SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Environmental Tectonics Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii),14a-6(i)(1), or
14a-6(i)(2).
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies: n/a
2) Aggregate number of securities to which transaction
applies: n/a
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11./1/
4) Proposed maximum aggregate value of transaction: n/a
5) Total fee paid: n/a
[ ] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing party:
4) Date filed:
________________________
/1/ Set forth the amount on which the filing fee is calculated
and state how it was determined.
PAGE 1
<PAGE>
ENVIRONMENTAL TECTONICS CORPORATION
_________________________________________
Notice of Annual Meeting of Shareholders
September 30, 1998
_______________________________________
The Annual Meeting of the Shareholders of Environmental Tectonics
Corporation will be held at the offices of the Company, County
Line Industrial Park, Southampton, Pennsylvania on Wednesday,
September 30, 1998, at 10:00 a.m. (eastern time) for the
following purposes:
1. To elect five directors to serve until their successors have
been elected and qualified.
2. To act upon the Environmental Tectonics Corporation 1998
Stock Option Plan (the "Stock Option Plan")
3. To transact such other business as may properly come before
the meeting.
The record date for determination of shareholders entitled to
notice of and to vote at the meeting is August 28, 1998.
By Order of the Board of Directors
ANN M. ALLEN, Secretary
________________________
Whether or not you expect to attend the meeting, please sign and
date the enclosed proxy and return it promptly in order that your
stock may be voted. If you attend the meeting, you may withdraw
your proxy and vote in person.
PAGE 2
<PAGE>
ENVIRONMENTAL TECTONICS CORPORATION
County Line Industrial Park
Southampton, Pennsylvania 18966
- -----------------------------------------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
September 30, 1998
- -----------------------------------------------------------------
GENERAL
Solicitation of Proxies
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of Environmental Tectonics
Corporation, a Pennsylvania corporation (the "Company"), of
proxies in the accompanying form for use at the Annual Meeting of
Shareholders to be held at 10:00 a.m. (eastern time) on
Wednesday, September 30, 1998, at the Company's executive offices
at County Line Industrial Park, Southampton, Pennsylvania 18966
and at any adjourned meeting thereof (the "Annual Meeting").
This Proxy Statement and accompanying form of proxy are being
first sent or given to security holders on or about September 11,
1998. In addition to the use of the mails, directors, officers
and employees of the Company may solicit proxies personally or by
telephone. The expense of soliciting proxies will be borne by
the Company.
USE OF PROXIES
Voting and Revocation of Proxies
When a proxy in the enclosed form is properly executed and
returned in time to be voted at the Annual Meeting, the shares
represented thereby will be voted at the Annual Meeting in
accordance with the instructions marked thereon. Signed proxies
not marked to the contrary will be voted "FOR" the election, as
directors, of the Board of Directors' nominees and "FOR" the
approval of the Stock Option Plan. Signed proxies will be voted
"FOR" or "AGAINST" any other matter that properly comes before
the Annual Meeting or any adjournment thereof, in the discretion
of the persons named as proxyholders. Any such proxy may be
revoked at any time before its exercise by (i) executing and
delivering a later dated proxy to the Secretary of the Company,
(ii) giving written notice of revocation to the Secretary of the
Company, or (iii) by voting in person at the Annual Meeting. The
mailing address of the Company is County Line Industrial Park,
Southampton, Pennsylvania 18966.
<PAGE 3>
Voting Securities, Record Date and Quorum
The close of business on August 28, 1998, has been fixed as
the record date (the "Record Date") for the determination of
shareholders entitled to notice of and to vote at the Annual
Meeting. On the Record Date, the Company had outstanding
3,076,331 shares of Common Stock, par value $.10 per share
("Common Stock") and 25,000 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock"). The holders of
Series A Preferred Stock shall vote together with holders of the
Common Stock as a single class for all matters submitted to a
vote of the shareholders of the Company. The holders of Series A
Preferred Stock are also entitled to vote as a separate class to
elect one director (the "Preferred Director") in addition to the
four directors elected by holders of Series A Preferred Stock and
holders of the Common Stock voting as a single class. Each share
of Common Stock is entitled to one vote on all matters coming
before the Annual Meeting. The holders of Common Stock are not
entitled to cumulate votes in elections of directors. Each share
of Series A Preferred Stock is entitled to 13.33 votes at the
Annual Meeting, which equals the number of shares of Common Stock
into which each share of Series A Preferred Stock may be
converted (the "Conversion Ratio"). The Conversion Ratio is
calculated by dividing $100 by the conversion price (the
"Conversion Price"). The Conversion Price as of the date of this
Proxy Statement is $7.50. The Conversion Price is subject to
adjustment under certain circumstances.
The presence, in person or by proxy, of shareholders
entitled to cast a majority of the votes which all shareholders
are entitled to cast shall constitute a quorum at the Annual
Meeting. Abstentions with respect to one or more proposals voted
upon at the Annual Meeting will be included for purposes of
determining a quorum for the Annual Meeting.
Principal Shareholders
The following table sets forth information, as of the Record
Date, as to beneficial owners, either directly or indirectly, of
5% or more of the outstanding shares of the Common Stock.
Amount and
Nature of Percent
Beneficial of Common
Name and Address of Beneficial Owner Ownership Stock
William F. Mitchell (1)(2) 928,949 30.2%
c/o Environmental Tectonics
Corporation
County Line Industrial Park
Southampton, PA 18966
Pete L. Stephens, M.D. (2)(3) 325,100(4) 10.6%
1150 Eleni Lane
West Chester, PA 19382 <PAGE 4>
Craig MacNab (2)(3) 499,660(5) 14.0%
c/o Tandem Capital, Inc.
500 Church Street Suite 200
Nashville, TN 37219
Sirrom Capital Corporation 499,660(5) 14.0%
500 Church Street, Suite 200
Nashville, TN 37219
____________________
(1) Chairman of the Board, President and Director of the
Company. Shares of Common Stock include 100,000 held by
Mr. Mitchell's wife.
(2) Nominee of the Board of Directors of the Company for
election, as Director, of the Company at the Annual Meeting.
(3) Director of the Company.
(4) Includes 9,000 shares of Common Stock held by or for the
benefit of Dr. Stephens' wife and two of his children.
(5) Shares listed for Craig MacNab and Sirrom Capital
Corporation ("Sirrom") are the shares beneficially owned by
Sirrom. Craig MacNab is President of Tandem Capital, Inc.,
a wholly-owned subsidiary of Sirrom. These shares include
333,250 shares of Common Stock underlying 25,000 shares of
Series A Preferred Stock that are presently convertible and
166,410 shares of Common Stock underlying a presently
exercisable warrant to purchase shares of Common Stock.
Security Ownership of Management
The following table sets forth, as of the Record Date, the
number of shares and percentage of the Company's Common Stock
owned beneficially by each director, each nominee for director,
and each named executive officer set forth in the Summary
Compensation Table. The table also sets forth the holdings of
all directors and executive officers as a group.
Amount and
Nature of Percent
Beneficial of Common
Name and Address of Beneficial Owner Ownership Stock
William F. Mitchell (1)(2) 928,949(8) 30.2%
c/o Environmental Tectonics
Corporation
County Line Industrial Park
Southampton, PA 18966
Pete L. Stephens, M.D. (2)(3) 325,100(4) 10.6%
1150 Eleni Lane
West Chester, PA 19382 <PAGE 5>
Richard E. McAdams (2)(3) 15,526(5) *
c/o Environmental Tectonics
Corporation
County Line Industrial Park
Southampton, PA 18966
Philip L. Wagner, Ph.D. (2)(3) 6,000(6) *
Chadds Ford Technologies, Inc.
P.O. Box 377
Chadds Ford, PA 19317
Craig MacNab (2)(3) 499,660(7) 14.0%
c/o Tandem Capital, Inc.
500 Church Street Suite 200
Nashville, TN 37219
All directors and executive 1,775,235(8) 49.6%
officers as a group (7 persons)
* less than 1%
____________________
(1) Chairman of the Board, President and Director of the
Company. Shares of Common Stock include 100,000 shares held
by Mr. Mitchell's wife.
(2) Nominee of the Board of Directors of the Company for
election, as Director, of the Company at the annual Meeting.
(3) Director of the Company.
(4) Includes 9,000 shares of Common Stock held by or for the
benefit of Dr. Stephens' wife and two of his children.
(5) Includes options to purchase 1,000 shares of Common Stock
held under the Company's Incentive Stock Option Plan which
are presently exercisable.
(6) Includes 4,000 shares of Common Stock held by or for the
benefit of Dr. Wagner's wife.
(7) Shares listed for Craig MacNab are the shares beneficially
owned by Sirrom. Craig MacNab is President of Tandem
Capital, Inc., a wholly-owned subsidiary of Sirrom. These
shares include 333,250 shares of Common Stock underlying
25,000 shares of Series A Preferred Stock that are presently
convertible and 166,410 shares of Common Stock underlying a
presently exercisable warrant to purchase shares of Common
Stock.
(8) Includes options to purchase 1,000 shares of Common Stock
held under the Company's Incentive Stock Option plan that
are presently exercisable.
PAGE 6
<PAGE>
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of
Directors of the Company shall consist of not less than three nor
more than ten directors. Within the foregoing limits, the Board
of Directors may, from time to time, fix the number of directors.
The Board of Directors of the Company has fixed the number of
directors at five directors.
At the 1998 Annual Meeting, five directors shall be elected
to serve for a one-year term and until their successors are
elected and qualified. The holders of the Common Stock and the
holders of the Series A Preferred Stock shall vote as a single
class to elect four of the five directors to be elected at the
Annual Meeting. The holders of the Series A Preferred Stock are
entitled to vote as a separate class to elect the Preferred
Director.
Unless otherwise instructed, the Board of Directors'
proxyholders will vote the proxies received "FOR" the election of
the five Board of Directors' nominees named below. If any
nominee should become unable to serve for any reason, proxies
will be voted in favor of a substitute nominee as the Board of
Directors of the Company shall determine. The Board of Directors
has no reason to believe that any of the nominees named will be
unable to serve, if elected.
There is no cumulative voting for the election of directors.
Each share of Common Stock is entitled to cast one vote for each
nominee. Each share of Series A Preferred Stock is entitled to
the number of votes which equals the Conversion Ratio. See
"GENERAL -- Voting Securities, Record Date and Quorum."
In the event that either (i) the Company fails pay to a
$2.75 per share quarterly dividend to the holders of the Series A
Preferred Stock (the "Preferred Dividend") for six consecutive
quarters or (ii) the aggregate amount of accumulated and unpaid
Preferred Dividends totals $16.50 per share, the holders of the
Series A Preferred Stock shall have the right immediately to
elect that number of members to the Board of Directors as shall
constitute a majority of the Board of Directors. As of the
Record Date, the Company has paid the holders of the Preferred
Stock all dividends as required by the terms of the Preferred
Stock.
The four nominees who receive the highest number of votes
cast by the holders of the Common Stock and the Series A
Preferred Stock voting as a single class at the Annual Meeting
will be elected as directors. The nominee who receives the
highest number of votes cast by the holders of the Series A
Preferred Stock voting as a separate class at the Annual Meeting
will be elected as the Preferred Director. Abstentions and
broker non-votes will not constitute or be counted as votes cast
for purposes of the Annual Meeting. <PAGE 7>
The following table sets forth certain information with
respect to the Board of Directors' nominees for director. Each
of the following nominees presently serves as a director of the
Company.
Principal
Occupations
Served as and Positions
Director and Offices
Name Age Since with the Company
William F. Mitchell(1) 57 1969 Chairman of the Board,
President and Director
Richard E. McAdams(2) 63 1985 Executive Vice
President and Director
Philip L. Wagner, Ph. D.(3) 62 1993 Director
Pete L. Stephens, M.D.(4) 61 1974 Director
Craig MacNab(5) 42 1997 Director
(Preferred Director)
____________________
(1) Mr. Mitchell has been Chairman of the Board, President and
Chief Executive Officer of the Company since 1969, except
for the period from January 24, 1986 through January 24,
1987, when he was engaged principally in soliciting sales
for the Company's products in the overseas markets.
(2) Mr. McAdams has been with the Company since 1970. He became
a Vice President in 1978, and an Executive Vice President in
1990, with responsibility for contract administration.
(3) Dr. Wagner is an organic chemist with over 30 years of
diversified experience managing research and development and
new business development at E.I. du Pont de Nemours &
Company. In November 1992, he founded Chadds Ford
Technologies, Inc., a consulting firm. He is currently
President of Chadds Ford Technologies, Inc.
(4) Dr. Stephens has been a physician engaged in the private
practice of medicine for over 30 years.
(5) Craig MacNab has served as Director of the Company since
June 1997. Since January 1997, Mr. MacNab has been the
President of Tandem Capital, Inc., a subsidiary of Sirrom,
which makes investments in micro-cap public companies. From
1993 to 1996, Mr. MacNab served as the general partner of
MacNiel Advisors, Inc., the general partner of three private
funds that invested in the publicly traded securities of
small public companies. From 1987 to 1993, Mr. MacNab was a
partner of J.C. Bradford & Co., a regional brokerage firm,
jointly responsible for the merger and acquisition <PAGE 8>
department and a private mezzanine capital fund. From 1981
to 1987, Mr. MacNab was employed by Lazard Freres & Co.
Mr. MacNab is also a director of JDN Realty, Smart Choice
Automotive Group and Teltronics, Inc.
During the year ended February 27, 1998, the Company had an
Audit Committee and a Compensation Committee. The Audit
Committee is charged with reviewing and overseeing the Company's
financial systems and internal control procedures and conferring
with the Company's independent accountants with respect thereto.
The Compensation Committee is charged with reviewing the
compensation of officers and key personnel. During the year
ended February 27, 1998, Messrs. Mitchell, Stephens and Wagner
served on the Audit Committee and Messrs. Stevens, Wagner and
McNab served on the Compensation Committee. The Company does not
have a standing nominating committee.
During the year ended February 27, 1998 the Board of
Directors held five meetings and the Audit and Compensation
Committees each held one meeting. All Members of the Board
attended all of the meetings of the Board held while they were
members of the Board. All Members of the Audit and Compensation
Committees attended all meetings of the Committees held while
they were members thereof.
COMPENSATION OF DIRECTORS AND OFFICERS
The following table sets forth compensation paid by the
Company to the Chief Executive Officer for services rendered
during fiscal years 1998, 1997 and 1996. There are no other
executive officers whose total annual salary and bonus exceeded
$100,000 for such fiscal years. The footnotes to the table
provide additional information concerning the Company's
compensation and benefit programs.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Other
Name and Annual All Other
Principal Fiscal Compensation Compensation
Position Year Salary($) Bonus($) ($)(1) ($)(2)
<S> <C> <C> <C> <C> <C>
William F. 1998 $178,450 0 0 $3,876
Mitchell 1997 113,780 0 0 2,731
President and 1996 119,531 0 0 2,473
Chief Executive
Officer
</TABLE>
___________________
(1) The Company's executive officers receive certain
perquisites. For fiscal years 1998, 1997 and 1996, these
perquisites received by Mr. Mitchell did not exceed the
lesser of $50,000 or 10% of his salary and bonus. <PAGE 9>
(2) These amounts represent the Company's contribution to the
Retirement Savings Plan.
Directors of the Company who are not officers of the Company
are paid $600 for Board of Directors meetings which they attend.
Additional compensation is not paid for committee meetings.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and
the American Stock Exchange. Officers, directors and greater
than ten percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) Forms they
file. The rules of the SEC regarding the filing of such
statements require that "late filings" of such statements be
disclosed in the Company's proxy statement.
Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, the
Company believes that, during the fiscal year ended February 27,
1998, the Company's directors, officers and greater than ten
percent beneficial owners complied with all applicable filing
requirements.
PAGE 10
<PAGE>
PROPOSAL TO APPROVE
THE ENVIRONMENTAL TECTONICS CORPORATION
1998 STOCK OPTION PLAN
Description of the 1998 Stock Option Plan
The Board of Directors of the Company (the "Board") has
adopted the 1998 Stock Option Plan, subject to shareholder
approval, for the purpose of helping the Company attract, retain
and motivate talented employees and to induce selected
individuals to make substantial contributions to the success of
its business.
Shareholders have previously authorized grants of options to
employees under the 1988 Incentive Stock Option Plan (the "1988
Stock Option Plan"). The 1988 Stock Option Plan expired by its
terms on August 24, 1998, and no further options may be granted
thereunder.
The adoption of the Stock Option Plan should have a positive
effect on the Company's ability to attract, motivate and retain
employees of outstanding leadership and management ability. By
encouraging ownership of Common Stock by those who play
significant roles in the Company's success, the Stock Option Plan
will have the effect of more closely aligning the interests of
the Company's executive management team with those of its
shareholders. Management believes this improves the performance
of the Company and its subsidiaries and, by doing so, serves the
interests of the Company and its shareholders.
The principal features of the Stock Option Plan are
summarized below. The summary is qualified in its entirety by
reference to the full text of the Stock Option Plan which is
appended as Exhibit "A" to this Proxy Statement.
The Stock Option Plan authorizes a committee (the
"Committee") of the Board to grant options for the purchase of up
to 500,000 shares of Common Stock. The Committee has the
authority to grant options under the Stock Option Plan, subject
to the ratification of a majority of the disinterested members of
the Board. Eligible employees will be selected to receive a
grant of options based upon the recommendation of the Company's
chief executive officer (except as to himself). Under the Stock
Option Plan, the Committee will determine the vesting schedule
with respect to the exercisability of the options granted. Any
shares as to which an option expires, lapses unexercised, or is
terminated or canceled, may be subject to a new option. The
Stock Option Plan authorizes the Committee to otherwise
administer and interpret the Stock Option Plan, subject to the
ratification of a majority of disinterested members of the Board.
The Committee will be composed of at least two members of
the Board who serve at the discretion of the Board. Members of
the Committee are each required to be "non-employee directors" as
<PAGE 11> such term is defined under the rules and regulations
adopted by the Securities and Exchange Commission and "outside
directors" as such term is defined in Section 162(m) of the Code.
Under the Stock Option Plan, both incentive stock options
(as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) and nonqualified stock options may be
granted to eligible employees of the Company and its
subsidiaries. No person who owns immediately before the grant of
an incentive stock option, directly or indirectly, more than 10
percent of the total combined voting power of all classes of
Common Stock, is eligible for the grant of an incentive stock
option, unless such option (i) is limited to a term of not more
than five years, and (ii) contains an exercise price of 110% of
the fair market value of the related Common Stock on the grant
date.
The exercise price for options granted under the Stock
Option Plan will be the fair market value of the stock underlying
the option on the date the option is granted; provided, however,
that the exercise price for options granted to an individual who
owns more than 10% of the total combined voting power of all
classes of outstanding stock of the Company (a "10% Shareholder")
will be 110% of the fair market value of the stock underlying the
option on the date the option is granted. Therefore, no dollar
value or gain to the optionee is possible without appreciation in
the stock price after the date the option is granted.
Incentive stock options granted under the Stock Option Plan
may be exercised for 10 years after the date of grant; provided,
however, that each incentive stock option granted to a 10%
Shareholder may be exercised for 5 years after the date of grant.
Nonqualified stock options granted under the Stock Option Plan
may be exercised for 10 years and 1 month after the date of
grant. The aggregate fair market value (determined at the time
the option is granted) of the shares of Common Stock with respect
to which incentive stock options are exercisable for the first
time by an optionee during any calendar year may not exceed
$100,000. No eligible employee may receive option grants in
excess of 100,000 shares under the Stock Option Plan in any
twelve month period. No option may be transferred by the
optionee other than by will or by the laws of descent and
distribution, and each option is exercisable during the
optionee's lifetime only by the optionee.
Under the Stock Option Plan, in the event of an optionee's
retirement, incentive stock options lapse at the earlier of three
months from the date of retirement or the term of the option,
while nonqualified options may continue to be exercised during
the term of the option up to 24 months, at the discretion of the
Committee, from the date of retirement. In the event of the
termination of an optionee's options due to death or disability,
the optionee's options may be exercised until the earlier of the
term of the option or six months after such termination of
employment. <PAGE 12>
If an event of "Cause" occurs with respect to an optionee,
all options granted to such optionee are forfeited immediately.
Under the Stock Option Plan, termination for "Cause" means that
an optionee (i) is convicted of, or enters a plea of nolo
contendere to, a felony, a crime of fraud or other dishonesty
with respect to the Company, a subsidiary or any successor to
either, or (ii) wilfully fails to follow the lawful instructions
of the Board after receipt by the optionee of written notice of
such instructions, other than a failure resulting from the
optionee's incapacity due to physical or mental illness. If an
optionee's employment is terminated other than as a result of
death, disability or retirement and there is no event of "Cause,"
all options lapse as of the date of termination.
At the election of the holder of a nonqualified option and
subject to the rules established by the Committee, any required
withholding taxes may be satisfied, in whole or in part, by the
Company withholding shares of Common Stock issued on the exercise
of a nonqualified stock option which have a fair market value
equal to or less than any required withholding taxes.
The Board may amend, suspend or terminate the Stock Option
Plan at any time without shareholder approval, subject to the
requirements of applicable securities and corporate laws;
provided, however, that the Board may not terminate, modify or
amend the Stock Option Plan with respect to any outstanding
option or impair or cancel any outstanding option without the
consent of the affected optionee.
Tax Consequences
The Stock Option Plan permits eligible employees of the
Company and its subsidiaries to receive grants of incentive stock
options, which qualify for certain tax benefits. In addition,
the Stock Option Plan permits eligible employees of the Company
to receive grants of nonqualified stock options, which do not
qualify for such tax benefits.
The Stock Option Plan is not a qualified plan under Code
Section 401 (a). the Company has been advised that under the
Code, the following federal income tax consequences will result
when incentive stock options or nonqualified stock options, or
any combination thereof, are granted or exercised, although the
following is not intended to be a complete statement of the
applicable law.
Incentive Stock Options. An optionee generally will not be
deemed to receive any income for federal tax purposes at the time
an incentive stock option is granted, nor will the Company be
entitled to a tax deduction at that time. Upon the sale or
exchange of the shares at least two years after the grant of the
option and one year after receipt of the shares by the optionee
upon exercise, the optionee will recognize long-term capital gain
or loss upon the sale of such shares equal to the difference
between the amount realized on such sale and the exercise price.
<PAGE 13>
If the foregoing holding periods are not satisfied or the
option is exercised more than three months after the optionee's
employment with the Company has terminated, the optionee will
recognize ordinary income equal to the difference between the
exercise price and the lower of the fair market value of the
stock at the date of the option exercise or the sale price of the
stock. If the sale price exceeds the fair market value on the
date of exercise, the gain in excess of the ordinary income
portion will be treated as either long-term or short-term capital
gain, depending on whether the stock has been held for more than
12 months on the date of sale. Any loss on disposition is a
long-term or short-term capital loss, depending upon whether the
optionee had held the stock for more than 12 months. A different
rule for measuring ordinary income upon such a premature
disposition may apply if the optionee is a director or 10 percent
shareholder of the Company or an officer of the Company subject
to Section 16(b) of the Securities Exchange Act of 1934. If the
Company cancels an option, the optionee recognizes income to the
extent of the amount paid by the Company to cancel the option
over the optionee's basis in such option, if any. The tax rate
applicable to any capital gain treatment depends on the number of
months the property is held prior to its disposition and the tax
bracket of the optionee.
No income tax deduction will be allowed the Company with
respect to shares purchased by an optionee upon the exercise of
an incentive stock option, provided that such shares are held at
least two years after the date of grant and at least one year
after the date of exercise. However, if the holding periods are
not satisfied, the Company may deduct an amount equal to the
ordinary income recognized by the optionee upon disposition of
the shares.
The exercise of an incentive stock option and the sale of
stock acquired by such exercise could subject an optionee to
alternative minimum tax liability for federal income tax
purposes.
Nonqualified Stock Options. An optionee will not be deemed
to receive any income for federal tax purposes at the time a
nonqualified stock option is granted, nor will the Company be
entitled to a tax deduction at that time. At the time of
exercise, however, the optionee will realize ordinary income in
an amount equal to the excess of the market value of the shares
at the time of exercise of the option over the option price of
such shares. The Company is allowed a federal income tax
deduction in an amount equal to the ordinary income recognized by
the optionee due to the exercise of a non-qualified stock option
at the time of such recognition by the optionee.
Stock-for-Stock Exchange. An optionee who exchanges
"statutory option stock" of the Company in payment of the
<PAGE 14> purchase price upon the exercise of an incentive stock
option will be deemed to make a "disqualifying disposition" of
the statutory option stock so transferred unless the applicable
holding requirements (two years from the date of the grant and
one year after the exercise of an incentive option) with respect
to such statutory option stock are met after the exercise of
incentive stock options but also upon the exercise of qualified
stock options and stock acquired under certain other stock
purchase plans. If an optionee exercises nonqualified stock
options by exchanging previously-owned statutory option stock,
the Internal Revenue Service has ruled that the optionee will not
recognize gain on the disposition of the statutory option stock
(assuming the holding period requirements applicable to such
statutory option stock have been satisfied) because of the non-
recognition rule of Code Section 1036.
No grant of options under the proposed Stock Option Plan has
been made, and no options would have been granted under the Stock
Option Plan during the Company's fiscal year ended February 27,
1998 had the Plan been in effect.
If the Stock Option Plan is approved by the shareholders,
the Company anticipates that the Plan will be registered with the
Securities and Exchange Commission and with any applicable state
securities commission where registration is required. The cost
of such registrations will be borne by the Company.
As provided above, only key employees of the Company and its
subsidiaries will be eligible to receive stock options under the
Stock Option Plan at the discretion of the Board.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
FOR ADOPTION OF THE STOCK OPTION PLAN. The affirmative vote of
a majority of all votes cast at the Annual Meeting is required to
adopt the Stock Option Plan. Abstentions and broker non-votes
will not constitute or be counted as "votes" cast for purposes of
the Annual Meeting. All proxies will be voted "FOR" adoption of
the Stock Option Plan unless a shareholder specifies to the
contrary on such shareholder's proxy card.
PAGE 15
<PAGE>
THE COMPANY'S AUDITORS
Under the Company's Bylaws and the governing law, authority
to select the Company's independent accountants rests with the
Board of Directors. Such selection is made through formal act of
the Board of Directors. It has not been and is not the Company's
policy to submit selection of its auditors to the vote of the
shareholders because there is no legal requirement to do so.
Grant Thornton LLP was the Company's auditors for the fiscal
years ended February 28, 1997 and February 27, 1998. Auditors
have not been selected for the current fiscal year. A
representative of Grant Thornton is expected to be present at the
Annual Meeting and will be given an opportunity to make a
statement to the shareholders, if he desires to do so. Such
representative will also be available to answer appropriate
questions from shareholders.
SOLICITATION OF PROXIES
The Company has provided proxy materials to brokers,
custodians, nominees, and fiduciaries and requested that such
materials be forwarded to the beneficial owners of stock
registered in the names of such brokers, custodians, nominees,
and fiduciaries. In addition, solicitation of proxies may be
made by officers, directors, and regular employees of the Company
by personal interview, mail, telephone, and telegraph. The cost
of soliciting proxies and related services will be borne by the
Company.
SHAREHOLDER PROPOSALS
Proposals which shareholders desire to have included in the
Proxy Statement for the 1999 Annual Meeting of Shareholders must
be received at the Company's executive offices, County Line
Industrial Park, Southampton, Pennsylvania 18966 on or before
May 14, 1999.
OTHER MATTERS
The Company knows of no other business which will be
presented for consideration at the meeting. However, if other
matters come before the meeting, it is the intention of the
proxyholders to vote upon such matters as they, in their
discretion, may determine.
The Company's Annual Report to the Shareholders for the year
ended February 27, 1998, is enclosed. Each person solicited
hereunder can obtain a copy of the Company's Annual Report on
Form 10-K for the year ended February 27, 1998, as filed with the
Securities and Exchange Commission, without charge, except for
exhibits to the report, by sending a written request to
<PAGE 16> Environmental Tectonics Corporation, County Line
Industrial Park, Southampton, Pennsylvania 18966, Attention:
Ann M. Allen, Secretary.
By Order of the Board of Directors
ANN M. ALLEN, Secretary
___________________________
PAGE 17
<PAGE>
EXHIBIT A
ENVIRONMENTAL TECTONICS CORPORATION
1998 STOCK OPTION PLAN
PAGE A1
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
Article 1. PURPOSE OF THE PLAN; TYPE OF OPTIONS.......
Article 2. DEFINITIONS................................
Article 3. ADMINISTRATION OF THE PLAN.................
Article 4. COMMON STOCK SUBJECT TO THE PLAN...........
Article 5. STOCK OPTIONS..............................
Article 6. ELIGIBILITY................................
Article 7. TERM, VESTING AND EXERCISE OF OPTIONS......
Article 8. TERMINATION OF EMPLOYMENT..................
Article 9. ADJUSTMENT PROVISIONS......................
Article 10. GENERAL PROVISIONS.........................
PAGE A2
<PAGE>
ARTICLE 1. PURPOSE OF THE PLAN; TYPE OF OPTIONS
1.1 Purpose. The Environmental Tectonics Corporation 1998
Stock Option Plan is intended to provide selected Employees of
Environmental Tectonics Corporation and its Subsidiaries an
opportunity to acquire Common Stock of the Corporation. The Plan
is designed to help the Corporation attract, retain and motivate
talented employees and to induce selected individuals to make
substantial contributions to the success of its business.
1.2 Stock Options to be Granted. Incentive Stock Options
and Nonqualified Stock Options may be granted within the
limitations of the Plan herein described.
ARTICLE 2. DEFINITIONS
2.1 "Agreement" means the written instrument evidencing the
grant of an Option. A Participant may be issued one or more
Agreements from time to time, reflecting one or more Options.
2.2 "Board" means the Board of Directors of the
Corporation.
2.3 "Cause" means that an Optionee (i) is convicted of, or
enters a plea of nolo contendere to, (A) a felony or (B) a crime
of fraud or other dishonesty with respect to the Corporation, a
Subsidiary, or any successor to either, or (ii) wilfully fails to
follow the lawful instructions of the Board after the Optionee's
receipt of written notice of such instructions, other than a
failure resulting from the Optionee's incapacity because of
physical or mental illness.
2.4 "Code" means the Internal Revenue Code of 1986, as
amended and as the same may hereafter be amended, and the
regulations promulgated thereunder.
2.5 "Committee" means the Committee which the Board
appoints to administer the Plan in accordance with the provisions
of Section 3.1.
2.6 "Common Stock" means the common stock of the
Corporation ($0.10 par value) as described in the Corporation's
Articles of Incorporation, or such other stock as shall be
substituted therefor.
2.7 "Corporation" means Environmental Tectonics
Corporation, a Pennsylvania corporation.
2.8 "Effective Date" means the date specified in Section
10.1.
2.9 "Employee" means any common law employee of the
Corporation or a Subsidiary who is considered to be a "key
<PAGE A3> employee" and regularly works on a substantially full-
time basis, as determined by the Committee from time to time.
2.10 "Exchange Act" means the Securities Exchange Act of
1934, as amended and as the same may hereafter be amended, and
the regulations promulgated thereunder.
2.11 "Exercise Price" means the price per share applicable
to an Option, as determined pursuant to Section 5.1.
2.12 "Incentive Stock Option" means a Stock Option intended
to satisfy the requirements of Code Section 422(b).
2.13 "Nonqualified Stock Option" means a Stock Option other
than an Incentive Stock Option.
2.14 "Optionee" means a Participant who is awarded a Stock
Option pursuant to the provisions of the Plan. Such term also
includes any person holding an Option as a permitted successor or
transferee of such a Participant.
2.15 "Participant" means an Employee selected by the
Committee to receive a grant of an Option under the Plan.
2.16 "Plan" means the Environmental Tectonics Corporation
1998 Stock Option Plan.
2.17 "Retirement" means termination of employment upon or
following the attainment of age 65.
2.18 "Securities Act" means the Securities Act of 1933, as
amended and as the same may hereafter be amended, and the
regulations promulgated thereunder.
2.19 "Stock Option" or "Option" means an award of a right
to purchase Common Stock pursuant to the provisions of the Plan.
2.20 "Subsidiary" means a "subsidiary corporation," as
defined in Code Section 424(f), that is a subsidiary of the
Corporation or, as the context requires, another corporation.
ARTICLE 3. ADMINISTRATION OF THE PLAN
3.1 The Committee. The Plan shall be administered by a
committee of the Board composed of two or more members all of
whom are (i) "non-employee directors," as such term is defined
under the rules and regulations adopted from time to time by the
Securities and Exchange Commission pursuant to Section 16(b) of
the Exchange Act, and (ii) "outside directors," within the
meaning of Code Section 162(m). The Board may from time to time
remove members from, or add members to, the Committee. Vacancies
on the Committee, howsoever caused, shall be filled by the Board.
<PAGE A4>
3.2 Powers of the Committee.
(a) The Committee shall be vested with full authority
to make such rules and regulations as it deems necessary or
desirable to administer the Plan and to interpret the
provisions of the Plan, unless otherwise determined by a
majority of the disinterested members of the Board. Any
determination, decision or action of the Committee in
connection with the construction, interpretation,
administration or application of the Plan shall be final,
conclusive and binding upon all Optionees and any person
claiming under or through an Optionee, unless otherwise
determined by a majority of the disinterested members of the
Board.
(b) Subject to the terms, provisions and conditions of
the Plan and subject to ratification by a majority of the
disinterested members of the Board, the Committee shall have
exclusive jurisdiction to:
(i) determine and select, based upon the
recommendation of the Corporation's Chief Executive
Officer (except as to himself), the Employees to be
granted Options (it being understood that more than one
Option may be granted to the same person);
(ii) determine the number of shares of Common
Stock subject to each Option;
(iii) determine the date or dates when the
Options will be granted, which dates shall not be
earlier than the date of Board ratification;
(iv) determine the Exercise Price of the shares
subject to each Option;
(v) determine the date or dates when each Option
may be exercised within the term of the Option
specified pursuant to Article 7;
(vi) determine whether or not an Option
constitutes an Incentive Stock Option; and
(vii) prescribe the form, which shall be
consistent with this Plan document, of the Agreement
evidencing any Options granted under the Plan.
3.3 Terms. The grant of an Option under the Plan shall be
evidenced by an Agreement and may include any terms and
conditions that are not inconsistent with this Plan document, as
the Committee may determine.
3.4 Liability. No member of the Board or the Committee
shall be liable for any action or determination made in good
<PAGE A5> faith by the Board or the Committee with respect to the
Plan or any Options granted under the Plan.
ARTICLE 4. COMMON STOCK SUBJECT TO THE PLAN
4.1 Common Stock Authorized. The aggregate number of
shares of Common Stock for which Options may be granted under the
Plan shall not exceed 500,000 shares. The limitation established
by the preceding sentence shall be subject to adjustment as
provided in Article 9.
4.2 Shares Available. The capital stock to be issued upon
exercise of Options granted under the Plan shall be the
Corporation's Common Stock which shall be made available, at the
discretion of the Board, either from authorized but unissued
Common Stock or from Common Stock acquired by the Corporation.
In the event that any outstanding Option under the Plan for any
reason expires or is terminated, the shares of Common Stock
allocable to the unexercised portion of such Option may
thereafter be made subject to another Option.
ARTICLE 5. STOCK OPTIONS
5.1 Exercise Price. The Exercise Price of a Stock Option
shall be, in the case of an Incentive Stock Option, 100 percent
of the fair market value of one share of Common Stock on the date
the Option is granted, except that the Exercise Price shall be
110 percent of such fair market value in the case of an Incentive
Stock Option granted to any individual described in Section 6.2.
The Exercise Price of a Stock Option shall be, in the case of a
Nonqualified Stock Option, not less than 100 percent of the fair
market value of one share of Common Stock on the date the Option
is granted. The Exercise Price of an Option shall be subject to
adjustment only as provided in Article 9.
5.2 Limitation on Incentive Stock Options. The aggregate
fair market value (determined as of the date an Option is
granted) of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by any
individual in any calendar year (under the Plan and all other
plans maintained by the Corporation and its Subsidiaries) shall
not exceed $100,000.
5.3 Determination of Fair Market Value.
(a) During such time as Common Stock is not listed on
an established stock exchange or exchanges but is listed on
the NASDAQ National Market System, the fair market value per
share shall be the closing sale price for a share of the
Common Stock on the day the Option is granted. If no sale
of Common Stock occurs on that day, the fair market value
shall be determined by reference to such price for the next
preceding day on which a sale occurred. <PAGE A6>
(b) During such time as the Common Stock is not listed
on an established stock exchange or on the NASDAQ National
Market System, the fair market value per share shall be the
mean between the closing dealer "bid" and "asked" prices for
a share of the Common Stock on the day the Option is
granted. If no "bid" and "asked" prices are quoted for the
day of the grant, the fair market value shall be determined
by reference to such prices on the next preceding day on
which such prices were quoted.
(c) If the Common Stock is listed on an established
stock exchange or exchanges, the fair market value shall be
the composite closing price of a share of the Common Stock
on such stock exchange or exchanges on the day the Option is
granted. If no sale of Common Stock occurs on that day, the
fair market value shall be determined by reference to such
price for the next preceding day on which a sale occurred.
(d) In the event that the Common Stock is not listed
on an established stock exchange or traded on the NASDAQ
National Market System, and no closing dealer "bid" and
"asked" prices are available on the date of a grant, then
fair market value shall be the price established by the
Committee in good faith.
5.4 Limitation on Grants. Grants to any Employee under the
Plan shall not exceed, in the aggregate, Options to purchase more
than 100,000 shares of Common Stock during any period of 12
consecutive months. Such limitation shall be subject to
adjustment in the manner described in Article 9.
5.5 Transferability of Options. Unless otherwise
designated by the Committee to the contrary, each Option granted
under the Plan shall by its terms be nontransferable by the
Optionee (except by will or the laws of descent and
distribution), and each Option shall be exercisable during the
Optionee's lifetime only by the Optionee, his guardian or his
legal representative, or by such other means as the Committee may
approve from time to time that is not inconsistent with or
contrary to the provisions of applicable law.
5.6 Beneficiary Designation. An Optionee may, from time to
time, designate in writing a beneficiary to exercise his Stock
Option(s) after the Optionee's death. Any change in such
beneficiary designation shall not become effective unless it is
executed by the Optionee and filed with the Secretary of the
Corporation prior to his death.
<PAGE A7>
ARTICLE 6. ELIGIBILITY
6.1 Participation. Options shall be granted only to
persons who are Employees, as determined by the Committee, based
upon the recommendation of the Chief Executive Officer (except as
to himself) and ratified by a majority of the disinterested
members of the Board.
6.2 Incentive Stock Option Eligibility Restrictions.
Notwithstanding any other provision of the Plan, an individual
who owns more than 10 percent of the total combined voting power
of all classes of outstanding stock of the Corporation shall not
be eligible for the grant of an Incentive Stock Option, unless
the special requirements set forth in Sections 5.1 and 7.1 of the
Plan are satisfied. For purposes of this section, in determining
stock ownership, an individual shall be considered as owning 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. Stock owned, directly or indirectly, by
or for a corporation, partnership, estate or trust shall be
considered as being owned proportionately by or for its
shareholders, partners or beneficiaries. "Outstanding stock"
shall include all stock actually issued and outstanding
immediately before the grant of the Option. "Outstanding stock"
shall not include shares authorized for issue under outstanding
Options held by the Optionee or by any other person.
ARTICLE 7. TERM, VESTING AND EXERCISE OF OPTIONS
7.1 Term and Vesting.
(a) Each Option granted under the Plan shall terminate
on the date determined by the Committee, approved by a
majority of the disinterested members of the Board and
specified in the relevant Agreement; provided, however, that
(i) each intended Incentive Stock Option granted to an
individual described in Section 6.2 of the Plan shall
terminate not later than five years after the date of the
grant, (ii) each other intended Incentive Stock Option shall
terminate not later than ten years after the date of grant,
and (iii) each Option granted under the Plan which is
intended to be a Nonqualified Stock Option shall terminate
not later than ten years and one month after the date of
grant. Each Option granted under the Plan shall be
exercisable and shall be subject to forfeiture in accordance
with the provisions determined by the Committee in
connection with the grant and set forth in the relevant
Agreement. An Option may be exercised only during the
continuance of the Optionee's employment, except as provided
in Article 8.
(b) In the event the Agreement issued to an Optionee
fails to specify a vesting schedule with respect to the
<PAGE A8> exercisability of the Option granted thereby, such
schedule shall be as follows:
Continuous Employment
With Corporation and/
or Subsidiary Following Percentage of Option
Date of Grant Exercisable
Less than 1 year 0
At least 1 year, but
less than 2 years 25
At least 2 years, but
less than 3 years 50
At least 3 years, but
less than 4 years 75
At least 4 years 100
For purposes of this vesting schedule and any vesting
schedule described or set forth in an Agreement, continuous
employment shall be deemed to have terminated if an Optionee
ceases to work on a substantially full-time basis, as
determined from time to time by the Committee. The
Committee may, subject to such conditions as it may specify,
treat approved temporary leaves of absence as not
constituting a termination of employment for Plan purposes.
(c) Notwithstanding any vesting provision herein or in
an Agreement to the contrary, an Optionee shall be deemed
100% vested in all of his Options upon termination of
employment under a circumstance described in Section 8.1 or
8.2.
7.2 Exercise.
(a) A person electing to exercise an Option shall give
written notice to the Corporation of such election and of
the number of shares of Common Stock he has elected to
purchase, in such form as the Committee shall have
prescribed or approved, and shall at the time of exercise
tender, in cash, the full Exercise Price of the shares to be
purchased.
(b) A person holding more than one Option at any
relevant time may elect to exercise such Options in any
order.
(c) At the request of a Participant and to the extent
permitted by applicable law, the Corporation may, in its
sole discretion, selectively approve arrangements with a
brokerage firm under which such brokerage firm, on behalf of
the Participant, shall pay to the Corporation the Exercise
Price of the Stock Option being exercised (and any required
withholding taxes), and the Corporation, pursuant to an
irrevocable notice from the Participant, shall promptly
deliver the shares being purchased to such firm. <PAGE A9>
7.3 Forfeiture for Cause. If an event of Cause occurs with
respect to an Optionee, all unexercised Options (vested and
nonvested) held by him (or any person claiming under or through
him) shall be forfeited immediately.
ARTICLE 8. TERMINATION OF EMPLOYMENT
8.1 Retirement. Except as otherwise provided in Section
8.5, in the event of an Optionee's Retirement, his Options shall
lapse at the earlier of (i) the expiration of the Options'
respective terms, or (ii) (A) in the case of an Incentive Stock
Option, three months following the date of Retirement, and (B) in
the case of a Nonqualified Stock Option, at the discretion of the
Committee and as specified in the relevant Agreement, up to 24
months following the date of Retirement.
8.2 Death or Disability. In the event of an Optionee's
termination of employment due to death or "disability," as
defined in Code Section 72(m)(7), his Options may be exercised
shall lapse at the earlier of (i) the expiration of each Option's
respective term, or (ii) six months after termination due to such
cause.
8.3 Other Termination. Except as otherwise provided in
Section 8.4, in the event of termination of an Optionee's
employment for any reason other than is described in Section 8.1
or 8.2, all Options (vested and unvested) shall lapse as of the
date of termination.
8.4 Special Termination Provisions.
(a) Notwithstanding anything herein to the contrary,
the Committee may, in its discretion and subject to the
approval of a majority of the disinterested members of the
Board, waive any vesting provisions applicable to an Option
held by a terminated Optionee who has not satisfied the same
prior to termination. Any such waiver may be made with
retroactive effect, provided it is made within 60 days
following the Optionee's termination of employment.
(b) Notwithstanding anything herein to the contrary,
the Committee may, in its discretion and subject to the
approval of a majority of the disinterested members of the
Board, waive the lapse provisions otherwise applicable to a
vested Option and permit the exercise thereof until a date
which is no later than the earlier of (i) the expiration of
the term of such Option, or (ii) one year following the date
of termination of the Optionee's employment.
8.5 Transfer of Employee, Etc. An Employee's employment
shall not be deemed to be terminated, for purposes of the Plan,
if he is transferred between or among the Corporation and any of
its Subsidiaries, nor shall termination of employment be deemed
to have taken place solely by reason of the occurrence of a
<PAGE A10> transaction pursuant to which any entity acquires all
or substantially all of the Corporation's assets by operation of
law or otherwise, provided the employment relationship continues
with the acquiror or a company affiliated with the acquiror.
ARTICLE 9. ADJUSTMENT PROVISIONS
9.1 Share and Exercise Price Adjustments.
(a) In the event that the shares of Common Stock, as
presently constituted, shall be changed into or exchanged
for a different number or kind of shares of stock or other
securities of the Corporation or of another corporation
(whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of
shares or otherwise) or if the number of such shares of
Common Stock shall be increased through the payment of a
stock dividend or split, then there shall be substituted for
or added to each share of Common Stock which was theretofore
appropriated, or which thereafter may become subject to an
Option under the Plan, the number and kind of shares of
stock or other securities into which each outstanding share
of the Common Stock shall be so changed or for which each
such share shall be exchanged or to which each such share
shall be entitled, as the case may be. Outstanding Options
shall also be appropriately amended, as to Exercise Price
and other terms, as may be necessary to reflect the
foregoing events.
(b) If there shall be any other change in the number
or kind of the outstanding shares of the Common Stock, or of
any stock or other securities in which such stock shall have
been changed, or for which it shall have been exchanged, and
if a majority of the disinterested members of the Board
shall, in its sole discretion, determine that such change
equitably requires an adjustment in any Option which was
theretofore granted or which may thereafter be granted under
the Plan, then such adjustment shall be made in accordance
with such determination.
(c) The grant of an Option pursuant to the Plan shall
not affect in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge, to
consolidate, to dissolve, to liquidate or to sell or
transfer all or any part of its business or assets.
9.2 Corporate Changes. Notwithstanding the provisions of
Section 9.1, a dissolution or liquidation of the Corporation, or
a merger or consolidation in which the Corporation is not the
surviving corporation, shall cause each outstanding Option to
terminate, except to the extent that another corporation may and
does in the transaction assume and continue the Option or
substitute its own options. <PAGE A11>
9.3 Fractional Shares. Fractional shares resulting from
any adjustment in Options pursuant to this article may be settled
as a majority of the disinterested members of the Board shall
determine.
9.4 Binding Determination. To the extent that the
foregoing adjustments relate to stock or securities of the
Corporation, such adjustments shall be made by a majority of the
disinterested members of the Board, whose determination in that
respect shall be final, binding and conclusive. Notice of any
adjustment shall be given by the Corporation to each holder of an
Option which shall have been so adjusted.
ARTICLE 10. GENERAL PROVISIONS
10.1 Effective Date. The Plan shall become effective on
August 1, 1998, provided that any grant of Options is subject to
the approval of the Plan by the shareholders of the Corporation
within 12 months thereafter.
10.2 Termination of the Plan. Unless sooner terminated by
the Board, the Plan shall terminate on, and no Options shall be
granted after, the tenth anniversary of its Effective Date.
10.3 Limitation on Termination, Amendment, Modification or
Suspension of Plan.
(a) The Board may at any time terminate, amend, modify
or suspend the Plan; provided, however, that no amendment or
modification shall be made solely by the Board if it is also
required to be approved by the Corporation's shareholders
under any applicable securities or corporate law.
(b) Except as otherwise provided herein, no
termination, amendment, modification or suspension of the
Plan shall in any manner adversely affect any Option
theretofore granted under the Plan without the consent of
the Optionee or any person validly claiming under or through
the Optionee.
10.4 No Right to Employment. Neither anything contained in
this Plan document, nor the grant of any Option hereunder, shall
confer upon any Optionee the right to continue in the employ of
the Corporation or of any Subsidiary or limit in any respect the
right of the Corporation or of any Subsidiary to terminate the
Optionee's employment at any time and for any reason.
10.5 No Right to Grant of Options. Nothing in this Plan
document shall be construed as requiring that an Option be
granted to any particular individual, regardless of such
individual's position with the Corporation or any Subsidiary.
10.6 Withholding Taxes. Subject to the provisions of
Subsection (b), the Corporation will require that an Optionee, as
<PAGE A12> a condition of the exercise of an Option (other than
an Incentive Stock Option), or any other person or entity
receiving Common Stock upon exercise of an Option, pay or
reimburse any taxes which the Corporation is required to withhold
in connection with the exercise of the Option.
10.7 Listing and Registration of Shares.
(a) No Option granted pursuant to the Plan shall be
exercisable in whole or in part if at any time a majority of
the disinterested members of the Board shall determine in
its discretion that the listing, registration or
qualification of the shares of Common Stock subject to such
Option on any securities exchange or under any applicable
law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition
of, or in connection with, the granting of such Option or
the issue of shares thereunder, unless such listing,
registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not
acceptable to a majority of the disinterested members of the
Board.
(b) If a registration statement under the Securities
Act with respect to the shares issuable upon exercise of any
Option granted under the Plan is not in effect at the time
of exercise, as a condition of the issuance of the shares,
the person exercising such Option shall give the Committee a
written statement, satisfactory in form and substance to the
Committee, that he is acquiring the shares for his own
account for investment and not with a view to their
distribution. The Corporation may place upon any stock
certificate for shares issuable upon exercise of such Option
the following legend or such other legend as the Committee
may prescribe to prevent disposition of the shares in
violation of the Securities Act or other applicable law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
("ACT") AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION OF
COUNSEL FOR THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED.
10.8 Number. Any words used herein in the singular shall
be construed as used in the plural, as appropriate in the
relevant context, and vice versa.
10.9 Gender. Any pronoun used herein shall be deemed a
reference to all genders, as appropriate in the relevant context.
10.10 Governing Law. Except to the extent preempted by
federal law, this Plan document shall be construed, administered
<PAGE A13> and enforced in accordance with the domestic internal
law of the Commonwealth of Pennsylvania.
PAGE A14
<PAGE>
ENVIRONMENTAL TECTONICS CORPORATION
ANNUAL MEETING TO BE HELD ON SEPTEMBER 30, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints
Pete L. Stephens and Philip L. Wagner, or either of them, with
full power of substitution, as the undersigned's proxies to vote
at the Annual Meeting of Shareholders called for September 30,
1998 and at any adjournments thereof:
1. Election of Directors by holders of Common Stock and
Convertible Series A Preferred Stock:
[ ] For all nominees listed below (except as marked to
the contrary) or
[ ] Withhold the vote for all nominees.
Instruction: To withhold authority to vote for any individual
nominee, strike out his name below:
Richard E. McAdams, William F. Mitchell, Pete L. Stephens,
Philip L. Wagner
2. Election of Director by holders of Convertible Series A
Preferred Stock:
[ ] For Craig MacNab or
[ ] Withhold the vote for Craig MacNab.
3. To approve the 1998 Stock Option Plan.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the meeting.
This Proxy, when property executed, will be voted in the
manner designated herein by the undersigned shareholder. In the
absence of designation, this Proxy will be voted "FOR" the
election of all of the Board of Directors' nominees as directors
and "FOR" the 1998 Stock Option Plan.
IN WITNESS WHEREOF, the undersigned has set his hand and
seal.
Dated:________________, 1998 _____________________________(SEAL)
Shareholder's signature
_____________________________(SEAL)
Shareholder's signature
Please sign exactly as name appears
herein. When signing as attorney,
executor, administrator, trustee,
guardian, etc., please give full
title as such.
[ ] I plan to attend the Annual
Meeting on September 30, 1998.
