements that are or may be
deemed to be forward-looking. Forward-looking statements include, but are
not limited to:
(1) statements about what the Company or management believes or
expects,
(2) statements about anticipated technological developments or
anticipated market response to or impact of current or future technological
developments or product offerings,
(3) statements about trends in markets that are served or pursued by
the Company,
(4) statements implying that the Company's technology or products are
well suited for particular emerging markets, and
(5) statements about the Company's plans for product developments or
market initiatives.
These forward-looking statements may differ materially from actual results
due to the variety of risks and uncertainties that affect the Company,
including those set forth under the foregoing "Risk Factors" heading.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Company is set forth
below:
Thomas E. Sharon, age 54, became Chairman of the Board in 1998, Chief
Executive Officer in July 1994, and had previously served as President
since 1987. He joined the Company as an engineer in 1971 and later served
as Executive Vice President from 1985 to 1987. He became a Director in
1984. He also serves as a director and officer of each of the Company's
operating subsidiaries.
Alfred G. Hansen, age 66, joined the Company as President and Chief
Operating Officer in January 2000. He became a Director in 1999. From
1998 through 1999, Mr. Hansen was President of A.G. Hansen Associates,
Inc., Marietta, Georgia, an aerospace marketing and manufacturing
consultant. From 1995 to 1998, Mr. Hansen served as Executive Vice
President of Lockheed Martin Aeronautical Systems, with broad operational
responsibilities for its aerospace business, and as a Vice President of its
parent company, Lockheed Martin Corporation. Mr. Hansen retired from the
U.S. Air Force in 1989 as a four-star general, serving in his last
assignment as Commander of the Air Force Logistics Command.
Don T. Scartz, age 57, has served as Senior Vice President and Chief
Financial Officer of the Company since 1995; he has also served as
Treasurer since 1981, as Vice President-Finance from 1981 to 1995, and as
Secretary from 1982 to 1991. He joined the Company as Controller in 1978.
He also serves as the Chief Financial Officer of each of the Company's
operating subsidiaries. He became a Director of the Company in 1995.
John J. Farrell, age 48, is Senior Vice President of the Company and
President of its Wireless Products Group. He joined the Company in May
1995 as President and Chief Operating Officer of the LXE subsidiary (which
conducts the logistics and healthcare businesses). Previously, he had been
Senior Vice-President and Chief Operating Officer of Oki Telecom Group, a
world-wide supplier of cellular telephones, since 1993. During the three
years prior to 1993, he directed Oki's marketing and sales efforts.
William S. Jacobs, age 53, became General Counsel and Secretary of the
Company in 1992, and Vice President in 1993. He is also responsible for
the legal affairs of the operating subsidiaries. Previously, he was engaged
in the private practice of law, and in such capacity had served as the
Company's principal corporate legal counsel since 1982.
Gerald S. Bush, age 43, is Vice President of the Company, and President of
its Space and Technologies Group. He joined the Company in January 1999,
when the Company acquired the Satellite Products business of Spar Aerospace
Limited (Spar) where Mr. Bush had been Vice President and General Manager
since 1998. Mr. Bush joined Spar in 1981 as a structural and thermal
analyst. He served as a program manager until 1995, when he became Director
of Manufacturing for Spar's Satellite Products business, and in 1996 he
became Vice President of Operations for that business.
Paul R. Cox, age 40, has been Vice President and General Manager, Space and
Technologies, Atlanta since 1998. He joined the Company in 1985 as an
engineer, and prior to his current position he was Director, Space Products
until 1997, when he became Vice President, Space Systems.
T. Gerald Hickman, age 59, was appointed in March 2000 to the position of
Vice President and General Manager, EMS Wireless. He joined the Company in
1988 as Vice President, Marketing, and prior to his current position was a
Vice President in the Company's EMS Wireless division.
Neilson A. Mackay, age 59, is Vice President and General Manager, SATCOM
Products. He joined the Company in September 1992 as President of an
Ottawa, Ontario based subsidiary engaged in the Company's Space and
Technologies business.
Donald F. Osborne, age 40, is Vice President and General Manager, Space and
Technologies, Montreal, since late 1999. He joined the Company in January
1999, when the Company acquired the Satellite Products business of Spar
Aerospace Limited (Spar) where Mr. Osborne had been Vice President,
Marketing since 1998. Mr. Osborne joined Spar in 1988 as a mechanical
engineer.
ITEM 2. Properties.
The Company's corporate headquarters and its Georgia operations are located
in two buildings owned by the Company (comprising 250,000 square feet of
floor space on 21 acres), as well as in 119,000 square feet of leased
office space (leases to expire prior to 2004) in three other buildings, all
located in or near Technology Park, Norcross, Georgia, a suburb of Atlanta.
The combined Georgia facilities comprise clean rooms, a microelectronics
laboratory, materials storage and control areas, assembly and test areas,
offices, engineering laboratories, a ferrites laboratory, drafting and
design facilities, a machine shop, a metals finishing facility, dark rooms
and painting facilities.
The Company's Canadian operations include a 330,000 square foot facility
surrounded by 34 acres of undeveloped land in Montreal. One-fourth of the
facility comprises manufacturing, assembly and laboratory space, including
an advanced near-field and far-field test range area and a subsystem and
payload integration area. Three-fourths of the facility is used for
engineering and administrative office space. The facility's location in
the province of Quebec affords it significant tax incentives and credits
sponsored by the provincial government. The Company also leases
approximately 63,000 square feet of office and manufacturing space for its
operations located in Ottawa, Ontario; the lease on this facility expires
in 2007.
ITEM 3. Legal Proceedings.
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The common stock of EMS Technologies, Inc. is traded in the over-the-
counter market (Nasdaq symbol ELMG). At March 10, 2000 there were
approximately 1,000 shareholders of record, and the Company believes that
there were approximately 4,000 beneficial shareholders, based upon broker
requests for distribution of Annual Meeting materials. The price range of
the stock is shown below:
1999 Price Range 1998 Price Range
High Low High Low
---- --- ---- ---
First Quarter $ 17.75 12.31 24.75 17.50
Second Quarter 14.63 11.38 24.38 16.63
Third Quarter 14.38 11.00 21.25 11.13
Fourth Quarter 12.75 7.69 16.25 10.25
The Company has never paid a cash dividend with respect to shares of its
common stock and has retained its earnings to provide cash for the
operation and expansion of its business. Future dividends, if any, will be
determined by the Board of Directors in light of the circumstances then
existing, including the Company's earnings and financial requirements and
general business conditions.
ITEM 6. Selected Financial Data.
Information required for this item is incorporated herein by reference to
the Selected Financial Data contained in the Company's 1999 Annual Report
to Shareholders, and is included in Exhibit 13.1.
ITEM 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Information required for this item is incorporated herein by reference to
the Selected Financial Data contained in the Company's 1999 Annual Report
to Shareholders, and is included in Exhibit 13.1.
ITEM 7a. Quantitative and Qualitative Disclosures About
Market Risk
At December 31, 1999, the Company had the following market risk sensitive
instruments (in thousands):
Revolving credit loan, maturing in November 2003,
interest payable quarterly at a variable rate
(7.65% at the end of 1999) $ 19,751
Revolving credit loan, maturing in February 2001,
interest payable at a variable rate
(7.0% at the end of 1999) 11,620
------
Total market-sensitive debt $ 31,371
======
At December 31, 1999, the Company also had intercompany accounts that
eliminate in consolidation but that are considered market risk sensitive
instruments:
Short-Term Due to Parent, payable by European
subsidiaries in the following countries and
arising from purchase of the Parent's products
for sale in Europe:
Exchange Rate
($U.S. per unit $U.S. in thousands
of local currency) (Reporting Currency)
------------------ --------------------
Belgium .025 /Franc $ 113
Holland .457 /Guilder 985
Germany .515 /Mark 1,426
Sweden .118 /Krona 44
France .154 /Franc 596
United Kingdom 1.615 /Pound 2,181
------
Total short-term due to parent $ 5,345
======
ITEM 8. Financial Statements and Supplementary Data.
Information required for this item is incorporated herein by reference to
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained in the Company's 1999 Annual Report to Shareholders,
and is included in Exhibit 13.1.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The information concerning directors called for by this Item is contained
in the Company's definitive Proxy Statement for its 2000 Annual Meeting of
Shareholders and is incorporated herein by reference. The information
concerning executive officers called for by this Item is set forth under
the caption "Executive Officers of the Registrant" in Item 1 hereof.
ITEM 11. Executive Compensation.
The information called for by this Item is contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders and
is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this Item is contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders and
is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
The information called for by this Item is contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders and
is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a)1. Financial Statements
The following consolidated financial statements are contained in the
Company's 1999 Annual Report to Shareholders, and are incorporated herein
by reference to Exhibit 13.1:
Independent Auditors' Report.
Consolidated Statements of Earnings -
Years ended December 31, 1999, 1998 and 1997.
Consolidated Balance Sheets - December 31, 1999 and 1998.
Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Years ended December 31, 1999, 1998 and
1997.
Consolidated Statements of Cash Flows - Years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements.
Selected Financial Data.
Management's Discussion and Analysis of Results of Operations and
Financial Condition.
(a)2. Financial Statement Schedules
Independent Auditors' Report
II. Valuation and Qualifying Accounts -
Years ended December 31, 1999, 1998
and 1997
All other schedules are omitted as the required information is
inapplicable, or the information is presented in the financial statements
or related notes.
- ---------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EMS Technologies, Inc.:
Under date of February 25, 2000, we reported on the consolidated balance
sheets of EMS Technologies, Inc. and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of earnings,
stockholders' equity and comprehensive income, and cash flows for each of
the years in the three-year period ended December 31, 1999, as contained in
the 1999 annual report to stockholders. These consolidated financial
statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1999. In our report specified
above, we state that we did not audit the financial statements of EMS
Technologies Canada, Ltd., a wholly-owned subsidiary, which statements were
audited by other auditors whose report has been furnished to use. Our
opinion, insofar as it relates to the amounts included for EMS Technologies
Canada, Ltd., is based solely on the report of the other auditors. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, based on our audits and the report of other auditors, the
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Atlanta, Georgia
February 25, 2000
- ---------------------------------------------------------
SCHEDULE II
EMS Technologies, Inc.
Valuation and Qualifying Accounts
(In thousands)
Years ended December 31, 1999, 1998 and 1997
----------------------------------------------------
Additions
Balance at charged to Balance
beginning costs and at end
Classification of year expenses Deductions Other of year
- -------------- ---------- ---------- ---------- ----- -------
Allowance for
Doubtful Accounts:
1997 $ 270 - - - 270
1998 $ 270 40 - - 310
1999 $ 310 - 17 - 293
Reserve for Deferred
Tax Assets:
1997 $ 6,912 - (920)(a) - 5,992
1998 $ 5,992 - (4,664)(a) - 1,328
1999 $ 1,328 1,671(b) - - 2,999
(a) The 1997 change in the reserve for deferred tax assets related to the
net change in the underlying deferred tax assets associated with the
Company's Canadian subsidiary. These deferred tax assets had been fully
reserved when the subsidiary was acquired in 1993 due to uncertainty about
realization. As a result, this change in reserves had no effect on the
Company's 1997 statement of earnings. In 1998, based upon the Canadian
operation's significantly improved profit-ability and management's revised
assessment of the subsidiary's business prospects, the valuation allowance
related to these deferred tax assets was decreased; the resulting benefit
was allocated to goodwill and there was no effect on the Company's 1998
statement of earnings.
(b) The 1999 increase in the reserve for deferred tax assets related
primarily to the net change in the underlying deferred tax assets
associated with the Montreal operations that the Company acquired in 1999.
These deferred tax assets were fully reserved at acquisition due to
uncertainty about realization. As a result, this change in reserves had no
effect on the Company's 1999 statement of earnings.
- ---------------------------------------------------------
(a)3. Exhibits
The following exhibits are filed as part of this report:
2.1 Asset Purchase Agreement, dated December 30, 1998, by and
between Electromagnetic Sciences, Inc. and Spar Aerospace
Limited, including Exhibits 1 and 2 but excluding all Schedules.
(The list of Schedules appears in Section 1.12 of the Agreement;
(i) the registrant hereby agrees to furnish supplementally a
copy of any Schedule to the commission upon its request.)
(incorporated by reference to the Company's Current Report on
Form 8-K dated January 29, 1999.)
2.2 Letter of Amendment to Purchase Agreement, dated January 29,
1999 (incorporated by reference to the Company's Current Report
on Form 8-K dated January 29, 1999).
2.3 Member Interest Purchase Agreement, dated September 30, 1999, by
and among EMS Technologies, Inc., NetSat 28, LLC and NationNet
LLC (incorporated by reference to Exhibit 2.1 on the Company's
Report on Form 10-Q for the quarter ended October 1, 1999).
2.4 Amendment No. 1 dated January 31, 2000, to Member Interest
Purchases Agreement, dated September 30, 1999, by and among EMS
Technologies, Inc., NetSat 28 Company, L.L.C. and Nation Net,
LLC.
3.1 Second Amended and Restated Articles of Incorporation of EMS
Technologies, Inc., effective March 22, 1999. (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
3.2 Bylaws of EMS Technologies, Inc., as amended through March 15,
1999 (incorporated by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998).
4.1 EMS Technologies, Inc. Stockholder Rights Plan dated as of April
6, 1999 (incorporated by reference to Exhibit 4.1 to the
Company's Report on Form 8-K dated April 6, 1999).
4.2 Agreement with respect to long-term debt pursuant to Item
601(b)(4)(iii)(A) (incorporated by reference to Exhibit 4.2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.3 Second Amended and Restated Loan Agreement, dated November 9,
1998, between the Company and SunTrust Bank, Atlanta, together
with Amendment and Consent dated as of January 29, 1999, and
Second Amendment dated as of February 24, 1999 (incorporated by
reference to Exhibit 4.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.1 Employment Agreement dated as of January 1, 1989, by and between
the Company and Thomas E. Sharon (incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.2 Amendment, dated July 29, 1992, of Employment Agreement
dated as of January 1, 1989, by and between the Company and
Thomas E. Sharon (incorporated by reference to Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.3 Second Amendment, dated November 15, 1994, of Employment
Agreement dated as of January 1, 1989, by and between the
Company and Thomas E. Sharon (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.4 Third Amendment, dated as of August 10, 1998, of Employment
Agreement dated as of January 1, 1989, by and between the
Company and Thomas E. Sharon (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998).
10.5 Employment Agreement, dated as of August 10, 1998, by and
between the Company and John J. Farrell, Jr. (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.6 Employment Agreement, dated as of August 10, 1998, by and
between the Company and Don T. Scartz(incorporated by reference
to Exhibit 10.6 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.7 Letter dated January 17, 2000 between the Company and Alfred G.
Hansen concerning the terms of his employment as President and
Chief Operating Officer.
10.8 EMS Technologies, Inc. Directors' Stock Purchase Plan effective
January 1, 2000.
10.9 1981 Incentive Stock Option Plan, as amended and restated
February 6, 1987, and further amended through March 23, 1989
(incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.10 Electromagnetic Sciences, Inc. 1986 Non-Qualified Stock Option
Plan, as amended through July 31, 1992 (incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.11 Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan
as amended through October 3, 1996 (incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement No. 333-
14235 on Form S-4).
10.12 Amendments adopted May 2, 1997, to the Electromagnetic Sciences,
Inc. 1992 Stock Incentive Plan (incorporated by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.13 EMS Technologies, Inc. 1997 Stock Incentive Plan, as adopted
January 24, 1997, and amended through February 19, 1999.
10.14 Form of Stock Option Agreement evidencing options granted to
executive officers under the EMS Technologies, Inc. 1997 Stock
Incentive Plan (incorporated by reference to Exhibit 10.13 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.15 Form of Stock Option Agreement evidencing options granted
automatically to non-employee members of the Board of Directors
upon their initial election to the Board, under the EMS
Technologies, Inc. 1997 Stock Incentive Plan.
10.16 Form of Stock Option Agreement evidencing options granted
automatically to non-employee members of the Board of Directors,
following five years of service, under the EMS Technologies,
Inc. 1997 Stock Incentive Plan.
10.17 Form of Stock Option Agreement evidencing options granted to
executive officers under the Electromagnetic Sciences, Inc. 1992
Stock Incentive Plan (incorporated by reference to Exhibit 10.15
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
10.18 Form of Stock Option Agreement dated May 15, 1995, evidencing
option granted to John J. Farrell, Jr. under the 1992 Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.19 Form of Stock Option Agreement evidencing options granted
automatically under the 1992 Stock Incentive Plan, on a one-time
basis and prior to 1998, to non-employee members of the Board of
Directors (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995).
10.20 Form of Stock Option Agreement evidencing option granted
September 26, 1990 to an executive officer under the LXE Inc.
1989 Stock Incentive Plan, and thereafter converted into an
option for a reduced number of shares, at the same aggregate
exercise price, under the Company's 1992 Stock Incentive Plan
(incorporated by reference Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.21 Form of Stock Option Agreement dated May 15, 1995, evidencing
option granted to John J. Farrell, Jr. under the LXE Inc. 1989
Stock Incentive Plan, and thereafter converted into an option
for a reduced number of shares, at the same aggregate exercise
price, under the Company's 1992 Stock Incentive Plan
(incorporated by reference to Exhibit 10.6 to the LXE Inc.
Annual Report on Form 10-K for the year ended December 31,
1995).
10.22 Stock Option Agreement dated January 7, 2000, evidencing option
granted to Alfred G. Hansen.
10.23 Electromagnetic Sciences, Inc. Executive Annual Incentive
Compensation Plan, as amended through April 30, 1999
(incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 10-Q for the quarter ended July 2, 1999).
10.24 Form of Indemnification Agreement between the Company and its
directors (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997).
10.25 Form of Indemnification Agreement between the Company and its
Vice President and General Counsel (incorporated by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.26 Form of split-dollar life insurance agreement between the
Company and certain of its officers (incorporated by reference
to Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.27 Form of split-dollar life insurance agreement effective
January 1, 1993, between the Company and William S. Jacobs
(incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998).
10.28 Form of note evidencing indebtedness to the Company of its Chief
Executive Officer and certain other executive officers
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 2,
1998).
10.29 Letter, dated February 24, 1999, governing credit facility
between EMS Technologies Canada, Ltd., a consolidated subsidiary
of the Company, and Canadian Imperial Bank of Commerce,
including Schedule-standard Credit Terms (incorporated by
reference to Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998).
13.1 Those portions of the Company's 1999 Annual Report to
Shareholders incorporated by reference into this Annual Report
on Form 10-K.
22.1 Subsidiaries of the registrant.
23.1 Independent Public Accountants' (KPMG LLP) Consent to incorporation
by reference in Registration Statements Nos. 2-76455, 2-78442,
2-94049, 33-31216, 33-38829, 33-41042, 33-50528, 333-20843 and
333-32425, each on Form S-8.
23.2 Independent Chartered Accountants' (Ernst and Young LLP) Consent to
incorporation by reference in Registration Statements Nos.
2-76455, 2-78442, 2-94049, 33-31216, 33-38829, 33-41042,
33-50528, 333-20843 and 333-32425, each on Form S-8.
27.1 Financial Data Schedule - 12 months ended December 31, 1999
99.1 Ernst and Young LLP independent chartered accountants' report.
(b). Reports on Form 8-K.
No Reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1999.
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.
EMS TECHNOLOGIES, INC.
By: /s/ Thomas E. Sharon Date: 3/30/00
------------------------------------- -------
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Thomas E. Sharon Date: 3/30/2000
-------------------------------------- ---------
Chairman of the Board, Chief Executive Officer
and Director (Principal Executive Officer)
By: /s/ Don T. Scartz Date: 3/30/2000
-------------------------------------- ---------
Don T. Scartz, Senior Vice President and Chief
Financial Officer, Treasurer and Director
(Principal Financial and Accounting Officer)
By: /s/ Alfred G. Hansen Date: 3/30/2000
-------------------------------------- ---------
Alfred G. Hansen, President,
Chief Operating Officer and Director
By: /s/ Jerry H. Lassiter Date: 3/30/2000
-------------------------------------- ---------
Jerry H. Lassiter, Director
By: /s/ John B. Mowell Date: 3/30/2000
-------------------------------------- ---------
John B. Mowell, Director
By: /s/ Norman E. Thagard Date: 3/30/2000
-------------------------------------- ---------
Norman E. Thagard, Director
Amendment No. 1
Dated January 31, 2000
To
MEMBER INTEREST PURCHASE AGREEMENT
By and Among
EMS TECHNOLOGIES, INC.,
NETSAT 28, L.L.C.
and
NATION NET, L.L.C.
Dated September 30, 1999
The undersigned parties to the foregoing Member
Interest Purchase Agreement (the 'Agreement') hereby amend
the Agreement as follows:
Paragraph 2.2(f) is amended to change the date 'May
31, 2000' to 'July 31, 2000, ' and to change the date 'July
31, 2000, ' in each of the two places that it appears, to
'September 30, 2000. '
Paragraph 11.1(e) of the Agreement is amended to
provide in its entirety as follows:
(e) Extended Delay. By EMS or NetSat if any
condition to its obligations under this
Agreement shall not have been fulfilled on or
before June 30, 2000.
Except as expressly modified by this Amendment, the
Agreement shall remain in full force and effect in
accordance with its terms.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their duly authorized corporate
officers and their corporate seals to be affixed, this 29th
day of February 2000, effective the 31st day of January
2000.
NATION NET, L.L.C. NETSAT28 COMPANY, L.L.C.
By: By:
------------------------- -----------------------
Thomas W. Glynn Thomas W. Glynn
Chairman President
EMS TECHNOLOGIES, INC.
By:
------------------------
Al Hansen
President/COO
January 17, 2000
Mr. Alfred G. Hansen
4609 Chattahoochee Crossing
Marietta, GA 30067
Dear Al:
EMS Technologies, Inc. is pleased that you have accepted the
position of President and Chief Operating Officer, at an initial
salary of $16,667.00 per month. This letter sets out the
compensation package for this position as recommended by the
Compensation Committee and approved by the Board of Directors on
January 7, 2000.
Initial Stock Option Grant: 200,000 shares of EMS Technologies,
Inc. Common Stock, first exercisable after 6 months, remaining
exercisable for 6 years after date of employment, at 11 7/8,
which is the closing market price of the common stock on January
7, 2000, and otherwise on the terms and conditions of options
granted to executive officers under the 1997 Stock Incentive
Plan.
Future Option Grants: To be determined annually as the sum of:
(1) options under the Company's normal procedure for executive
long-term incentive compensation, (2) the number of options
having a Black-Scholes value equal to the amount by which base
salary is less than that number determined under the Company's
normal procedures for executive compensation, and (3) the number
of options having a Black-Scholes value equal to the cash bonus
that would otherwise be paid under the Executive Annual
Incentive Compensation Plan.
Executive Annual Incentive Compensation Plan: You will not
participate in the Executive Annual Incentive Plan except as
described under 'Future Options Grants' as outlined above.
Benefit Programs: Enclosed is a summary of our benefit plans
(medical, dental, life insurance, etc.). You will also be
eligible for a supplemental medical insurance plan provided to
Company Officers, which will pay up to $5,000 per year of
expenses not covered by the standard company plan. In
particular, items relating to dental and vision are covered by
the supplemental plan. This information can be covered in more
detail at your convenience.
Vacation: You will be entitled to four weeks vacation per year.
Automobiles: You are eligible to participate in the company's
Automobile program as generally available to executive officers,
subject to your election to participate.
Golf Club: You are eligible to participate in this program as
generally available to executive officers, subject to your
election to participate.
Page 2
Mr. Alfred G. Hansen
January 17, 2000
Umbrella Liability Insurance: You are eligible to participate
in this program as generally available to executive officers,
subject to your election to participate.
As an employee, you should sign and return the enclosed employee
agreement dealing with inventions and non-disclosure, as well as
the standard Terms of Employment form, which is also enclosed.
Our employment will be governed by and determined in accordance
with the laws of the State of Georgia.
Please indicate your acceptance of these arrangements by
signing, dating, and returning one of the enclosed copies of
this letter to my attention in the Human Resources Department.
The other copy is for your own records.
I look forward to working with you at EMS Technologies, Inc. If
you have any questions, please feel free to call me at (770)
263-9200, ext. 4306.
Sincerely,
EMS Technologies, Inc.
Michael R. Robertson
Director, Human Resources
Enclosures
Accepted by: Date:
-------------------------------- -------------
Start Date: January 4, 2000
As adopted February 16, 2000,
effective January 1, 2000
EMS TECHNOLOGIES, INC.
DIRECTORS' STOCK PURCHASE PLAN
1. PURPOSE. The Board of Directors (the 'Board') of EMS
Technologies, Inc. (the 'Company') considers it desirable for the
non-employee members of the 'Board' (the 'Outside Directors') to
participate in Company ownership. Such ownership strengthens the
sense of identity between the Company and its Outside Directors,
and reflects the essential unity of purpose among the Company,
the Outside Directors, and the Company's shareholders. The Plan
is intended to provide a convenient means through which the
Outside Directors may acquire shares of the Company's common
stock, $.10 per value (the 'Common Stock'), and a method by which
the Company may assist in achieving this objective.
2. NAME OF PLAN. The name of this Plan is the "EMS
Technologies, Inc. Directors' Stock Purchase Plan" (the "Plan).
3. ADMINISTRATION. The Plan shall be administered by the
Company, which shall act as, or designate a bank, trust company
or brokerage firm to act as, custodian under the Plan (the
'Custodian'), and will report each such designation to the Board.
References in this Plan to the 'Custodian' shall include the
Company at such times as it may be serving in such role, except
as the context may otherwise clearly indicate. The Board
reserves the right to change the Custodian at any time at its
discretion. The Custodian will hold as custodian all funds
received by it under the Plan and all of the shares of Common
Stock acquired for participants under the Plan. Any third-party
Custodian may rely on all orders, requests and instructions with
respect to the Plan given in writing and signed by any person
authorized to act on behalf of the Company, and such Custodian
shall not be liable to any person for any action taken in
accordance therewith.
4. TERM OF PLAN. The Plan will continue from year to year,
but, subject to Section 16, may be modified or discontinued by
the Board at any time.
5. ELIGIBILITY. Each Outside Director is eligible to
participate in the Plan.
6. PARTICIPATION.
(a) Each Outside Director may agree to pay in accordance
with Section 7 an amount of money stated as a percentage of Board
compensation (either in its entirety or by its separate
components), not exceeding 100%, to be applied to the purchase of
Common Stock for such individual's account. 'Board
compensation', for the purposes of the Plan, shall mean all
retainers and fees paid for service on the Board and for
participation in meetings of the Board and its Committees. Board
compensation does not include pay for consulting, expense
reimbursements, or Company contributions for insurance or other
benefit plans.
(b) All requests to participate in the Plan shall be made
on a form adopted by the Company as the form of a 'Request to
Participate' under this Plan and authorizing and instructing the
Company to deduct or cause to be deducted the desired amount from
the individual's Board compensation. Each form shall expressly
state that its terms are subject to and controlled by all the
terms and conditions of the Plan, as the same may be amended from
time to time.
7. COMPENSATION DEDUCTIONS.
(a) At the time any payment of Board compensation is due,
the Company will deduct the amount authorized by the participant
in his or her Request to Participate.
(b) Upon the participant's written request to the Company,
the Company will increase or decrease the deduction amount,
subject to the limits stated in paragraph 6(a). A participant,
however, may increase or decrease the deduction amount no more
frequently than once during any six-month period.
8. APPLICATION OF DEDUCTIONS. Promptly after each
deduction from Board compensation, the Custodian shall apply the
deductions to the purchase of the Common Stock from the Company,
at a price equal to the Fair Market Value of the Common Stock on
the last business day preceding date of the deduction, as defined
in the Company's 1997 Stock Incentive Plan (hereinafter, 'Fair
Market Value'), plus a per-share amount equal to brokerage
discounts or commissions, if any, paid by the Company to purchase
shares for sale to Plan participants.
9. SALES OR TRANSFERS OF SHARES.
(a) The Custodian will credit purchased shares to each
participant's account, including fractional shares to at least
the third decimal. Upon the receipt of a participant's request to
sell or withdraw all or a portion of the shares credited to his
or her account, the Custodian shall cause the sale of shares or
the transfer of shares into the name of the participant or other
registered holder designated by the participant. In the event of
a sale, the Custodian shall remit the proceeds of the sale
directly to the participant. In the event of a transfer, the
Custodian shall deliver the shares in accordance with
instructions from the participant. The Company will not issue any
certificate representing fractional shares, but instead the value
of fractional shares shall be paid to the participant in cash
based on the Fair Market Value of the Common Stock on the date
the participant makes the withdrawal request.
(b) The Company reserves the right (i) to place a legend
upon any certificate delivered to or upon the direction of any
participant to the effect that the certificate may not be
transferred without compliance with the federal securities laws,
and (ii) to instruct the Company's transfer agent to place stop-
transfer notices on its books with respect to the shares
evidenced by such certificates.
(c) Notwithstanding other provisions hereof, shares held in
the account of a participant for less than six months may not be
transferred to such participant unless he or she shall agree that
the shares shall, prior to any sale thereof, be beneficially
owned for not less than six months.
10. SHARES RETAINED BY THE CUSTODIAN. Accumulations of
shares not withdrawn by participants pursuant to Section 9 shall
be held by the Custodian for the account of the participant
entitled thereto, but all rights accruing to an owner of record
of such shares shall belong to and be vested in the participant
for whose account it is being held, including the right to
receive any and all dividends payable in respect of such shares,
whether in cash, shares or otherwise, and the right to receive
all notices of shareholders' meetings and to vote thereat.
11. DIVIDENDS. All cash dividends when declared and
received by the Custodian will be credited to the participants in
proportion to the number of shares, including fractional shares,
held by the Custodian for each participant's account on the
dividend record date. Checks will then be issued to the
participants promptly, except that a minimum accumulation of
dividends to a total of $1 credited to the owner of the shares
will be required before a dividend check will be issued. Neither
the Company nor the Plan shall have any liability with respect to
income taxes due on any dividends credited to a participant's
account, and the participant shall be solely liable for any such
applicable income tax.
12. VOTING RIGHTS AND REPORTS TO PARTICIPANTS.
(a) The Company shall transmit or cause to be transmitted
to all participants who do not otherwise receive such material as
shareholders of the Company, at the time and in the manner such
material is sent to shareholders, copies of all reports
(including annual reports), proxy statements and other
communications distributed to shareholders generally. The
Custodian shall (i) request instructions from the participants as
to the voting of shares held by it, and (ii) vote the shares held
by it in accordance with such instructions. As to shares with
regard to which no instructions are received, the Custodian shall
vote such shares in favor of or against any matter in the same
proportion as all other shares (including shares with regard to
which the Custodian has received instructions) represented in
person or by proxy at the meeting vote in favor of or against
such matter, or (if the Custodian is a brokerage firm) shall vote
or not vote such shares in the same manner that it acts with
respect to shares of the Company held in its name for the benefit
of other individual shareholders, under the rules of the National
Association of Securities Dealers or applicable exchange.
(b) The Custodian shall provide to each participant, not
less frequently than twice each year, a statement of his or her
account, such statement to show the balance of such account as of
a recent date, together with all transactions affecting such
account since the preceding report.
13. GRANT OF OPTIONS.
(a) On each June 30 and December 31 during the term of the
Plan the Company shall, automatically and without further action
of the Board, grant to each participant an option (the 'Option'
or 'Options') to acquire shares of the Common Stock at Fair
Market Value on such date of grant, first exercisable six months
after such date and remaining exercisable until 5:00 p.m.,
Atlanta time, on the sixth anniversary of the date of grant.
Each participant's Option shall cover such number of shares as
shall result in the Option having a value on the date of grant,
as determined by Black-Scholes methodology at that time used by
the Company for financial reporting or other securities law
purposes, equal to 25% of such participant's aggregate deductions
into the Plan during the six-month period ending on the grant
date.
(b) Except as specified in paragraph 13(a), the Options
shall be on the same terms and conditions as those granted
automatically to certain members of the Board under the Company's
1997 Stock Incentive Plan.
14. WITHDRAWAL OF PARTICIPANTS FROM PLAN.
(a) A participant may withdraw from the Plan, at any time
after six months since his or her most recent change of deduction
instructions, by giving notice in writing to the Company
addressed to its Secretary; provided however, that a participant
who shall have withdrawn from the Plan may not participate
further in the Plan (except as provided in paragraph 14 (d)) for
a period of six months from the date of the last deduction
preceding the withdrawal. A participant's withdrawal of all
shares owned by him or her from the Plan pursuant to Section 9
shall not in itself constitute a withdrawal from the Plan.
(b) A participant shall be deemed to have withdrawn from
the Plan immediately upon the occurrence of any of the following:
(i) The termination for any reason of the
participant's status as a member of the Board;
(ii) Death of the participant;
(iii) The creation of, and failure to discharge within
10 days of its creation, any lien or encumbrance
upon a participant's account under the Plan
(whether the lien is created by attachment,
garnishment, or the filing or docketing of a
judgment against the participant, or in any other
manner), or any levy upon the participant's
account under the Plan, or the filing of a
petition in bankruptcy by or against the
participant; or
(iv) Termination of the Plan by the Company.
(c) Subject to paragraphs 9(c) and 14(d), and as soon as
reasonably practicable after application of the last deduction
made from such participant's Board compensation, upon the
withdrawal from the Plan by a participant: all full shares in the
account of the participant shall be sold or transferred to such
participant or to such other registered holder as the participant
shall designate; any fractional share shall be paid based on the
Fair Market Value of the Common Stock on the date the participant
gives notice of his or her withdrawal from the Plan; and all
dividends credited to his or her account shall be paid to him or
her. Shares transferred to or upon the direction of the persons
specified in paragraph 9(b) shall be subject to the provisions
and restrictions set forth in that paragraph.
(d) Notwithstanding the provisions of paragraph 14(c), any
participant who shall give notice of withdrawal pursuant to
paragraph 14(a) may elect to permit the Custodian to continue to
hold the shares and funds allocated to his or her account, but
(except with the consent of the Custodian) only for so long as
such participant shall not be deemed to have withdrawn from the
Plan as a result of any of the events specified in paragraph
14(b). Such election shall be made by execution of such form or
forms as shall be determined by the Company.
15. EXPENSES.
(a) Except as otherwise provided herein, all administrative
costs of the Plan, however calculated, including any costs
incurred in the maintenance of participant accounts, shall be
borne by the Company.
(b) Charges incurred in the sale of shares for a
participant's account, or in the distribution of shares at a
participant's direction, shall be borne by the participant. Any
intangibles tax, ad valorem tax, or other tax on cash or shares
held by the Custodian shall be borne pro rata by the
participants.
16. GENERAL. The Plan is adopted by the authority of the
Board, which reserves the right to amend, suspend or terminate
the Plan at any time, provided that the Company may not amend or
terminate the Plan in such a manner that the amendment or
termination deprives a participant of any stock purchased with
his or her deductions or of any Options to which he or she is
entitled based on such deductions. However, the Company may not
amend the Plan more than once in any six-month period to change
the basis for determining the grant of Options to participants,
and the Board, without the approval of the shareholders of the
Company, may not amend the Plan to materially increase the
benefits accruing to participants. The Plan shall be interpreted
according to the laws of the State of Georgia.
17. RESPONSIBILITY. The Company and the Board shall have no
responsibility or liability, other than liabilities arising out
of the federal securities laws, for any act or thing done or left
undone in good faith, including, without limiting the generality
of the foregoing, any action taken with respect to the price,
quantity, or other conditions and circumstances of the purchase
of shares under the terms of the Plan, provided, however, that
the foregoing shall not apply to any act or thing done or left
undone which amounts to willful malfeasance or gross negligence.
A determination made in good faith by the Company as to any
question that may arise regarding the Plan's conduct or
operations shall be final.
18. NO ASSIGNMENT. Participants shall not have the right
to assign, pledge or hypothecate their rights in the Plan, and
any attempted assignment, pledge or hypothecation of any such
rights shall be absolutely null and void. The preceding sentence
shall not be construed to limit in any manner the rights that a
participant may otherwise have to assign, pledge, hypothecate or
otherwise transfer shares held in his or her account, subject to
the provisions hereof concerning transfer of shares to or upon
the direction of the participant.
As adopted January 24, 1997,
amended through February 19, 1999.
EMS TECHNOLOGIES, 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
EMS TECHNOLOGIES, 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 EMS Technologies, 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 "EMS Technologies, 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 y 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
825,000 (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 if such first day of service occurs prior to 1999, and
of 15,000 shares if such first day occurs in 1999 or thereafter
(subject in all cases 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 one-fifth of the
subject shares on the date that is six months after the date of
grant, and as to an additional one-fifth of the subject shares on
each of the first, second, third and fourth anniversaries of such
six-month date. Persons receiving such Option prior to 1999
shall also be granted, automatically and without further action
of the Board or the Committee, upon election in 1999 to a further
term of service as a Director, an Option for 1,000 shares for
each 2,000 shares of such original Option not yet exercisable as
of such 1999 election, which additional Option shall become
exercisable as to 1,000 shares on each date on which an
additional 2,000 shares of the original Option becomes
exercisable.
(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 at least 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 for elections arriving prior to 1999, and of
3,000 shares for elections occurring in 1999 and thereafter
(subject in all cases 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.
Outside Directors
(New) 4/30/99
EMS TECHNOLOGIES, INC.
1997 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the __th day
of ______, ____ (the 'Date of Grant'), by and between EMS
TECHNOLOGIES, INC., a Georgia corporation (hereinafter referred
to as the 'Corporation'), and Alfred G. Hansen (hereinafter
referred to as the "Director").
W I T N E S S E T H
WHEREAS, the Board of Directors (the 'Board') of the
Corporation has adopted a stock incentive plan for the directors,
officers and employees of the Corporation or its subsidiary
corporations, which Plan is known as the 'EMS Technologies, Inc.
1997 Stock Incentive Plan' (hereinafter referred to as the
'Plan');
WHEREAS, on the Date of Grant the Director was elected to
serve as a member of the Board for the forthcoming year; and
WHEREAS, the Plan provides for the automatic grant to the
Director, in the circumstances of such election, of a stock
option to purchase shares of the Corporation's common stock as
hereinafter set forth, and the Corporation and the Director
desire to enter into a written agreement with respect to such
option in accordance with the Plan.
NOW, THEREFORE, as an incentive and to encourage stock
ownership, and in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Incorporation of Plan. This option is granted pursuant
to the provisions of the Plan and the terms and definitions of
the Plan, as it may be amended from time to time, are
incorporated by reference into this Stock Option Agreement and
made a part hereof. A copy of the Plan has been delivered to,
and receipt is hereby acknowledged by, the Director.
2. Grant of Option. Subject to the terms, restrictions,
limitations and conditions stated herein, the Corporation hereby
evidences its grant to the Director of the right and option
(hereinafter referred to as the 'Option'), which is not an ISO,
to purchase all or any part of an aggregate of Fifteen Thousand
(15,000) shares of the Corporation's $.10 par value common stock
(the 'Common Stock') beginning as follows:
First Date Number of
Exercisable Shares
_____________ 3,000
_____________ 3,000
_____________ 3,000
_____________ 3,000
_____________ 3,000
This Option shall expire and is not exercisable after 5:00
p.m., Atlanta time, on ____________ (the 'Expiration Date').
Notwithstanding the beginning date for exercise set forth in
the second preceding paragraph, but subject to the provisions of
the preceding paragraph with respect to expiration of this
Option, this Option may be exercised as to all or any portion of
the full number of shares subject thereto if: (a) a tender offer
or exchange offer has been made for shares of the Common Stock,
other than one made by the Corporation, provided that the
corporation, person or other entity making such offer purchases
or otherwise acquires shares of Common Stock pursuant to such
offer; or (b) any person or group (as such terms are defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the 'Act')), becomes the holder of 50% or more of the
outstanding shares of Common Stock. If either of the events
specified in this paragraph has occurred, the Option shall be
fully exercisable: (x) in the event of (a) above, during the
period commencing on the date the tender offer or exchange offer
is commenced and ending on the date such offer expires and is not
extended; or (y) in the event of (b) above, during the 30-day
period commencing on the date upon which the Corporation is
provided a copy of a Schedule 13D or amendment thereto, filed
pursuant to Section 13(d) of the Act and the rules and
regulations promulgated thereunder, indicating that any person or
group has become the holder of 50% or more of the outstanding
shares of Common Stock. In the case of (a) above, if the
Corporation, person or other entity making the offer does not
purchase or otherwise acquire shares of Common Stock pursuant to
such offer, then the Director's right under this paragraph to
exercise this Option shall terminate, the Director and the
Corporation shall rescind any exercise of this Option pursuant to
this paragraph, and this Option shall be reinstated as if such
exercise had not occurred.
3. Purchase Price. The price per share to be paid by the
Director for the shares subject to this Option shall be
__________ Dollars ($_____).
4. Exercise Terms. Beginning on the date specified above,
and prior to the expiration of this Option as provided in Section
2 hereof, the Director may exercise this Option as to all such
number of shares, or as to any part thereof, at any time and from
time to time during the remaining term of this Option; provided
that the Director must exercise this Option for at least the
lesser of 100 shares or the unexercised portion of the Option.
In the event this Option is not exercised with respect to all or
any part of the shares prior to its expiration, the shares with
respect to which this Option was not exercised shall no longer be
subject to this Option.
5. Option Non-Transferable. This Option and all rights
hereunder are neither assignable nor transferable by the Director
otherwise than by will or under the laws of descent and
distribution, or pursuant to a Qualified Domestic Relations
Order, and during the Director's lifetime this Option is
exercisable only by him (or by his guardian or legal
representative, should one be appointed, or qualified
transferee). More particularly (but without limiting the
generality of the foregoing), this Option may not be assigned,
transferred (except as aforesaid), pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be
subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other
disposition of this Option contrary to the provisions hereof
shall be null and void and without legal effect.
6. Notice of Exercise of Option. This Option may be
exercised by the Director, or by his administrator, executor,
personal representative or qualified transferee, by a written
notice (in substantially the form of the "Notice of Exercise"
attached hereto as Annex A) signed by the Director, or by such
administrator, executor, personal representative or qualified
transferee, and delivered or mailed to the Corporation at its
principal office in Norcross, Georgia, to the attention of the
President, Treasurer or such other officer as the Corporation may
designate. Any such notice shall (a) specify the number of
shares of Common Stock which the Director or such administrator,
executor, personal representative or qualified transferee, as the
case may be, then elects to purchase hereunder, and (b) be
accompanied by (i) a certified or cashier's check payable to the
Corporation, or personal check acceptable to the Corporation, in
payment of the total price applicable to such shares as provided
herein, or (ii) (subject to any restrictions referred to in Annex
A) shares of Common Stock, owned by him and duly endorsed or
accompanied by stock transfer powers, or in lieu thereof, the
form of Attestation of Share Ownership attached as Annex B
executed with respect to such number of such shares, having a
Fair Market Value equal to the total purchase price applicable to
the shares purchased hereunder, or (iii) such a check, and the
number of such shares (or attestation with respect thereto) whose
Fair Market Value when added to the amount of the check equals
the total purchase price applicable to such shares purchased
hereunder. Such notice shall also be accompanied by such a check
or shares of Common Stock in payment of applicable withholding
and employment taxes, or the person exercising this Option shall
authorize (by use of Annex B or otherwise) the withholding of
shares of Common Stock otherwise issuable under this Option in
payment of such taxes, all as set forth on Annex A and subject to
any restrictions referred to therein. Upon receipt of any such
notice and accompanying payment, and subject to the terms hereof,
the Corporation agrees to cause to be issued to the Director or
to such administrator, executor, personal representative or
qualified transferee, as the case may be, stock certificates for
the number of shares specified in such notice registered in the
name of the person exercising this Option.
7. Adjustment in Option. If prior to the complete exercise
of this Option, there shall be a change in the outstanding Common
Stock by reason of one or more stock splits, stock dividends,
combinations or exchanges of shares, recapitalizations or similar
capital adjustments, then the number, kind and option price of
the shares remaining subject to this Option shall be equitably
adjusted in accordance with the terms of the Plan, so that the
proportionate interest in the Corporation represented by the
shares then subject to the Option shall be the same as before the
occurrence of such event.
8. Termination as a Director. If the Director for any
reason ceases to be a member of the Board of Directors of the
Corporation (such event being hereinafter referred to as a
'Termination'), then:
(a) To the extent this Option shall have become
exercisable on or prior to the date of
Termination, it shall remain exercisable until the
Expiration Date; and
(b) Any portion of this Option that had not become
exercisable on or prior to the date of Termination
shall immediately terminate and shall not
thereafter become exercisable.
This Option does not confer upon the Director any right with
respect to continuance as a member of the Board of Directors of
the Corporation.
9. Competitive Activities. This Option is subject to Section 9.2 of
the Plan, which provides that if the Director provides services to a
competitor of the Corporation 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 Director
while an employee or Director of the Corporation or any such Subsidiary,
then the Director's rights under this Option shall thereupon be forfeited
and terminated, subject to a determination to the contrary by the
Committee.
10. Binding Agreement. This Agreement shall be binding upon the
parties hereto and their representatives, successors and assigns.
IN WITNESS WHEREOF, the Corporation has caused this Stock Option
Agreement to be executed on behalf of the Corporation and the Corporation's
seal to be affixed hereto and attested by the Secretary of the Corporation,
and the Director has executed this Agreement under his seal, all as of the
day and year first above written.
EMS TECHNOLOGIES, INC.
[CORPORATE SEAL]
ATTEST By:
____________________________
Chief Executive Officer
___________________________________
Secretary
DIRECTOR:
______________________(SEAL)
ANNEX A
EMS TECHNOLOGIES, INC.
1997 STOCK INCENTIVE PLAN
Notice of Exercise
of Stock Option
The undersigned hereby notifies EMS Technologies, Inc. (the
'Corporation') of his or her election to exercise an option to purchase
____________ shares of the Corporation's common stock, $.10 par value (the
'Common Stock'), pursuant to that Stock Option Agreement (the 'Agreement')
between ________________________ (the "Director") and the Corporation dated
____________________ 199__. Accompanying this Notice is (1) a certified
or cashier's check (or other check acceptable to the Corporation) in the
amount of $_______________ payable to the Corporation and/or (2) (subject
to such restrictions as may be determined to be necessary or appropriate to
avoid earnings charges or other adverse consequences to the Corporation
under applicable accounting or tax rules or regulations) _______________
shares of the Common Stock presently owned by the undersigned and duly
endorsed or accompanied by stock transfer powers, or in lieu thereof, the
form of Attestation of Share Ownership attached as Annex B to the
Agreement, executed with respect to the number of such shares, having an
aggregate Fair Market Value (as defined in the EMS Technologies, Inc. 1997
Stock Incentive Plan (the "Plan")) as of the date hereof of
$_______________, such amounts being equal, in the aggregate, to the
purchase price per share set forth in Section 3 of the Agreement multiplied
by the number of shares being hereby purchased (in each instance subject to
appropriate adjustment pursuant to Section 7 of the Agreement).
Also accompanying this Notice is my check in the amount of
$_______________,in payment of federal and state income withholding and
employment taxes applicable to this exercise. The amount of such payment
is based on advice received from appropriate officials of the Corporation
responsible for the administration of its payroll and employment tax
obligations. Alternatively, or in addition, and subject to such
restrictions as may be determined to be necessary or appropriate to comply
with Rule 16b-3 under the Securities Exchange Act of 1934, or to avoid
earnings charges or other adverse consequences to the Corporation under
applicable accounting or tax rules or regulations, in full or partial
payment of such taxes:
(1) I deliver herewith an additional _______________ shares of
the Common Stock (or the form of Attestation of Share
Ownership with respect thereto) presently owned by me,
having an aggregate Fair Market Value as of the date hereof
of $_______________; and/or
(2) I hereby authorize the Corporation to withhold, from the
shares of Common stock otherwise issuable to me pursuant to
this exercise, _______________ such shares having an
aggregate Fair Market Value at the date hereof of $
_______________.
The sum of (i) any such check plus (ii) the Fair Market Value at the
date hereof of any shares of Common Stock specified in the foregoing
clauses (1) and (2) is not less than the amount of federal and state
withholding and employment taxes applicable to this exercise, and is not
greater than the total of all federal and state income and employment taxes
to be owed by me as a result of such exercise.
IN WITNESS WHEREOF, the undersigned has set his or her hand and seal,
this day of , .
DIRECTOR OR HIS OR HER ADMINISTRATOR,
EXECUTOR, PERSONAL REPRESENTATIVE OR
QUALIFIED TRANSFEREE
_________________________________________
ANNEX B
EMS TECHNOLOGIES, INC.
1997 Stock Incentive Plan
Attestation of Share Ownership
Pursuant to the Notice of Exercise submitted herewith, I have elected
to purchase _______________ shares of the common stock of EMS Technologies,
Inc. (the 'Company'), pursuant to the Stock Option Agreement dated
____________ (the 'Option'), at an aggregate exercise price of $___________
(the 'Option Price'). I hereby attest to ownership of the shares specified
below (the 'Shares') and hereby tender the Shares in payment of (i)
$__________ of the Option Price, and (ii) $___________ of withholding and
related taxes due upon exercise of the Option, in each case based on their
Fair Market Value on the date hereof (as determined under the Plan) of
$___________ per share).
I certify that I either (i) have held the Shares that I am tendering
for at least one year after acquiring such Shares through the exercises of
an Incentive Stock Option, or (ii) did not obtain such Shares through the
exercise of an ISO.
Although the Company has not required me to make actual delivery of
certificates evidencing the Shares, as a result of which I (and the co-
owner, if any of the Shares) will retain ownership of such Shares, I
represent that I, with the consent and agreement of the co-owner (if any)
of the Shares, have full power to deliver and convey such certificates to
the Company, and therefore could have caused the Company to become sole
owner of such Shares. The co-owner of the Shares, by signing this form,
consents to these representations and the exercise of the Option by this
notice.
Common Stock Number of Number of Shares
Certificate(s) No. Shares Represented Subject to this
or Brokerage Account Attestation
You are hereby instructed to apply towards the Option Price: (check one)
[ ] The maximum number of whole shares necessary to pay the
Option Price and specified taxes, or, if fewer, the total
number of listed Shares, with any remaining amount to be
paid by check accompanying the Notice of Exercise.
[ ] ___________ of the listed Shares with the remaining amount
to be paid by check accompanying the Notice of Exercise.
In each case, the balance of the Shares for which the Option is being
exercised will be issued as specified in the Notice of Exercise.
Name
________________________ __________________________________
Date Signature
__________________________________
Co-Owner's Name (if any)
________________________ __________________________________
Date Co-Owner's Signature
Outside Directors
(Continuing) 4/30/99
EMS TECHNOLOGIES, INC.
1997 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the __th day
of____, ____ (the 'Date of Grant'), by and between EMS
TECHNOLOGIES, INC., a Georgia corporation (hereinafter referred
to as the 'Corporation'), and _______________(hereinafter referred
to as the 'Director').
W I T N E S S E T H
WHEREAS, the Board of Directors (the 'Board') of the
Corporation has adopted a stock incentive plan for the directors,
officers and employees of the Corporation or its subsidiary
corporation, which Plan is known as the 'EMS Technologies, Inc.
1997 Stock Incentive Plan' (hereinafter referred to as the 'Plan');
WHEREAS, on the Date of Grant the Director was elected to
serve as a member of the Board for the forthcoming year; and
WHEREAS, the Plan provides for the automatic grant to the
Director, in the circumstances of such election, of a stock
option to purchase shares of the Corporation's common stock as
hereinafter set forth, and the Corporation and the Director
desire to enter into a written agreement with respect to such
option in accordance with the Plan.
NOW, THEREFORE, as an incentive and to encourage stock
ownership, and in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Incorporation of Plan. This option is granted pursuant
to the provisions of the Plan and the terms and definitions of
the Plan, as it may be amended from time to time, are
incorporated by reference into this Stock Option Agreement and
made a part hereof. A copy of the Plan has been delivered to,
and receipt is hereby acknowledged by, the Director.
2. Grant of Option. Subject to the terms, restrictions,
limitations and conditions stated herein, the Corporation hereby
evidences its grant to the Director of the right and option
(hereinafter referred to as the 'Option'), which is not an ISO, to
purchase all or any part of an aggregate of Three Thousand
(3,000) shares of the Corporation's $.10 par value common stock
(the 'Common Stock'), beginning on __________________.
This Option shall expire and is not exercisable after 5:00
p.m., Atlanta time, on ____________ (the 'Expiration Date').
Notwithstanding the beginning date for exercise set forth in
the second preceding paragraph, but subject to the provisions of
the preceding paragraph with respect to expiration of this
Option, this Option may be exercised as to all or any portion of
the full number of shares subject thereto if: (a) a tender offer
or exchange offer has been made for shares of the Common Stock,
other than one made by the Corporation, provided that the
corporation, person or other entity making such offer purchases
or otherwise acquires shares of Common Stock pursuant to such
offer; or (b) any person or group (as such terms are defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the 'Act')), becomes the holder of 50% or more of the
outstanding shares of Common Stock. If either of the events
specified in this paragraph has occurred, the Option shall be
fully exercisable: (x) in the event of (a) above, during the
period commencing on the date the tender offer or exchange offer
is commenced and ending on the date such offer expires and is not
extended; or (y) in the event of (b) above, during the 30-day
period commencing on the date upon which the Corporation is
provided a copy of a Schedule 13D or amendment thereto, filed
pursuant to Section 13(d) of the Act and the rules and
regulations promulgated thereunder, indicating that any person or
group has become the holder of 50% or more of the outstanding
shares of Common Stock. In the case of (a) above, if the
Corporation, person or other entity making the offer does not
purchase or otherwise acquire shares of Common Stock pursuant to
such offer, then the Director's right under this paragraph to
exercise this Option shall terminate, the Director and the
Corporation shall rescind any exercise of this Option pursuant to
this paragraph, and this Option shall be reinstated as if such
exercise had not occurred.
3. Purchase Price. The price per share to be paid by the
Director for the shares subject to this Option shall be
________________ Dollars ($______).
4. Exercise Terms. Beginning on the date specified above,
and prior to the expiration of this Option as provided in Section
2 hereof, the Director may exercise this Option as to all such
number of shares, or as to any part thereof, at any time and from
time to time during the remaining term of this Option; provided
that the Director must exercise this Option for at least the
lesser of 100 shares or the unexercised portion of the Option.
In the event this Option is not exercised with respect to all or
any part of the shares prior to its expiration, the shares with
respect to which this Option was not exercised shall no longer be
subject to this Option.
5. Option Non-Transferable. This Option and all rights
hereunder are neither assignable nor transferable by the Director
otherwise than by will or under the laws of descent and
distribution, or pursuant to a Qualified Domestic Relations
Order, and during the Director's lifetime this Option is
exercisable only by him (or by his guardian or legal
representative, should one be appointed, or qualified
transferee). More particularly (but without limiting the
generality of the foregoing), this Option may not be assigned,
transferred (except as aforesaid), pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be
subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other
disposition of this Option contrary to the provisions hereof
shall be null and void and without legal effect.
6. Notice of Exercise of Option. This Option may be exercised by the
Director, or by his administrator, executor, personal representative or
qualified transferee, by a written notice (in substantially the form of the
'Notice of Exercise' attached hereto as Annex A) signed by the Director, or
by such administrator, executor, personal representative or qualified
transferee, and delivered or mailed to the Corporation at its principal
office in Norcross, Georgia, to the attention of the President, Treasurer
or such other officer as the Corporation may designate. Any such notice
shall (a) specify the number of shares of Common Stock which the Director
or such administrator, executor, personal representative or qualified
transferee, as the case may be, then elects to purchase hereunder, and (b)
be accompanied by (i) a certified or cashier's check payable to the
Corporation, or personal check acceptable to the Corporation, in payment of
the total price applicable to such shares as provided herein, or (ii)
(subject to any restrictions referred to in Annex A) shares of Common
Stock, owned by him and duly endorsed or accompanied by stock transfer
powers, or in lieu thereof, the form of Attestation of Share Ownership
attached as Annex B executed with respect to such number of such shares,
having a Fair Market Value equal to the total purchase price applicable to
the shares purchased hereunder, or (iii) such a check, and the number of
such shares (or attestation with respect thereto) whose Fair Market Value
when added to the amount of the check equals the total purchase price
applicable to such shares purchased hereunder. Such notice shall also be
accompanied by such a check or shares of Common Stock in payment of
applicable withholding and employment taxes, or the person exercising this
Option shall authorize (by use of Annex B or otherwise) the withholding of
shares of Common Stock otherwise issuable under this Option in payment of
such taxes, all as set forth on Annex A and subject to any restrictions
referred to therein. Upon receipt of any such notice and accompanying
payment, and subject to the terms hereof, the Corporation agrees to cause
to be issued to the Director or to such administrator, executor, personal
representative or qualified transferee, as the case may be, stock
certificates for the number of shares specified in such notice registered
in the name of the person exercising this Option.
7. Adjustment in Option. If prior to the complete exercise of this
Option, there shall be a change in the outstanding Common Stock by reason
of one or more stock splits, stock dividends, combinations or exchanges of
shares, recapitalizations or similar capital adjustments, then the number,
kind and option price of the shares remaining subject to this Option shall
be equitably adjusted in accordance with the terms of the Plan, so that the
proportionate interest in the Corporation represented by the shares then
subject to the Option shall be the same as before the occurrence of such
event.
8. Termination as a Director. If the Director for any reason ceases
to be a member of the Board of Directors of the Corporation (such event
being hereinafter referred to as a 'Termination'), then:
(a) To the extent this Option shall have become
exercisable on or prior to the date of
Termination, it shall remain exercisable until the
Expiration Date; and
(b) Any portion of this Option that had not become
exercisable on or prior to the date of Termination
shall immediately terminate and shall not
thereafter become exercisable.
This Option does not confer upon the Director any right with respect
to continuance as a member of the Board of Directors of the Corporation.
9. Competitive Activities. This Option is subject to Section 9.2 of
the Plan, which provides that if the Director provides services to a
competitor of the Corporation 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 Director
while an employee or Director of the Corporation or any such Subsidiary,
then the Director's rights under this Option shall thereupon be forfeited
and terminated, subject to a determination to the contrary by the
Committee.
10. Binding Agreement. This Agreement shall be binding upon the
parties hereto and their representatives, successors and assigns.
IN WITNESS WHEREOF, the Corporation has caused this Stock Option
Agreement to be executed on behalf of the Corporation and the Corporation's
seal to be affixed hereto and attested by the Secretary of the Corporation,
and the Director has executed this Agreement under his seal, all as of the
day and year first above written.
EMS TECHNOLOGIES, INC.
[CORPORATE SEAL]
ATTEST By: ___________________________________
Chief Executive Officer
___________________________________
Secretary
DIRECTOR:
________________________________(SEAL)
ANNEX A
EMS TECHNOLOGIES, INC.
1997 STOCK INCENTIVE PLAN
Notice of Exercise
of Stock Option
The undersigned hereby notifies EMS Technologies, Inc. (the
'Corporation') of his or her election to exercise an option to purchase
____________ shares of the Corporation's common stock, $.10 par value (the
'Common Stock'), pursuant to that Stock Option Agreement (the 'Agreement')
between ________________________ (the 'Director') and the Corporation dated
____________________ 199__. Accompanying this Notice is (1) a certified
or cashier's check (or other check acceptable to the Corporation) in the
amount of $_______________ payable to the Corporation and/or (2) (subject
to such restrictions as may be determined to be necessary or appropriate to
avoid earnings charges or other adverse consequences to the Corporation
under applicable accounting or tax rules or regulations) _______________
shares of the Common Stock presently owned by the undersigned and duly
endorsed or accompanied by stock transfer powers, or in lieu thereof, the
form of Attestation of Share Ownership attached as Annex B to the
Agreement, executed with respect to the number of such shares, having an
aggregate Fair Market Value (as defined in the EMS Technologies, Inc. 1997
Stock Incentive Plan (the 'Plan')) as of the date hereof of
$_______________, such amounts being equal, in the aggregate, to the
purchase price per share set forth in Section 3 of the Agreement multiplied
by the number of shares being hereby purchased (in each instance subject to
appropriate adjustment pursuant to Section 7 of the Agreement).
Also accompanying this Notice is my check in the amount of
$_______________,in payment of federal and state income withholding and
employment taxes applicable to this exercise. The amount of such payment
is based on advice received from appropriate officials of the Corporation
responsible for the administration of its payroll and employment tax
obligations. Alternatively, or in addition, and subject to such
restrictions as may be determined to be necessary or appropriate to comply
with Rule 16b-3 under the Securities Exchange Act of 1934, or to avoid
earnings charges or other adverse consequences to the Corporation under
applicable accounting or tax rules or regulations, in full or partial
payment of such taxes:
(1) I deliver herewith an additional _______________ shares of
the Common Stock (or the form of Attestation of Share
Ownership with respect thereto) presently owned by me,
having an aggregate Fair Market Value as of the date hereof
of $_______________; and/or
(2) I hereby authorize the Corporation to withhold, from the
shares of Common stock otherwise issuable to me pursuant to
this exercise, _______________ such shares having an
aggregate Fair Market Value at the date hereof of $
_______________.
The sum of (i) any such check plus (ii) the Fair Market Value at the date
hereof of any shares of Common Stock specified in the foregoing clauses (1)
and (2) is not less than the amount of federal and state withholding and
employment taxes applicable to this exercise, and is not greater than the
total of all federal and state income and employment taxes to be owed by me
as a result of such exercise.
IN WITNESS WHEREOF, the undersigned has set his or her hand and seal,
this day of , .
DIRECTOR OR HIS OR HER ADMINISTRATOR,
EXECUTOR, PERSONAL REPRESENTATIVE OR
QUALIFIED TRANSFEREE
_________________________________________
ANNEX B
EMS TECHNOLOGIES, INC.
1997 Stock Incentive Plan
Attestation of Share Ownership
Pursuant to the Notice of Exercise submitted herewith, I have elected
to purchase shares of the common stock of EMS Technologies,
Inc. (the 'Company'), pursuant to the Stock Option Agreement dated
____________ (the 'Option ), at an aggregate exercise price of $___________
(the 'Option Price'). I hereby attest to ownership of the shares specified
below (the Shares') and hereby tender the Shares in payment of (i)
$__________ of the Option Price, and (ii) $___________ of withholding and
related taxes due upon exercise of the Option, in each case based on their
Fair Market Value on the date hereof (as determined under the Plan) of
$___________ per share).
I certify that I either (i) have held the Shares that I am tendering
for at least one year after acquiring such Shares through the exercises of
an Incentive Stock Option, or (ii) did not obtain such Shares through the
exercise of an ISO.
Although the Company has not required me to make actual delivery of
certificates evidencing the Shares, as a result of which I (and the co-
owner, if any of the Shares) will retain ownership of such Shares, I
represent that I, with the consent and agreement of the co-owner (if any)
of the Shares, have full power to deliver and convey such certificates to
the Company, and therefore could have caused the Company to become sole
owner of such Shares. The co-owner of the Shares, by signing this form,
consents to these representations and the exercise of the Option by this
notice.
Common Stock Number of Number of Shares
Certificate(s) No. Shares Represented Subject to this
or Brokerage Account Attestation
You are hereby instructed to apply towards the Option Price: (check one)
[ ] The maximum number of whole shares necessary to pay the
Option Price and specified taxes, or, if fewer, the total
number of listed Shares, with any remaining amount to be
paid by check accompanying the Notice of Exercise.
[ ] of the listed Shares with the remaining amount to be paid by
check accompanying the Notice of Exercise.
In each case, the balance of the Shares for which the Option is being
exercised will be issued as specified in the Notice of Exercise.
Name
Date Signature
Co-Owner's Name (if any)
Date Co-Owner's Signature
EMS TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, entered into as of the 7th day of
January, 2000 (the 'Date of Grant'), by and between EMS TECHNOLOGIES, INC.
a Georgia corporation (hereinafter referred to as the "Corporation"), and
Alfred G. Hansen (hereinafter referred to as the "Employee").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Board of Directors (the 'Board') of the Corporation has
requested that the Employee serve as President and Chief Operating Officer
of the Corporation, and in order to induce Employee to become an employee
and to accept such position has granted to Employee an option to purchase
the number of shares of the Corporation's common stock as hereinafter set
forth; and
WHEREAS, the Corporation and the Employee desire to enter into a
written agreement with respect to such option.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership and in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Grant of Option. Subject to the terms, restrictions, limitations
and conditions stated herein, the Corporation hereby evidences its grant to
the Employee, not in lieu of salary or other compensation, of the right and
option (hereinafter referred to as the 'Option'), which is not an ISO, to
purchase all or any part of an aggregate of Two Hundred Thousand (200,000)
shares of the Corporation's $.10 par value common stock (the 'Common
Stock'), beginning on July 1, 2000.
The Option shall expire and is not exercisable after 5:00 p.m.,
Atlanta time, on January 1, 2006 (the 'Expiration Date'), or such other
date as determined pursuant to Section 7, 8 or 9.
Notwithstanding the beginning date or dates for exercise set forth in
the second preceding paragraph, but subject to the provisions of the
preceding paragraph with respect to expiration of this Option, this Option
may be exercised as to all or any portion of the full number of shares
subject thereto if: (a) a tender offer or exchange offer has been made for
shares of the Common Stock, other than one made by the Corporation,
provided that the corporation, person or other entity making such offer
purchases or otherwise acquires shares of Common Stock pursuant to such
offer; or (b) any person or group (as such terms are defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the 'Act')),
becomes the holder of 50% or more of the outstanding shares of Common
Stock. If either of the events specified in this paragraph has occurred,
the Option shall be fully exercisable: (x) in the event of (a) above,
during the period commencing on the date the tender offer or exchange offer
is commenced and ending on the date such offer expires and is not extended;
or (y) in the event of (b) above, during the 30-day period commencing on
the date upon which the Corporation is provided a copy of a Schedule 13D or
amendment thereto, filed pursuant to Section 13(d) of the Act and the rules
and regulations promulgated thereunder, indicating that any person or group
has become the holder of 50% or more of the outstanding shares of Common
Stock. In the case of (a) above, if the corporation, person or other
entity making the offer does not purchase or otherwise acquire shares of
Common Stock pursuant to such offer, then the Employee's right under this
paragraph to exercise this Option shall terminate, the Employee and the
Corporation shall rescind any exercise of this Option pursuant to this
paragraph, and this Option shall be reinstated as if such exercise had not
occurred.
2. Purchase Price. The price per share to be paid by the Employee
for the shares subject to this Option shall be Eleven and .875 dollars
($11.875).
3. Exercise Terms. Beginning on the date or dates specified in, and
prior to the expiration of this Option as provided in, Section 1, the
Employee may exercise this Option as to all such number of shares, or as to
any part thereof, at any time and from time to time during the remaining
term of this Option; provided that the Employee must exercise this Option
for at least the lesser of 100 shares or the unexercised portion of the
Option. In the event this Option is not exercised with respect to all or
any part of the shares subject to this Option prior to its expiration, the
shares with respect to which this Option was not exercised shall no longer
be subject to this Option.
4. Option Non-Transferable. This Option and all rights hereunder are
neither assignable nor transferable by the Employee otherwise than by will
or under the laws of descent and distribution, or pursuant to a Qualified
Domestic Relations Order, and during the Employee's lifetime this Option is
exercisable only by him (or by his guardian or legal representative, should
one be appointed, or qualified transferee). More particularly (but without
limiting the generality of the foregoing), this Option may not be assigned,
transferred (except as aforesaid), pledged or hypothecated in any way
(whether by operation of law or otherwise), and shall not be subject to
execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of this Option
contrary to the provisions hereof shall be null and void and without legal
effect.
5. Notice of Exercise of Option. This Option may be exercised by
the Employee, or by his administrator, executor, personal representative or
qualified transferee, by a written notice (in substantially the form of the
"Notice of Exercise" attached hereto as Annex A) signed by the Employee, or
by such administrator, executor, personal representative or qualified
transferee, and delivered or mailed to the Corporation at its principal
office in Norcross, Georgia, to the attention of the President, Treasurer
or such other officer as the Corporation may designate. Any such notice
shall (a) specify the number of shares of Common Stock which the Employee
or such administrator, executor, personal representative or qualified
transferee, as the case may be, then elects to purchase hereunder, and (b)
be accompanied by (i) a certified or cashier's check payable to the
Corporation, or personal check acceptable to the Corporation, in payment of
the total price applicable to such shares as provided herein, or (ii)
(subject to any restrictions referred to in Annex A) shares of Common
Stock, owned by him or her and duly endorsed or accompanied by stock
transfer powers, or in lieu thereof, the form of Attestation of Share
Ownership attached as Annex B executed with respect to the number of such
shares, having a Fair Market Value (as defined in the EMS Technologies,
Inc. 1997 Stock Incentive Plan) equal to the total purchase price
applicable to the shares purchased hereunder, or (iii) such a check, and
the number of such shares (or attestation with respect thereto) whose Fair
Market Value when added to the amount of the check equals the total
purchase price applicable to such shares purchased hereunder. Such notice
shall also be accompanied by such a check or shares of Common Stock in
payment of applicable withholding and employment taxes, or the person
exercising this Option shall authorize (by use of Annex B or otherwise) the
withholding of shares of Common Stock otherwise issuable under this Option
in payment of such taxes, all as set forth on Annex A and subject to any
restrictions referred to therein. Upon receipt of any such notice and
accompanying payment, and subject to the terms hereof, the Corporation
agrees to cause to be issued to the Employee or to such administrator,
executor, personal representative or qualified transferee, as the case may
be, stock certificates for the number of shares specified in such notice
registered in the name of the person exercising this Option.
6. Adjustment in Option. If, between the Date of Grant of this
Option and prior to the complete exercise thereof, there shall be a change
in the outstanding Common Stock by reason of one or more stock splits,
stock dividends, combinations or exchanges of shares, recapitalizations or
similar capital adjustments, then the number, kind and option price of the
shares remaining subject to this Option shall be equitably adjusted so that
the proportionate interest in the Corporation represented by the shares
then subject to the Option shall be the same as before the occurrence of
such event.
In the event of the occurrence of any of the transactions identified
in Section 5.2 of the EMS Technologies, Inc. 1997 Stock Incentive Plan,
this Option shall be subject to the provisions of such Section 5.2, as if
issued under that Plan, except that powers specified in such Section 5.2 to
be exercised by the "Committee" shall be exercised as to this Option by the
Board.
7. Termination of Employment. Except as set forth in Section 10, if
the Employee ceases to be employed as an employee of the Corporation or any
of its subsidiaries (such event being hereinafter referred to as a
'Termination' and such corporation that employs the Employee from time to
time as the 'Employer'), before the date for exercise of this Option set
forth in Section 2, then this Option shall forthwith terminate on the date
of Termination and shall not thereafter be or become exercisable.
In the event of a Termination after the date for exercise set forth
in Section 1, which Termination is either (i) voluntary on the part of the
Employee and with the written consent of the Employer, or (ii) involuntary
and without cause, the Employee may exercise this Option at any time within
a period ending at the earlier of the Expiration Date or 5:00 p.m., Atlanta
time, on the third anniversary of such Termination, to the extent of the
number of shares that were purchasable hereunder at the date of
Termination.
In the event of a Termination that is either (i) for cause or (ii)
voluntary on the part of the Employee and not described in the two
preceding paragraphs, this Option, to the extent not theretofore exercised,
shall forthwith terminate and shall not thereafter be or become
exercisable.
This Option does not confer upon the Employee any right with respect
to continuance of employment by the Corporation or any of its subsidiaries.
This Option shall not be affected by any change of employment, so long as
the Employee continues to be an employee of the Corporation or any such
subsidiary. In the event the Employer is not the Corporation, and such
Employer ceases to be the Corporation's subsidiary, as a result of a sale
of stock or assets or other change of corporate status, then in the
discretion of the Committee (but subject to the second paragraph of Section
6 regarding certain transactions affecting the Corporation) either: (i)
this Option shall remain in effect as if such sale or other change of
status had not occurred, for so long as Employee shall remain an employee
of the corporation that previously was such subsidiary, or of any successor
or subsequent parent of such corporation, or of any subsidiary of either
such corporation or any such Parent or successor; or (ii) concurrent with
such sale or change of status, the Corporation shall redeem this Option at
a price equal to the number of shares then subject hereto (whether or not
then purchasable) multiplied by the excess (if any) of the then Fair Market
Value of each such share over the purchase price per share specified in
Section 2 (as adjusted pursuant to Section 6).
8. Disabled Employee. In the event of a Termination because the
Employee becomes disabled, the Employee (or his personal representative)
may exercise this Option at any time within a period ending at the earlier
of the Expiration Date or 5:00 p.m., Atlanta time, on the first anniversary
of such Termination, to the extent of the number of shares that were
purchasable hereunder at the date of Termination.
For the purposes of this Agreement, the Employee shall be considered
'disabled' if he is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can
be expected to last for a continuous period of not less than twelve months.
9. Death of Employee. In the event of the Employee's death while
employed by the Corporation or any of its subsidiaries, or during a period
in which the Employee may exercise this Option notwithstanding an earlier
Termination, the persons described in Section 5 may exercise this Option at
any time within a period ending at the earlier of (i) 5:00 p.m., Atlanta
time, on the third anniversary of the Employee's death, or (ii) the
Expiration Date, but in any event ending not earlier than 5:00 p.m.,
Atlanta time, on the first anniversary of the Employee's death. If the
Employee was an employee of the Corporation or one of its subsidiaries at
the time of the Employee's death, this Option may be so exercised to the
extent of the full number of shares covered by the Option. If a
Termination occurred prior to Employee's death, this Option may be so
exercised only to the extent of the number of shares that were purchasable
hereunder at the date of Termination.
10. Competitive Activities. In the event that the Employee provides
services to a competitor of the Corporation 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 Employee while an employee of the Corporation or any such
subsidiary, then the Employee's rights under this Option shall thereupon be
forfeited and terminated, subject to a determination to the contrary by the
Board.
11. Conditions to Issuing Common Stock. The Corporation shall not be
required to issue or deliver any Common Stock upon the full or partial
exercise of this Option prior to the completion of any registration or
other qualification of such shares that the Corporation 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 Corporation's determination that
an exemption is available from such registration or qualification. Unless
such shares of Common Stock shall be the subject of an effective
registration statement under the Securities Act of 1933, as amended, stock
certificates issued and delivered upon exercise of this Option shall bear
such restrictive legends as the Corporation shall deem necessary or
advisable pursuant to applicable federal and state securities laws.
12. Binding Agreement. This Agreement shall be binding upon the
parties hereto and their representatives, successors and assigns.
IN WITNESS WHEREOF, the Board of Directors of the Corporation has
caused this Stock Option Agreement to be executed on behalf of the
Corporation and attested by the Secretary of the Corporation, and the
Employee has executed this Agreement, all as of the day and year first
above written.
EMS TECHNOLOGIES, INC.
ATTEST: By: ___________________________________
Chief Executive Officer
_____________________________
Secretary
__________________________________
Employee
ANNEX A
EMS TECHNOLOGIES, INC.
Notice of Exercise
of Stock Option
The undersigned hereby notifies EMS Technologies, Inc. (the
'Corporation") of his or her election to exercise an option to purchase
____________ shares of the Corporation's common stock, $.10 par value (the
'Common Stock'), pursuant to that Stock Option Agreement (the 'Agreement')
between Alfred G. Hansen (the 'Employee') and the Corporation dated January
7, 2000. Accompanying this Notice is (1) a certified or a cashier's check
(or other check acceptable to the Corporation) in the amount of
$_______________ payable to the Corporation and/or (2) (subject to such
restrictions as may be determined to be necessary or appropriate to avoid
earnings charges or other adverse consequences to the Corporation under
applicable accounting or tax rules or regulations) _______________ shares
of the Common Stock presently owned by the undersigned and duly endorsed or
accompanied by stock transfer powers, or in lieu thereof, the form of
Attestation of Share Ownership attached as Annex B to the Agreement,
executed with respect to the number of such shares, having an aggregate
Fair Market Value (as defined in the EMS Technologies, Inc. 1997 Stock
Incentive Plan) as of the date hereof of $_______________, such amounts
being equal, in the aggregate, to the purchase price per share set forth in
Section 2 of the Agreement multiplied by the number of shares being hereby
purchased (in each instance subject to appropriate adjustment pursuant to
Section 6 of the Agreement).
Also accompanying this Notice is my check in the amount of
$_______________, in payment of federal and state income withholding and
employment taxes applicable to this exercise. The amount of such payment
is based on advice received from appropriate officials of the Corporation
responsible for the administration of its payroll and employment tax
obligations. Alternatively, or in addition, and subject to such
restrictions as may be determined to be necessary or appropriate to comply
with Rule 16b-3 under the Securities Exchange Act of 1934, or to avoid
earnings charges or other adverse consequences to the Corporation under
applicable accounting or tax rules or regulations, in full or partial
payment of such taxes:
(1) I deliver herewith an additional _______________ shares of
the Common Stock (or the form of Attestation of Share Ownership
with respect thereto) presently owned by me, having an aggregate
Fair Market Value as of the date hereof of $_______________;
and/or
(2) I hereby authorize the Corporation to withhold, from the
shares of Common stock otherwise issuable to me pursuant to this
exercise,_______________ such shares having an aggregate Fair
Market Value at the date hereof of $_______________.
The sum of (i) any such check plus (ii) the Fair Market Value at the date
hereof of any shares of Common Stock specified in the foregoing clauses (1)
and (2) is equal to the statutory withholding and employment taxes
applicable to this exercise, as determined by appropriate officials of the
Corporation.
IN WITNESS WHEREOF, the undersigned has set his or her hand and seal,
this day of , 200_.
EMPLOYEE OR HIS ADMINISTRATOR,
EXECUTOR, PERSONAL REPRESENTATIVE OR
QUALIFIED TRANSFEREE
_________________________________________
ANNEX B
EMS TECHNOLOGIES, INC.
Attestation of Share Ownership
Pursuant to the Notice of Exercise submitted herewith, I have elected
to purchase _______________ shares of the common stock of EMS Technologies,
Inc. (the 'Company'), pursuant to the Stock Option Agreement dated January
7, 2000, (the 'Option'), at an aggregate exercise price of $___________
(the 'Option Price'). I hereby attest to ownership of the shares specified
below (the "Shares") and hereby tender the Shares in payment of (i)
$__________ of the Option Price, and (ii) $___________ of withholding and
related taxes due upon exercise of the Option, in each case based on their
Fair Market Value on the date hereof (as determined in the manner specified
in the Option) of $___________ per share).
I certify that I either (i) have held the Shares that I am tendering
for at least one year after acquiring such Shares through the exercise of
an Incentive Stock Option, or (ii) did not obtain such Shares through the
exercise of an ISO.
Although the Company has not required me to make actual delivery of
certificates evidencing the Shares, as a result of which I (and the co-
owner, if any of the Shares) will retain ownership of such Shares, I
represent that I, with the consent and agreement of the co-owner (if any)
of the Shares, have full power to deliver and convey such certificates to
the Company, and therefore could have caused the Company to become sole
owner of such Shares. The co-owner of the Shares, by signing this form,
consents to these representations and the exercise of the Option by this
notice.
Common Stock Number of Number of Shares
Certificate(s) No. Shares Represented Subject to this
or Brokerage Account Attestation
You are hereby instructed to apply towards the Option Price: (check one)
[ ] The maximum number of whole shares necessary to pay the Option
Price and specified taxes, or, if fewer, the total number of
listed Shares, with any remaining amount to be paid by check
accompanying the Notice of Exercise.
[ ] ___________ of the listed Shares with the remaining amount to be
paid by check accompanying the Notice of Exercise.
In each case, the balance of the Shares for which the Option is being
exercised will be issued as specified in the Notice of Exercise.
__________________________________
Name
________________________ __________________________________
Date Signature
__________________________________
Co-Owner's Name (if any)
________________________ __________________________________
Date Co-Owner's Signature
EXHIBIT 13.1
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except net earnings per share)
Years ended December 31
-------------------------
1999 1998 1997
---- ---- ----
Net sales (note 11) $242,414 177,163 171,230
Cost of sales 167,118 115,127 111,925
Selling, general and administrative expenses 45,211 38,666 35,758
Research and development expenses 21,816 13,140 9,134
------- ------- -------
Operating income 8,269 10,230 14,413
Non-operating (expense) income, net (note 2) 1,310 1,602 (249)
Interest expense (2,827) (1,729) (1,849)
------- ------- -------
Earnings before income taxes 6,752 10,103 12,315
Income tax expense (note 7) (1,912) (3,927) (4,924)
------- ------- -------
Net earnings $ 4,840 6,176 7,391
======= ======= =======
Net earnings per share (note 6):
Basic $ .56 .71 .87
Diluted .55 .70 .84
Weighted average number of shares (note 6):
Common 8,703 8,675 8,544
Common and dilutive common equivalent 8,775 8,871 8,820
See accompanying notes to consolidated financial statements.
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31
--------------------
1999 1998
------- -------
ASSETS
Current assets:
Cash and cash equivalents (note 10) $ 4,832 4,384
Trade accounts receivable, net (notes 4
and 10) 67,804 57,455
Inventories:
Work in process 6,803 5,164
Parts and materials 21,946 19,657
------- -------
Total inventories 28,749 24,821
------- -------
Deferred income taxes (note 7) 1,020 976
------- -------
Total current assets 102,405 87,636
------- -------
Property, plant and equipment (note 5):
Land 3,667 1,150
Buildings and leasehold improvements 21,077 15,493
Machinery and equipment 59,102 54,351
Furniture and fixtures 7,553 4,735
------- -------
91,399 75,729
Less accumulated depreciation
and amortization 42,345 40,849
------- -------
Net property, plant and equipment 49,054 34,880
------- -------
Investment in limited partnership (note 3) 13,000 -
Deferred income taxes - non-current (note 7) 7,379 5,644
Accrued pension asset (note 8) 3,084 -
Other assets 8,854 7,684
Goodwill, net of accumulated amortization
of $3,814 in 1999 and $3,294 in 1998 11,022 11,542
------- -------
$194,798 147,386
======= =======
See accompanying notes to consolidated financial statements.
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
(In thousands, except share data)
December 31
-------------------
1999 1998
------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt (notes 5 and 10) $ 16,613 2,197
Accounts payable (note 10) 18,811 11,815
Income taxes - 1,580
Accrued compensation costs 6,184 4,503
Accrued retirement costs (note 8) 594 959
Accrued post-retirement benefits (note 9) 2,309 -
Deferred revenue 3,471 2,895
Other current liabilities 2,324 1,154
------- -------
Total current liabilities 50,306 25,103
------- -------
Long-term debt, excluding current
installments (note 5) 33,707 19,150
Deferred income taxes (note 7) 4,970 2,473
------- -------
Total liabilities 88,983 46,726
------- -------
Stockholders' equity (note 6):
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 8,706,000 in
1999 and 8,689,000 in 1998 871 869
Additional paid-in capital 34,503 34,615
Accumulated other comprehensive loss-
foreign currency translation adjustment (1,838) (2,263)
Retained earnings 72,279 67,439
------- -------
Total stockholders' equity 105,815 100,660
------- -------
Commitments and
contingencies (notes 3, 5, 8, 9 and 12)
$194,798 147,386
======= =======
See accompanying notes to consolidated financial statements.
<TABLE>
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands)
Three years ended December 31, 1999
-------------------------------------------------------------
Accum-
ulated
Addi- Annual other Total
Common Stock tional compre- compre- stock-
-------------- paid-in hensive hensive Retained holders'
Shares Amount capital income loss earnings equity
------ ------ ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 8,445 $ 844 32,581 (47) 53,872 87,250
Net earnings - - - 7,391 - 7,391 7,391
Income tax benefit from
exercise of non-qualified
stock options (note 7) - - 1,142 - - - 1,142
Exercise of common stock
options 229 24 1,878 - - - 1,902
Redemption of shares upon
exercise of common
stock options (48) (5) (1,114) - - - (1,119)
Foreign currency trans-
lation adjustment loss - - - (1,346) (1,346) - (1,346)
----- ---- ------ ------ ----- ------ -------
Comprehensive income
for 1997 6,045
======
Balance, December 31, 1997 8,626 863 34,487 (1,393) 61,263 95,220
Net earnings - - - 6,176 - 6,176 6,176
Income tax benefit from
exercise of non-qualified
stock options (note 7) - - 600 - - - 600
Exercise of common stock
options 141 14 839 - - - 853
Redemption of shares upon
exercise of common
stock options (46) (5) (878) - - - (883)
Foreign currency trans-
lation adjustment loss - - - (870) (870) - (870)
Repurchase and retirement
of common stock (32) (3) (433) - - - (436)
----- ---- ------ ------ ----- ------ -------
Comprehensive income
for 1998 5,306
======
Balance, December 31, 1998 8,689 869 34,615 (2,263) 67,439 100,660
Net earnings - - - 4,840 - 4,840 4,840
Income tax benefit from
exercise of non-qualified
stock options (note 7) - - 108 - - - 108
Exercise of common stock
options 69 7 443 - - - 450
Redemption of shares upon
exercise of common
stock options (7) (1) (104) - - - (105)
Foreign currency trans-
lation adjustment gain - - - 425 425 - 425
Repurchase and retirement
of common stock (45) (4) (559) - - - (563)
----- ---- ------ ------ ----- ------ -------
Comprehensive income
for 1999 5,265
======
Balance, December 31, 1999 8,706 $ 871 34,503 (1,838) 72,279 105,815
===== ==== ====== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31
-------------------------
1999 1998 1997
------ ------ ------
Cash flows from operating activities:
Net earnings $ 4,840 6,176 7,391
Adjustments to reconcile net earnings to
net cash from operating activities:
Depreciation and amortization 7,008 6,734 5,705
Goodwill amortization 520 714 885
Deferred income taxes 718 403 (648)
Changes in operating assets
and liabilities:
Trade accounts receivable (6,143) 1,381 (13,813)
Inventories (2,468) (2,497) (2,199)
Accounts payable 2,493 (2,621) 24
Income taxes (1,880) (894) 3,643
Accrued costs, deferred revenue,
and other current liabilities 1,450 1,746 1,582
Other (1,025) (1,097) 702
------- ------ ------
Net cash provided by
operating activities 5,513 10,045 3,272
------- ------ ------
Cash flows from investing activities:
Purchase of property, plant and equipment (11,656) (7,740) (7,857)
Payments for asset acquisition (10,458) - -
Investment in limited partnership (3,000) - -
Purchase of subsidiary common stock from
minority shareholders - - (772)
------- ------ ------
Net cash used in
investing activities (25,114) (7,740) (8,629)
------- ------ ------
Cash flows from financing activities:
Proceeds from long-term debt 20,190 698 5,546
Repayment of long-term debt (266) (1,032) (592)
Repurchase and retirement of common stock (563) (436) -
Proceeds from exercise of stock options,
net of withholding taxes paid 345 (30) 783
------- ------ ------
Net cash provided by
financing activities 19,706 (800) 5,737
------- ------ ------
Net change in cash and
cash equivalents 105 1,505 380
Effect of exchange rates on cash 343 (1,421) (401)
Cash and cash equivalents at January 1 4,384 4,300 4,321
------- ------ ------
Cash and cash equivalents at December 31 $ 4,832 4,384 4,300
======= ====== ======
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 2,827 1,729 1,849
Cash paid for income taxes $ 1,615 3,866 2,573
Noncash Investing and Financing:
In January 1999, the Company acquired (through its subsidiary, EMS
Technologies Canada, Ltd.) the Space Systems and Products Division of Spar
Aerospace Limited and Spar Holding, Inc. (a wholly-owned subsidiary of Spar
Aerospace Limited) located near Montreal, Quebec. The transaction was
accounted for as an asset purchase valued at $17.4 million. The Company made
cash payments to the seller of $6.2 million of the purchase price at closing
and a total of $4.2 million for two installments due in 1999 relating to the
deferred portion of the purchase price, with funds provided under the
Company's U.S. revolving credit agreement. The remaining $7.0 million of the
purchase price was financed by the seller in equal installments due, with
annual interest of 5.5%, on December 31 of 2000 and 2001. These installments
are payable, at the Company's option, either in cash or equivalent value of
the Company's common stock. Following is a summary of the acquisition's
financing (in thousands):
Fair value of assets acquired $26,733
Fair value of liabilities assumed (9,300)
Less: Cash payments in 1999 (10,458)
-------
Seller-financed debt at December 31, 1999 $ 6,975
=======
See accompanying notes to consolidated financial statements.
EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of EMS
Technologies, Inc. and its wholly-owned subsidiaries, LXE Inc., and EMS
Technologies Canada, Ltd. (formerly known as CAL Corporation) (collectively,
"the Company"). All significant intercompany balances and transactions have
been eliminated in consolidation. Certain balance sheet amounts in 1998
were reclassified to conform with classifications adopted in 1999. Following
is a summary of the Company's significant accounting policies:
- - Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities in the financial statements and
accompanying notes, including revenue recognition under long-term contracts.
Actual future results could differ from those estimates.
- - Revenue Recognition
Revenues are derived from sales of the Company's products to end-users and to
other manufacturers or systems integrators. Revenues under certain long-term
contracts, many of which provide for periodic payments, are recognized under
the percentage-of-completion method using the ratio of cost incurred to total
estimated cost as the measure of performance. Revenues under cost-
reimbursement contracts are recorded as costs are incurred and include an
estimate of fees earned. Revenues under all other contracts are recognized
when units are delivered or services are performed. Provisions for estimated
losses on uncompleted contracts are made in the period in which the probable
amounts of such losses are determined. To properly match revenues with costs,
certain contracts may have revenue recognized in excess of billings (unbilled
revenues), and other contracts may have billings in excess of revenue
recognized (deferred revenues). Revenues collected in advance under service
contracts are recorded as a liability and recognized over the term of the
contract.
- - Cash Equivalents
Cash equivalents as of December 31, 1999 included $2,726,000 investment in
money market instruments issued by corporations and the U.S. Government, and
interest-bearing deposits with an initial term of less than three months. As
of December 31, 1998, cash equivalents included $37,000 of interest-bearing
deposits with an initial term of less than three months. The Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
- - Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market
(net realizable value). Work in process consists of raw material and
production costs, including indirect manufacturing costs.
- - Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
primarily using the straight-line method over the following estimated useful
lives of the respective assets:
Buildings 20 to 40 years
Machinery and equipment 3 to 8 years
Furniture and fixtures 10 years
Leasehold improvements are amortized over the shorter of their estimated
useful lives or the terms of the respective leases.
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. If assets are to be disposed of, such assets are
reported at the lower of carrying amount or fair value less costs to sell.
- - Capitalized Software Costs
The Company has capitalized certain costs to develop software that will be
licensed to customers. The carrying value of each software product is the
lower of total costs incurred or the net realizable value of the product.
Capitalization of internally developed software begins upon the establishment
of technological feasibility. Costs incurred prior to the establishment of
technological feasibility are expensed as incurred. Capitalized software
costs are evaluated for impairment at each balance sheet date by comparing
the unamortized capitalized costs with net realizable value (i.e., future
gross revenues less estimated future costs of completing and disposing of the
product, including maintenance and customer support costs to satisfy the
Company's responsibility at the time of sale); any excess of the cost over
its net realizable value would be written off. Capitalized software costs are
amortized on a product-by-product basis, beginning when the product is ready
for sale. Annual amortization is based upon the greater of the ratio of
current gross revenues for the product to the total of current and
anticipated future gross revenues, or the straight-line method over four
years. Unamortized software costs are included in other assets and totaled
$1.6 million and $2.5 million as of December 31, 1999 and 1998, respectively.
Amortization of capitalized software costs was $890,000 in 1999, $690,000 in
1998, and $265,000 in 1997.
- - Income Taxes
The Company provides for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred
tax assets and liabilities are classified as current or non-current based
upon the nature of the underlying temporary differences. The effect on
deferred taxes of a change in tax rates is recognized in earnings in the
period that includes the enactment date.
- - Earnings Per Share
Basic earnings per share is the per share allocation of income available to
common stockholders based only on the weighted average number of common
shares actually outstanding during the period. Diluted earnings per share
represents the per share allocation of income attributable to common
stockholders based on the weighted average number of common shares actually
outstanding plus all dilutive potential common shares outstanding during the
period.
- - Goodwill
Goodwill represents the excess of purchase price over fair value of net
assets acquired and is amortized on a straight-line basis over 25 years. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can
be recovered through undiscounted future operating cash flows of the acquired
operation.
The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved.
- - Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense, over the
vesting period, the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net earnings and
pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
required by SFAS No. 123.
- - Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars at current exchange rates. Income and expenses of the
foreign subsidiaries are translated into U.S. dollars at the approximate
average exchange rates which prevailed during the years presented. The
functional currency of all subsidiaries is considered to be the local
currency; consequently, adjustments resulting from the translation of the
subsidiaries' financial statements (including long-term financing from the
parent) are reflected in accumulated other comprehensive income in
stockholders' equity and not as a part of the results of operations. The
Company accrues foreign currency exchange gains or losses on direct export
activity and on the LXE European subsidiaries' short-term intercompany
liabilities that arise from the purchase of the parent's products for resale.
- - Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting
and presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and
foreign currency translation adjustments and is presented in the consolidated
statements of stockholders' equity and comprehensive income. SFAS No. 130
requires only additional disclosures in the consolidated financial
statements; it does not affect the Company's financial position or results of
operations. Prior year financial statements have been reclassified to
conform to the requirements of SFAS No. 130.
(2) NON-OPERATING INCOME (EXPENSE)
For the years 1999, 1998 and 1997, the most significant recurring item within
non-operating income (expense) was net gains and losses from foreign currency
transactions and remeasurement; the Company reported a consolidated net
foreign currency loss of $ 745,000 in 1999, a net gain of $482,000 in 1998,
and a net loss of $449,000 in 1997.
Other significant items in non-operating income (expense) included a $1.8
million gain in 1999 from an insurance settlement to compensate the Company
for tornado-caused business interruption that occurred in 1998. In 1998,
the Company recognized a $472,000 tornado-related gain on involuntary
conversion of insured assets, a $331,000 gain from collection on a note
receivable that had previously been reserved, and a $245,000 gain on disposal
of a minority investment. In 1997, non-operating income included
approximately $667,000 for interest income related to settlement with the
Canadian government for a research and development claim, and a $419,000 loss
on disposal of a business unit within the Company's Canadian operations.
(3) ACQUISITION
In January 1999, the Company acquired (through its subsidiary, EMS
Technologies Canada, Ltd.) the Space Systems and Products Division of Spar
Aerospace Limited and Spar Holdings, Inc. (a wholly-owned subsidiary of Spar
Aerospace Limited) -- collectively, the Space Division, located near
Montreal, Quebec. The transaction was accounted for as an asset purchase
under the purchase method of accounting; accordingly, the Company's 1999
consolidated statement of earnings includes only the results of operations of
the former Spar Space Division subsequent to the acquisition date. The asset
purchase was valued at $17.4 million, representing the $20.3 million price
per the purchase agreement, as adjusted for approximately $400,000 of debt
owed by the seller and assumed by the Company, which related to Canadian
government support for Space Division research activities, and a $2.5 million
adjustment for the amount by which the Space Division's actual working
capital at the closing date was less than the working capital that had been
projected in the purchase agreement. The Company made cash payments to the
seller of $6.2 million of the purchase price at closing, and a total of $4.2
million for two installments due in 1999 relating to the deferred portion of
the purchase price, with funds provided under the Company's U.S. revolving
credit agreement. The remaining $7.0 million of the purchase price is
financed by the seller in equal installments due, with annual interest of
5.5%, on December 31 of 2000 and 2001. These installments are payable, at the
Company's option, either in cash or equivalent value of the Company's common
stock.
The sole asset of Spar Holdings, Inc. (now named EMS Holdings, Inc.) was an
equity investment of less than 5% in a limited partnership. The general
partner of the venture is a large, international aerospace firm. The goal of
the investment is to enable the Company to participate in the development and
implementation of a satellite network that will provide high-data-rate
wireless services. In subsequent negotiations with the general partner
concerning the Company's future scope of work, the Company agreed to invest
an additional $9 million, comprising a $3 million payment in late 1999, a $3
million payment to be made in May 2000, and a $3 million in-kind contribution
in the form of specific technological development. After making these
additional investments, the Company's equity stake in the limited partnership
will remain below 5%. The Company does not expect to make any further cash
or in-kind investments. The Company's equity investment is accounted for at
historical cost and has a carrying value of $13 million at December 31, 1999.
The following schedule (in thousands, except per share data) presents
unaudited pro forma consolidated financial data, as though the acquisition
had occurred at the beginning of the period reported on:
Years Ended December 31
-----------------------
1999 1998
---- ----
Pro Forma Consolidated Data:
Revenue $ 245,791 222,723
Net income 4,572 7,095
Earnings per share:
Basic .53 .82
Diluted .52 .80
(4) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable include the following (in thousands):
December 31
---------------
1999 1998
---- ----
Amounts billed under contracts $ 42,769 35,148
Unbilled revenues (substantially all to
be billed during the following 12 months) 36,807 26,336
Deferred revenue (11,479) (3,719)
Allowance for doubtful accounts (293) (310)
------ ------
Trade accounts receivable, net $ 67,804 57,455
====== ======
(5) LONG-TERM DEBT
The following is a summary of long-term debt (in thousands):
December 31
---------------
1999 1998
---- ----
Revolving credit loan with a bank,
$10 million secured by U.S. land and
building and the remainder unsecured,
maturing in November 2003, interest
payable quarterly at a variable rate
(7.65% at the end of 1999 and 6.55%
at the end of 1998) $ 19,751 19,150
Revolving credit loan with a bank, secured
by the assets of EMS Technologies Canada,
Ltd., maturing in February 2001, interest
payable at a variable rate (7.0% at the
end of 1999 and 7.5% at the end of 1998) 11,620 2,197
Term loan with an insurance company, secured
by a U.S. building, maturing in January 2014,
principal and interest payable in equal
monthly installments with a fixed interest
rate of 7.1% 7,234 -
Financing agreement with seller of Canadian
operations, due in annual installments
through December 2001 and payable at the
Company's option, with EMS common stock,
interest payable at 5.5% 6,975 -
Repayable funding from the Government of
Canada to support research, due in annual
installments based on royalties ranging from
.38% to .675% of future space-related
revenues, no interest to accrue 3,135 -
Capital lease agreements, secured by computer
hardware, software and peripherals, with
various lease terms through 2002, due in
quarterly installments with an implicit
interest rate of 9.0% 1,605 -
------ ------
Total long-term debt 50,320 21,347
Less current installments of long-term debt 16,613 2,197
------ ------
Long-term debt, excluding current
installments $ 33,707 19,150
====== ======
In November 1998, the Company amended and restated its U.S. revolving credit
agreement with a U.S. bank to increase available credit to $35 million. The
first $30 million borrowed under this agreement is due November 2003, with no
principal payments required until maturity, and borrowings in excess of $30
million are due on demand. The first $10 million of this debt is secured by
U.S. land and building with a book value at December 31, 1999 of
approximately $7 million.
Interest under the U.S. revolving credit agreement is, at the Company's
option, a function of either the bank's prime rate or LIBOR. A commitment
fee equal to .20% per annum of the daily average unused credit available is
payable quarterly in arrears.
The U.S. revolving credit agreement includes a covenant that annually
establishes a minimum required consolidated net worth. The minimum
consolidated net worth required at December 31, 1999 was approximately $100
million, as compared with the reported consolidated net worth of
approximately $106 million. Other covenants limit the amount of debt as
compared with total capitalization, or set a minimum ratio by which earnings
before interest and income taxes must exceed interest expense; at December
31, 1999, the Company was in compliance with these covenants.
In January 1999, the Company purchased the Space Systems and Products
Division of Spar Aerospace Limited for approximately $17.4 million. One-
third of the purchase price was financed under the Company's U.S. revolving
credit agreement, and the remainder financed by the seller at 5.5% in four
installments due over a three-year period. As of December 31, 1999, two
installments remained, due on December 31, 2000 and 2001. These installments
are payable, at the Company's option, either in cash or equivalent value of
the Company's common stock. These installments are also convertible, at the
seller's option, into the Company's common stock at $22 per share and $24 per
share for the 2000 and 2001 installments, respectively. Upon receipt of the
seller's notice of conversion, the Company may choose to pay the installment
in cash, plus a limited premium based upon the excess of the common stock's
market price over the conversion price, as of the date of the notice of
conversion.
In February 1999, the Company amended its existing credit facility with a
bank in Canada to fund Canadian operations. The total Canadian credit
facility was increased to $24 million, with $14 million available under a
revolving credit agreement that is payable on demand; the remainder of the
facility relates to letters of credit and an unused installment term loan.
The credit agreement is unsecured and extends through February 2001.
Interest under the Canadian revolving credit agreement is, at the Company's
option, a function of either the bank's prime rate or LIBOR. A commitment
fee equal to .20% per annum of the daily average unused credit available is
payable monthly in arrears.
The Canadian revolving credit agreement includes a covenant that annually
establishes a minimum required net worth for EMS Technologies Canada, Ltd.
The minimum net worth required at December 31, 1999 was approximately $23
million, as compared with the reported net worth of approximately $41
million. Other covenants limit the amount of debt as compared with total
capitalization, set a minimum ratio by which earnings before interest and
income taxes must exceed interest expense, and set a minimum ratio of current
assets as compared with current liabilities; at December 31, 1999, the
Company was in compliance with these covenants.
The combined principal maturities of all long-term debt are $16.6 million in
2000, $5.1 million in 2001, $1.2 million in 2002, $21.0 million in 2003, $1.0
million in 2004 and $5.4 million thereafter. Included in these totals are
principal payments to be made under the Company's capital lease agreements.
Following is a summary of annual payment totals under capital lease
agreements (in thousands):
2000 $ 951
2001 689
2002 108
-----
Total capital lease payments 1,748
Less: Interest payments (143)
-----
Capitalized lease obligation $1,605
=====
At December 31, 1999, the Company had available two immediate sources of
credit (after allowing for outstanding letters of credit): $11.3 million
remaining under the U.S. revolving credit agreement and $1.8 million
available under the Canadian credit facility.
(6) STOCK PLANS
The Company has granted incentive and non-qualified stock options to key
employees and directors under several stock option plans. All outstanding
options have been granted at 100% of fair market value on each option's grant
date. All outstanding options become exercisable from one to three years
after the date of grant and expire from six to ten years after the date of
grant. Under all plans at December 31, 1999, options for a total of 389,000
shares of stock were exercisable, and there were 85,000 shares available for
future grants. The Company will seek shareholder approval in 2000 for
authorization of additional options for future grants.
Following is a summary of activity in all of the Company's stock option plans
for the three years ended December 31, 1999, 1998 and 1997 (shares in
thousands):
Weighted Average
Exercise Price
Shares Per Share
------ ---------
Options outstanding at December 31, 1996 876 $ 8.66
Granted 272 21.63
Canceled or expired (27) 13.00
Exercised (229) 8.27
----- -----
Options outstanding at December 31, 1997 892 12.59
Granted 291 20.42
Canceled or expired (45) 20.12
Exercised (141) 6.02
----- -----
Options outstanding at December 31, 1998 997 15.47
Granted 311 13.41
Canceled or expired (41) 17.63
Exercised (69) 6.50
----- -----
Options outstanding at December 31, 1999 1,198 $15.38
===== =====
The weighted average fair value of options granted in 1999, 1998 and 1997 was
$8.39, $12.52, and $14.17, respectively. These fair values were based on the
Black-Scholes option pricing model and a weighted average risk-free rate of
return of 6.7% in 1999, 4.8% in 1998, and 5.7% in 1997, terms from six to ten
years, expected volatility of 58% in 1999 and 60% in 1998 and 1997, and no
expected dividend yield.
<TABLE>
Following is a summary of options outstanding at December 31, 1999 (shares in thousands):
Outstanding Exercisable
------------------------- ------------------------
Weighted Weighted Average Weighted
Range of Average Price Remaining Years In Average Price
Exercise Prices Shares Per Share Contractual Life Shares Per Share
- --------------- ------ ------------- ------------------ ------ -------------
<S> <C> <C> <C> <C> <C>
$ 3.63 - 6.38 106 $ 4.98 5.3 106 $ 4.98
7.55 - 8.50 113 8.03 1.7 80 8.22
11.13 - 15.25 470 13.00 4.8 159 11.88
16.19 - 18.63 218 18.51 4.8 8 17.88
20.00 - 23.50 160 23.11 4.6 15 20.00
23.75 - 27.63 131 24.03 5.0 21 25.55
------------- ----- ----- --- --- -----
$ 3.63 - 27.63 1,198 $15.38 4.5 389 $10.63
============= ===== ===== === === =====
</TABLE>
In the Company's capital structure, stock options are the only securities
that are potentially dilutive in the future to basic earnings per share,
summarized as follows (shares in thousands):
1999 1998 1997
---- ---- ----
Dilutive stock options,
included in earnings
per share calculations:
Shares 144 438 706
Average price per share $ 7.08 8.33 9.65
Antidilutive stock options,
excluded from earnings
per share calculations:
Shares 1,054 559 186
Average price per share $16.51 21.06 23.71
Following is a reconciliation of the denominator for basic and diluted
earnings per share calculations (shares in thousands):
1999 1998 1997
---- ---- ----
Basic earnings per
share denominator 8,703 8,675 8,544
Common equivalent shares
from dilutive stock options 72 196 276
----- ----- -----
Diluted earnings per
share denominator 8,775 8,871 8,820
===== ===== =====
Under Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the Company is permitted to
continue accounting for the issuance of stock options in accordance with
Accounting Principles Board ("APB") Opinion No. 25, which does not require
recognition of compensation expense for option grants unless the exercise
price is less than the market price on the date of grant. As a result, the
Company has not recognized any compensation cost for stock options. If the
Company had recognized compensation cost for the "fair value" of option
grants under the provisions of SFAS No. 123, the pro forma financial results
for 1999, 1998 and 1997 would have differed from the actual results as
follows (net earnings in thousands):
1999 1998 1997
---- ---- ----
Net earnings:
As reported $4,840 6,176 7,391
Pro forma 1,624 4,788 6,731
Basic net earnings per share:
As reported .56 .71 .87
Pro forma .19 .55 .79
Diluted net earnings per share:
As reported .55 .70 .84
Pro forma .19 .55 .78
Under SFAS No. 123, the fair value of stock options issued in any given year
is expensed as compensation over the vesting period, which for substantially
all of the Company's options is three years; therefore, the pro forma net
earnings and net earnings per share do not reflect the total compensation
cost for options granted in the respective years. Furthermore, the pro forma
results only include the effect of options granted since 1995; options
granted prior to 1995 were not considered.
The Company adopted a Shareholder Rights Plan effective April 6, 1999, to
replace a similar plan adopted in 1989 that expired on April 6, 1999. Under
the new plan, the Company declared a dividend distribution of one right for
each outstanding share of the Company's common stock to stockholders of
record at the close of business on April 16, 1999. Future transfers of
common stock certificates will also transfer the associated rights. The
rights become exercisable for one share of common stock at a specific
purchase price (initially $45) upon the acquisition of at least 20%
beneficial ownership in the Company without the consent of a majority of the
Company's Board of Directors not having an interest in the acquiror. The
rights will become exercisable for shares of common stock having a value
equal to two times the purchase price, upon the following events: (i) the
acquisition of at least a 20% beneficial ownership in the Company without the
consent of a majority of the members of the Company's Board of Directors not
having an interest in the acquiror, (ii) the acquisition of 2% of the
outstanding common stock without such consent, following acquisition of 20%
with consent, or (iii) certain merger, consolidation or asset sale
transactions, in each case without the consent of a majority of the members
of the Company's Board of Directors not having an interest in the acquiror.
If the Company is purchased or merged into another company, the rights may
become exercisable for comparable securities of the surviving entity. The
rights expire on August 6, 2009. At any time before their expiration, the
outstanding rights may be redeemed by vote of the Board of Directors at a
price of $.01 per right.
(7) INCOME TAXES
Total income tax expense (benefit) provided for in the Company's
consolidated financial statements consists of the following (in thousands):
1999 1998 1997
---- ---- ----
Consolidated income tax expense $ 1,912 3,927 4,924
Income tax benefit resulting from
exercise of stock options credited
to stockholders' equity (108) (600) (1,142)
Income tax benefit resulting from
initial recognition of acquired
tax benefits credited to goodwill - (4,458) (405)
------ ------ ------
Total $ 1,804 (1,131) 3,377
====== ====== ======
The components of income tax expense (benefit) were (in thousands):
1999 1998 1997
---- ---- ----
Current:
Federal $ (675) 3,239 4,311
State (21) 606 803
Foreign 2,771 (663) 517
------ ------ ------
Total current expense 2,075 3,182 5,631
------ ------ ------
Deferred:
Federal 366 496 (368)
State 34 23 (76)
Foreign (563) 226 (263)
------ ------ ------
Total deferred (benefit) expense (163) 745 (707)
------ ------ ------
Total income tax expense $ 1,912 3,927 4,924
====== ====== ======
Income tax expense differed as follows from the amounts computed by applying
the U.S. federal income tax rate of 34% to earnings before income taxes (in
thousands):
1999 1998 1997
---- ---- ----
Computed "expected" income
tax expense $ 2,296 3,435 4,187
Tax credits from
research activities (116) (284) (82)
State income taxes, net of
federal income tax benefit 7 423 481
Difference in effective foreign
tax rates (408) 13 106
Change in deferred tax asset
valuation allowance - (206) -
Amortization of goodwill 177 243 301
Benefit from foreign sales
corporation (212) (254) (252)
Other 168 557 183
----- ----- -----
Income tax expense $ 1,912 3,927 4,924
===== ===== =====
Income tax expense includes benefits recognized from foreign net operating
loss carryforwards of $570,000, $314,000, and $263,000 in 1999, 1998 and
1997, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1999 and 1998 are presented below (in thousands):
1999 1998
---- ----
Deferred tax assets:
Accounts receivable $ 108 104
Inventories 376 296
Accrued compensation costs 536 560
Capital loss carryforward 473 473
Foreign research expense and
tax credit carryforward 7,437 3,702
Foreign net operating loss
carryforward 1,653 1,937
Foreign note receivable 145 150
Gain on sales to foreign subsidiaries 575 515
Other 95 211
------ -----
Total gross deferred tax assets 11,398 7,948
Valuation allowance (2,999) (1,328)
------ -----
Net deferred tax assets 8,399 6,620
------ -----
Deferred tax liabilities:
Property, plant and equipment 3,738 2,190
Net gain from foreign transactions and
remeasurement 283 283
Pension asset 949 -
------ -----
Total gross deferred tax liabilities 4,970 2,473
------ -----
Net deferred tax assets $ 3,429 4,147
====== =====
The U.S. operations are consolidated for federal income tax purposes. These
U.S. operations had a combined net loss before income taxes of $942,000 in
1999, and net earnings of $10,912,000 and $12,315,000 in 1998 and 1997,
respectively. The combined foreign operations reported net earnings before
income taxes of $7,694,000 in 1999, a net loss of $809,000 in 1998 and
breakeven results in 1997. The Company's net deferred tax assets at December
31, 1999 include $1,653,000 related to a cumulative $4,983,000 net operating
loss incurred by certain European operations, $710,000 of which may be
carried forward through 2004, with the remainder allowed to be carried
forward indefinitely. Management believes that the expected performance of
these operations and the utilization of tax planning strategies will generate
adequate earnings to fully realize the deferred tax asset relating to foreign
net operating losses.
(8) RETIREMENT PLANS
The Company established a qualified defined contribution plan in 1993. All
U.S.-based employees (approximately 900) that meet a minimum service
requirement are eligible to participate in the plan. Company contributions
are allocated to each participant based upon an age-weighted formula that
discounts an equivalent benefit at age 65 to each employee's current age.
Accumulated contributions are invested at each participant's discretion from
among a diverse range of investment options offered by an independent
investment firm selected by the Company.
The Company's contribution to this plan is determined each year by the Board
of Directors. There is no required minimum annual contribution, but the
target contribution has been approximately 5% of base payroll. The Company
accrued an expense for the defined contribution plan of $1.7 million for
1999, $2.0 million for 1998, and $1.9 million for 1997.
The Company sponsors qualified retirement savings plans in the U.S. and
Canada, in which the Company matches a portion of each eligible employee's
contributions. The Company's matching contributions to these plans were
$600,000 in 1999, $599,000 in 1998, and $535,000 in 1997.
As part of the Company's 1999 acquisition of the Montreal-based Space Systems
and Products Division of Spar Aerospace Limited, the Company assumed the
assets and liabilities of four defined benefit pension plans, both
contributory and non-contributory, that collectively cover substantially all
employees (approximately 600) at these operations. Benefit provisions in
three of the plans are subject to collective bargaining. Benefits are based
upon an employee's years of service and average compensation. The combined
pension benefit under all plans for the year ended December 31, 1999 included
the following components (in thousands):
1999
----
Expected return on plan assets $ 1,959
Service cost for benefits earned (465)
Interest cost on projected benefit obligation (1,344)
------
Pension benefit $ 150
======
The funding policy is to contribute amounts sufficient to meet minimum
funding requirements as set forth in employee benefit and tax laws. Changes
in the combined projected benefit obligation for the pension plans were as
follows for the year ended December 31, 1999 (in thousands):
1999
------
Projected benefit obligation at January 1 $ 22,733
Service cost for benefits earned during the period 465
Interest cost on benefit obligation 1,344
Participant contributions 30
Actuarial gain (2,908)
Benefits paid (1,643)
------
Projected benefit obligation at December 31 $ 20,021
======
Changes in the fair value of assets for pension plans were as follows for the
year ended December 31, 1999 (in thousands):
1999
------
Fair value of assets at January 1 $ 26,911
Actual return on plan assets 840
Employer contributions 44
Participant contributions 30
Benefits paid (1,643)
------
Fair value of assets at December 31 $ 26,182
======
Plan assets are held in a master trust arrangement managed by an independent
advisor. Assets of the plans are invested primarily in publicly traded equity
and fixed income securities through a master trust arrangement.
The Company recorded pension assets and liabilities as follows (in
thousands):
December 31
1999
-----------
Fair value of plan assets $ 26,182
Projected benefit obligation (20,021)
Unrecognized actuarial net loss (1,788)
Purchase price allocation of negative goodwill (1,289)
------
Accrued pension asset $ 3,084
======
The actuarial assumptions that were used to determine costs and benefit
obligations for pension plans were as follows:
Discount rate 6.0%
Compensation increases 3.5
Long-term return on assets 7.5
(9) POST-RETIREMENT BENEFITS OTHER THAN PENSION
The Company sponsors four unfunded plans to provide selected health and
dental care and life insurance benefits for employees retired from the
Montreal operations and their dependents. Employees of the Company's
Montreal operations may become eligible for those benefits if they retire
while working for the Company. Benefit provisions in three of the plans are
subject to collective bargaining. The estimated cost for these benefits is
accrued over periods of employee service on an actuarially determined basis.
Combined post-retirement benefit cost of all plans for the year ended
December 31, 1999 included the following components (in thousands):
1999
----
Service cost for benefits earned $ 45
Interest cost on accumulated benefit obligation 134
-----
Post-retirement benefit cost $ 179
=====
Changes in the combined accumulated benefit obligation for post-retirement
benefits were as follows for the year ended December 31, 1999 (in thousands):
1999
------
Accumulated benefit obligation at January 1 $ 2,241
Service cost for benefits earned during the period 45
Interest cost on accumulated benefit obligation 134
Actuarial loss 682
Benefits paid (111)
------
Accumulated benefit obligation at December 31 $ 2,991
======
The Company recorded a liability for post-retirement benefits at December 31,
1999, as follows (in thousands):
December 31
1999
-----------
Accumulated benefit obligation $ 2,991
Unrecognized actuarial net loss (682)
------
Accrued post-retirement benefit liability $ 2,309
======
The actuarial assumptions that were used to determine costs and benefit
obligations for post-retirement benefits were as follows:
Discount rate 7.00%
Healthcare cost trend - current 6.85
Healthcare cost trend - ultimate 4.45
Dental care cost trend - ultimate 4.50
Increasing the assumed healthcare and dental care cost trend rates by one
percentage point would increase the aggregate service and interest cost
components of net post-retirement benefit expense for 1999 by $11,000 and the
accumulated post-retirement benefit obligation at December 31, 1999 by
$225,000. A decrease of one percentage point would reduce service and
interest costs by $6,000 and decrease the December 31, 1999 obligation by
$186,000.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes certain information regarding the fair value of the
Company's financial instruments at December 31, 1999 and 1998:
Cash and cash equivalents, trade accounts receivable and accounts payable --
The carrying amount approximates fair value because of the short maturity of
these instruments.
Long-term debt - Most of the Company's long-term debt bears interest at
variable rates that management believes are commensurate with rates currently
available on similar debt. Accordingly, the carrying value of variable-rate
long-term debt approximates fair value.
The Company's largest fixed-rate, long-term debt is a mortgage with a 7.1%
interest rate; the carrying amount at December 31, 1999 was $7.2 million,
compared with an estimated fair value of $6.9 million, based on current
market rates at which the Company could borrow funds with similar remaining
maturities.
The Company also has a financing agreement with the seller of the Canadian
operations, with an interest rate of 5.5% and a carrying value of $7.0
million. The remaining installments in 2000 and 2001 are convertible at the
seller's option into the Company's common stock at the strike prices of $22
and $24 per share, respectively. Upon receipt of the seller's notice of
conversion, the Company may choose to pay an installment in cash, plus a
limited premium based upon the excess of the market price over the conversion
price. It is impracticable to obtain independent market information
concerning the value of this specific conversion/premium feature. However,
the Company believes that the estimated fair value of this financing
agreement is not materially different from its carrying value, when all the
terms (including the conversion/premium feature) are considered.
(11) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company is organized into two reportable segments: Space and
Technologies, and Wireless Products. Each segment is separately managed and
comprises a range of products and services that share distinct operating
characteristics. The Company evaluates each segment primarily upon operating
profit.
The Space and Technologies segment manufactures custom-designed, highly
engineered hardware for use in space and satellite communications, radar,
surveillance and military counter-measures. Orders typically involve
development and production schedules that can extend a year or more, and most
revenues are recognized under percentage-completion accounting. Hardware is
sold to prime contractors or systems integrators rather than end-users.
The Wireless Products segment manufactures standardized antennas, terminals,
and other wireless network products for use in logistics, healthcare
information management, PCS/cellular communications, and aeronautical
satellite communications. The manufacturing cycle for each order is generally
just a few days, and revenues are recognized upon shipment of hardware.
Hardware is marketed to end-users and to third-parties who incorporate their
products and services with the Company's hardware for delivery to an end-
user.
These were the same two reportable segments disclosed as of the end of the
preceding fiscal year; however, effective for 1999, the Company has
reclassified its satellite communications (SATCOM) product lines (comprising
earth-based terminal and antenna standard products for communicating via
satellite) from Space and Technologies to Wireless Products. Accounting
policies for segments are the same as those described in the summary of
significant accounting policies, except that deferred income tax assets and
liabilities are provided for only at the consolidated level. Inter-segment
activity is not significant.
(In thousands) Years Ended December 31
1999 1998 1997
---- ---- ----
Net sales:
Space and Technologies $ 119,855 57,840 62,858
Wireless products 122,559 119,323 108,372
------- ------- -------
Total $ 242,414 177,163 171,230
======= ======= =======
Operating income(loss):
Space and Technologies $ 2,167 (1,913) 6,775
Wireless products 6,102 12,143 7,638
------- ------- -------
Total $ 8,269 10,230 14,413
======= ======= =======
Non-operating income (expense), net:
Space and Technologies $ 563 395 (364)
Wireless products 747 934 115
Corporate - 273 -
------- ------- -------
Total $ 1,310 1,602 (249)
======= ======= =======
Interest expense:
Space and Technologies $ (1,310) (967) (837)
Wireless products (1,132) (1,366) (1,542)
Corporate (385) 604 530
------- ------- -------
Total $ (2,827) (1,729) (1,849)
======= ======= =======
Income tax benefit (expense):
Space and Technologies $ 139 810 (2,066)
Wireless products (2,197) (4,503) (2,766)
Corporate 146 (234) (92)
------- ------- -------
Total $ (1,912) (3,927) (4,924)
======= ======= =======
Net earnings (loss):
Space and Technologies $ 1,559 (1,675) 3,508
Wireless products 3,520 7,208 3,445
Corporate (239) 643 438
------- ------- -------
Total $ 4,840 6,176 7,391
======= ======= =======
Capital expenditures:
Space and Technologies $ 9,111 5,083 2,806
Wireless products 2,545 2,657 5,051
------- ------- -------
Total $ 11,656 7,740 7,857
======= ======= =======
Depreciation and amortization:
Space and Technologies $ 2,918 3,006 3,268
Wireless products 4,610 4,442 3,322
------- ------- -------
Total $ 7,528 7,448 6,590
======= ======= =======
As of December 31
1999 1998 1997
---- ---- ----
Assets:
Space and Technologies $ 101,748 58,046 59,058
Wireless products 82,177 81,538 81,899
Corporate 10,873 7,802 2,697
------- ------- -------
Total $ 194,798 147,386 143,654
======= ======= =======
Following is a summary of enterprise-wide information (in thousands):
Years Ended December 31
1999 1998 1997
---- ---- ----
Revenues from the following
products and services:
Space and Technologies $ 119,855 57,840 62,858
Wireless products:
Network products and systems
integration 83,547 85,303 82,323
Wireless infrastructure 25,696 23,219 14,002
Aeronautical satellite
communications 13,316 10,801 12,047
------- ------- -------
Total $ 242,414 177,163 171,230
======= ======= =======
Net sales to customers in
the following countries:
United States $ 117,471 127,590 121,978
Canada 60,723 6,550 8,345
France 12,028 13,657 11,680
Other foreign countries 52,192 29,366 29,227
------- ------- -------
Total $ 242,414 177,163 171,230
======= ======= =======
As of December 31
1999 1998 1997
---- ---- ----
Long-lived assets located in
the following countries:
United States $ 59,750 49,471 50,689
Canada 24,424 3,927 4,529
Other foreign countries 840 708 684
------- ------- -------
Total $ 85,014 54,106 55,902
======= ======= =======
No customers accounted for more than 10% of consolidated net sales in 1999,
1998 or 1997.
(12) COMMITMENTS AND CONTINGENCIES
The Company is committed under several non-cancelable operating leases for
office space, computer and office equipment, and automobiles. Minimum annual
lease payments under such leases are $3,030,000 in 2000, $2,285,000 in 2001,
$1,854,000 in 2002, $1,447,000 in 2003, $1,033,000 in 2004, and $2,600,000
thereafter.
The Company also has short-term leases for regional sales offices, equipment
and automobiles. Total rent expense under all operating leases was
approximately $5,156,000, $3,624,000, and $2,710,000 in 1999, 1998 and 1997,
respectively.
The Company's Canadian operations have received cost-sharing assistance from
the Government of Canada under several programs that support the development
of new commercial technologies and products for space. This funding is
repayable in the form of royalties, the level of which will depend upon
several factors, including future revenue and profit levels to be derived
from the potential new technologies and products. To the extent that the
royalties may exceed the repayable amounts already recorded in long-term
debt, the Company will incur royalties expense; however, these royalties
accrue at rates generally less than one percent of related sales, and
royalties will be incurred only if additional revenues and profits are also
recognized from new technologies and products. As a result, although the
Company cannot accurately estimate the level of future possible royalties,
the Company does not believe that such royalties will have a material adverse
effect on future results of operations.
In 1999, the Company announced that it plans to acquire a major equity stake
in NetSat28 Company, L.L.C., a communications technology company based in
Annapolis, Maryland. NetSat28 received an FCC license in 1997 to launch and
operate a Ka-band satellite over the continental United States. Once
implemented, the NetSat28 system would provide high-speed Internet access and
other broadband services. The NetSat28 service would target small businesses,
as well as home office and high-end residential users. The Company believes
that NetSat28's patented approach to its satellite architecture is
complementary to the Company's advanced communications technologies and
systems-engineering capability.
The Company plans to complete the NetSat28 purchase transaction, valued
initially at $3.8 million, during 2000. The transaction is contingent upon
the FCC's approval of the transfer of control of NetSat28, and several
parties have filed motions in opposition to the requested approval. The
Company would initially acquire 50.1% of NetSat28, and also would contribute
significant development efforts for the ground infrastructure. As specified
milestones are met, the Company would acquire an additional 45% of NetSat28
equity, in exchange for up to 1.25 million shares of the Company's common
stock. Completion of the NeSat28 system will require substantial capital,
and no specific financing arrangements have yet been established. If the
purchase transaction is completed, the Company will pursue negotiations with
potential equity partners and lenders concerning various possible financing
structures for NetSat28, some of which could result in the Company investing
additional capital in the NetSat28 venture.
(13) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of interim financial information for the years ended
December 31, 1999 and 1998 (in thousands, except per share data):
1999 Quarters ended
April 2 July 2 October 1 December 31
-------- ------- --------- -----------
Net sales $ 55,193 67,455 54,274 65,492
Operating income (loss) 3,520 3,837 1,611 (699)
Net earnings 1,962 2,090 526 262
Net earnings per share:
Basic .23 .24 .06 .03
Dilutive .22 .24 .06 .03
1998 Quarters ended
April 3 July 3 October 2 December 31
------- ------ --------- -----------
Net sales $ 42,676 46,231 47,393 40,863
Operating income (loss) 3,246 3,796 4,172 (984)
Net earnings 1,743 2,038 2,351 44
Net earnings per share:
Basic .20 .24 .27 .01
Dilutive .20 .23 .27 -
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EMS Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of EMS
Technologies, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of earnings,
stockholders' equity and comprehensive income, and cash flows for
each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits. We did not audit the financial statements of EMS
Technologies Canada, Ltd., a wholly-owned subsidiary, which
statements reflect total assets constituting 35% and total revenues
constituting 42% in 1999 of the related consolidated totals. Those
statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the
amounts included for EMS Technologies Canada, Ltd., is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and
the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
EMS Technologies, Inc. and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1999,
in conformity with generally accepted accounting principles.
KPMG LLP
Atlanta, Georgia
February 25, 2000
Selected Financial Data
(In thousands, except earnings per share)
Years ended December 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net sales $242,414 177,163 171,230 149,758 128,950
Cost of sales 167,118 115,127 111,925 97,258 83,865
Selling, general and
administrative expenses 45,211 38,666 35,758 31,070 30,836
Research and development
expenses 21,816 13,140 9,134 12,121 10,392
Loss on investment
in software - - - 1,645 -
------- ------- ------- ------- -------
Operating income 8,269 10,230 14,413 7,664 3,857
Non-operating (expense)
income, net 1,310 1,602 (249) (304) 675
Interest expense (2,827) (1,729) (1,849) (1,113) (864)
------- ------- ------- ------- -------
Earnings before
income taxes and
minority interest 6,752 10,103 12,315 6,247 3,668
Income tax expense (1,912) (3,927) (4,924) (1,484) (1,402)
Minority interest in LXE
net loss - - - 264 44
------- ------- ------- ------- -------
Net earnings $ 4,840 6,176 7,391 5,027 2,310
======= ======= ======= ======= =======
Net earnings per common
share:
Basic $ .56 .71 .87 .68 .33
Diluted .55 .70 .84 .66 .32
Weighted average number of
shares:
Common 8,703 8,675 8,544 7,403 6,929
Common and dilutive
common equivalent 8,775 8,871 8,820 7,631 7,141
As of December 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working capital $ 52,099 62,533 56,830 45,352 42,518
Total assets 194,798 147,386 143,654 127,077 104,954
Long-term debt (excluding
current installments) 33,707 19,150 17,160 12,230 10,989
Stockholders' equity 105,815 100,660 95,220 87,250 60,209
No cash dividends have been declared or paid during any of the periods
presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
- ---------------------
In January 1999, the Company acquired the Space Systems and Products Division
of Spar Aerospace Limited and Spar Holdings, Inc. (a wholly-owned subsidiary
of Spar Aerospace Limited) located near Montreal, Quebec. The transaction
was accounted for as an asset purchase valued at $17.4 million, and no
goodwill resulted.
Consolidated net sales increased to $242 million in 1999 from $177 million in
1998 and $171 million in 1997. Most revenues were derived from commercial
and international markets (86% in 1999, 79% in 1998, and 74% in 1997), as
compared with sales for U.S. government end-use. More revenues were derived
from sales to systems integrators, third-party manufacturers and distributors
than from sales directly to end-user customers.
Management places strong emphasis on analyzing its business by major product
segments. The growth in consolidated net sales in 1999 was attributable to
the Space and Technologies segment, which benefited from acquisition of the
Montreal operations. Revenues in this segment were $120 million in 1999,
compared with $58 million in 1998 and $63 million in 1997. The lower 1998
revenues in Space and Technologies, as compared with 1997, were due to lower
sales of hardware for U.S. government end-use. Revenues from the Wireless
Products segment increased over the past three years to $123 million in 1999,
from $119 million in 1998 and $108 million in 1997. The growth in this
segment mainly resulted from greater sales of base station antennas for
PCS/cellular telecommunications and other infrastructure products.
Cost of sales was 69% of consolidated net sales in 1999, and 65% in 1998 and
1997. The 1999 increase was due mainly to the significant growth of the
Company's Space and Technologies operations, which, on average, have a higher
cost of sales percentage than the remainder of the Company's operations . In
this segment, the cost of sales percentage was 82% in 1999, compared with 85%
in 1998 and 77% in 1997. The decrease in 1999 was attributable to the
comparatively favorable mix of contracts in the backlog of the newly-acquired
Montreal operations. Also, in late 1999, the Company recognized
approximately $1.6 million of non-recurring charges to write off certain
inventories and intangibles related to product initiatives that management
curtailed. In 1998, the Company began to experience customer delays in
initiation of major new satellite programs in which the Company had expected
to participate; the result of these delays was the absorption of fixed
overhead expenses over a lower-than-expected sales base. As a result, the
Company reduced the size of this segment's work force in the second half of
1998, with the associated costs recorded in cost of sales.
Selling, general and administrative expenses were 19% of consolidated net
sales in 1999, compared with 22% in 1998 and 21% in 1997. The decrease in
1999 from 1998 was attributable to the growth in the Company's Space and
Technologies segment. The large-program nature of space operations generally
require lower selling, general and administrative expenses, as a percentage
of sales, than the standard-product environment of the Company's wireless
product segment.
Research and development expenses represent the cost of the Company's
internally funded efforts. Significant research and development efforts also
occur under specific customer orders in the Space and Technologies segment
and, accordingly, are reflected in cost of sales. Internally funded research
and development expenses were 9% of consolidated net sales in 1999, compared
with 7% in 1998 and 5% in 1997. The increases over this three-year period
related to new wireless applications being developed for space, satellite
communications and private local area networks.
The most significant recurring item within non-operating income (expense) was
net gains or losses resulting from foreign currency transactions and from
translation of the European subsidiaries' short-term intercompany liabilities
that arise from the purchase of the parent's products for resale in Europe.
The Company recognized a foreign currency loss of $745,000 in 1999, a gain of
$482,000 in 1998, and a loss of $449,000 in 1997. At the end of 1999, the
consolidated foreign currency translation adjustment (representing all of
accumulated other comprehensive loss) was a $1.8 million loss.
The remaining non-operating income in 1999 included a $1.8 million gain from
an insurance settlement to compensate the Company for its tornado-caused
business interruption in 1998. Non-operating income in 1998 included a
$472,000 tornado-related gain on involuntary conversion of insured assets, a
$331,000 gain from collection on a note receivable that had previously been
reserved, and a $245,000 gain on disposal of a minority investment. Non-
operating income in 1997 included $667,000 of interest income related to
settlement of the Canadian research and development claim, and a $419,000 net
loss on disposal of a business unit within the Company's Canadian operations.
Interest expense increased in 1999 compared with 1998 because of increased
levels of debt. Interest expense in 1998 decreased in comparison with 1997
due to more favorable interest terms under a new debt agreement.
The effective income tax rate for 1999 was 28%, compared with 39% in 1998 and
40% in 1997. This decrease in 1999 from 1998 related to a comparatively
higher proportion of pre-tax profits being derived from the Company's
Canadian operations, which benefit from research-related income tax
incentives. The Company expects that the effective income tax rate in 2000
will be comparable with the rate in 1999.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities in 1999 was sufficient to fund
expenditures for property, plant and equipment. Management believes that the
Company's present liquidity, together with cash from operations and sources
of external financing, will support its current business activities and near-
term capital investment plans. However, additional sources of liquidity will
be needed over the next few years if the Company and its markets continue to
grow, and particularly if the Company completes the acquisition of a
controlling interest in NetSat28, LLC and proceeds with the proposed design,
construction and launch of a geostationary Ka-band satellite for broadband
communications.
Long-term debt increased in 1999 from 1998 mainly due to financing of the
assets purchased in Montreal. One-third of the purchase price was financed
at closing through the Company's U.S. revolving credit agreement. The
remainder of the purchase price was financed by the seller in four equal
installments, with the second installment being adjusted for actual versus
projected working capital determined as of the closing date. In 1999, the
Company paid the first two installments in cash, with funds drawn from the
Company's U.S. revolving credit agreement. The remaining two installments
are due, with annual interest of 5.5%, on December 31 of 2000 and 2001.
These installments are payable, at the Company's option, either in cash or
equivalent value of the Company's common stock.
In January 1999, the Company entered into a $7.5 million term loan agreement
with an insurance company, secured by a mortgage on one of the Company's
buildings. The loan is payable in equal monthly installments over 15 years
with a fixed interest rate of 7.1%. In addition, in February 1999, the
Company amended its existing Canadian revolving credit agreement to fund
Canadian operations, increasing available borrowings to $24 million on a
demand note, under a credit agreement extending through February 2001.
During 1998, the Company amended its existing U.S. revolving credit agreement
to increase available borrowings to a total of $35 million, with $30 million
maturing in November 2003 and the remaining $5 million financed under a
demand note.
At December 31, 1999, the Company had two immediate sources of credit (after
allowing for outstanding letters of credit): $11.3 million remaining under
the U.S. revolving credit agreement, and $1.8 million available under the
Canadian credit facility.
Year 2000
- ---------
For the past two years, the Company has pursued a plan to modify existing
information systems or implement new systems, as necessary, to become "Year
2000" compliant in a timely manner. This plan involved identification and
remediation of potential problems, as well as testing of new systems and
processes and the development of contingency plans. Efforts encompassed not
only the hardware and software that support the Company's information
technologies, but also manufacturing hardware and other equipment and
processes that may rely on embedded software. Prior to the end of 1999, the
Company had completed the plan, as well as communications with suppliers to
confirm that the Year 2000 issue would not have a significant effect on the
Company's supply chain.
Management is not aware of any occurrence of a Year 2000 issue materially
affecting the Company's operations. The Company believes that neither (1)
the cost of addressing Year 2000, nor (2) the consequences of any remaining
Year 2000 issues have had or will have a material effect on the Company's
results of operations.
Risk Factors and Forward-Looking Statements
- -------------------------------------------
Forward looking statements with respect to cash flows and tax rates 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 variety of
factors. Such factors include, but are not limited to:
- the Company's ability to achieve product development and manufacturing
objectives within the cost and timing parameters created by customers and
end-users;
- the timeliness of orders and payments from customers;
- the availability of funding for major new space programs;
- the strength and timing of end-user demand for new communications
services, such as broadband services;
- the effects of technology and communications systems that may be
developed by competitors;
- the outcome of Federal Communications Commission proceedings in which
several parties have filed opposing motions related to the Company's proposed
control of NetSat28 Company, LLC; and
- the Company's ability to achieve expected levels of research efforts
that qualify for tax incentives, and apportionment of pre-tax income among
various tax jurisdictions.
Effect of New Accounting Pronouncement
- ---------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires that all
derivatives be recognized as either assets or liabilities on the balance
sheet and be measured at fair value. In June 1999, SFAS No. 133 was amended
by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 delays the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 effective
January 1, 2001, but it has not determined the impact of the statement on its
results of operations or financial position.
Exhibit 23.1
The Board of Directors
EMS Technologies, Inc.
We consent to incorporation by reference in the registration statements
on Form S-8(Nos. 2-76455, 2-78442, 2-94049, 33-31216, 33-41042, 33-
50528, 333-20843, 333-32425, and 333-76797) and on Form S-3(No. 333-
86973) of EMS Technologies, Inc. of our report dated February 25, 2000,
relating to the consolidated balance sheets of EMS Technologies, Inc.
and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of earnings, stockholders' equity and
comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 1999, and the related schedule,
which reports appear or are incorporated by reference in the December
31, 1999 annual report on Form 10-K of EMS Technologies, Inc.
In our reports specified above, we state that we did not audit the
financial statements of EMS Technologies Canada, Ltd., a wholly-owned
subsidiary, which statements were audited by other auditors whose
report has been furnished to us. Our opinion, insofar as it relates to
EMS Technologies Canada, Ltd., is based solely on the report of the
other auditors.
KPMG LLP
Atlanta, Georgia
March 30, 2000
Exhibit 23.2
Consent of Independent Chartered Accountants
To the Stockholder of
EMS Technologies Canada, Ltd.
We consent to the incorporation in this Annual Report (Form 10-K) of EMS
Technologies, Inc. of our report dated January 28, 2000 with respect to the
consolidated balance sheet of EMS Technologies Canada, Ltd. as at December 31,
1999 and the consolidated statements of operations, stockholder's equity and
cash flows for the year then ended.
We also consent to incorporation by reference in the registration statements on
Form S-8(Nos. 2-76455, 2-78442, 2-94049, 33-31216, 33-41042, 33-50528, 333-
20843, 333-32425, and 333-76797) and on Form S-3(No. 333-86973) of EMS
Technologies, Inc. of our report dated January 28,2000 with respect to the
consolidated balance sheet of EMS Technologies Canada, Ltd. as at December
31, 1999 and the consolidated statements of operations, stockholder's
equity and cash flows for the year then ended.
Ernst & Young LLP
Chartered Accountants
Ottawa, Canada
March 28, 2000
EXHIBIT 22.1
EMS TECHNOLOGIES, INC.
AND SUBSIDIARIES
Subsidiaries of the Registrant
LXE Inc.
125 Technology Parkway
P. O. Box 926000
Norcross, GA 30092-9600
EMS Technologies Canada, Ltd.
1725 Woodward Drive
Ottawa, Ontario K2C 0P9
CANADA
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000032198
<NAME> EMS TECHNOLOGIES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,832
<SECURITIES> 0
<RECEIVABLES> 67,804
<ALLOWANCES> 0
<INVENTORY> 28,749
<CURRENT-ASSETS> 102,405
<PP&E> 91,399
<DEPRECIATION> 42,345
<TOTAL-ASSETS> 194,798
<CURRENT-LIABILITIES> 50,306
<BONDS> 0
0
0
<COMMON> 871
<OTHER-SE> 104,944
<TOTAL-LIABILITY-AND-EQUITY> 194,798
<SALES> 242,414
<TOTAL-REVENUES> 242,414
<CGS> 167,118
<TOTAL-COSTS> 167,118
<OTHER-EXPENSES> 67,027
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,310
<INCOME-PRETAX> 6,752
<INCOME-TAX> 1,912
<INCOME-CONTINUING> 4,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,840
<EPS-BASIC> .56
<EPS-DILUTED> .55
</TABLE>
Exhibit 23.2
Consent of Independent Chartered Accountants
To the Stockholder of
EMS Technologies Canada, Ltd.
We have audited the consolidated balance sheet of EMS Technologies Canada,
Ltd. as at December 31, 1999 and the consolidated statements of operations,
stockholder's equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test bases, evidence supporting the amounts and disclosures
in the significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EMS
Technologies Canada, Ltd. as at December 31, 1999 and the results of its
operations and cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
The prior year financial statements have been audited by other chartered
accountants in accordance with accounting principles generally accepted in
Canada. There have been no adjustments required to present the comparative
figures in accordance with accounting principles generally accepted in the
United States of America.
Ernst & Young LLP
Chartered Accountants
Ottawa, Canada,
January 28,2000
