<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
Vertex Communications 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.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with 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 the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[VERTEX LOGO]
VERTEX COMMUNICATIONS CORPORATION
2600 N. LONGVIEW STREET
KILGORE, TEXAS 75662-6842
(903) 984-0555
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 1999
To the Shareholders of
Vertex Communications Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Vertex Communications Corporation (the "Company") will be held at
the Roy H. Laird Country Club, 1306 Houston Street, Kilgore, Texas, at 11:00
A.M., local time, on Tuesday, January 26, 1999, for the following purposes:
(1) To elect seven (7) directors to serve until the next
Annual Meeting of Shareholders and until their respective successors
are duly elected and qualified;
(2) To consider and vote upon a proposal to amend the
Company's 1995 Stock Compensation Plan to increase the aggregate
number of shares of Common Stock reserved and authorized for issuance
thereunder from 500,000 to 1,000,000, as more particularly described
in the accompanying Proxy Statement; and
(3) To consider and vote upon a proposal to ratify the
appointment of Arthur Andersen LLP as independent public accountants
of the Company for the fiscal year ending September 30, 1999; and
(4) To transact such other business as may properly come
before the Meeting or any adjournments thereof.
Only holders of Common Stock of record at the close of business on
December 4, 1998, are entitled to notice of and to vote at the Meeting and any
adjournments thereof. A list of shareholders entitled to vote at the Meeting
will be available for inspection at the offices of the Company and at the
Meeting.
A Proxy Statement, which describes the nominees for election to the
Board of Directors, the proposed amendment to the 1995 Stock Compensation Plan
and the independent public accountants recommended for selection by the Board
of Directors, and a form of Proxy accompany this Notice.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING,
TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE. IF A SHAREHOLDER WHO HAS RETURNED A PROXY FINDS THAT
HE OR SHE CAN ATTEND THE MEETING IN PERSON, HE OR SHE MAY REVOKE HIS OR HER
PROXY AND VOTE IN PERSON ON ALL MATTERS SUBMITTED TO THE MEETING.
By Order of the Board of Directors
/s/ JOE A. YLITALO
Joe A. Ylitalo
Secretary
Kilgore, Texas
December 21, 1998
<PAGE> 3
VERTEX COMMUNICATIONS CORPORATION
2600 N. LONGVIEW STREET
KILGORE, TEXAS 75662-6842
-------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 1999
-------------------
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy (the "Proxy") is being solicited on behalf of the
Board of Directors of Vertex Communications Corporation (the "Company") for use
at the Annual Meeting of Shareholders (the "Meeting") to be held at the Roy H.
Laird Country Club, 1306 Houston Street, Kilgore, Texas, at 11:00 A.M., local
time, on Tuesday, January 26, 1999, or at such other time and place to which
the Meeting may be adjourned. Proxies, together with copies of this Proxy
Statement, are being mailed to shareholders of the Company on or about December
21, 1998.
Execution and return of the enclosed Proxy will not affect a
shareholder's right to attend the Meeting and to vote in person. Any
shareholder executing a Proxy retains the right to revoke it at any time prior
to exercise at the Meeting. A Proxy may be revoked by delivery of written
notice of revocation to the Secretary of the Company, by execution and delivery
of a later Proxy or by voting the shares in person at the Meeting. A Proxy,
when executed and not revoked, will be voted in accordance with the
instructions thereon. In the absence of specific instructions, Proxies will be
voted by those named in the Proxy "FOR" the election as directors of those
nominees named in the Proxy Statement, "FOR" the proposal to amend the
Company's 1995 Stock Compensation Plan, "FOR" the proposal to ratify the
appointment of Arthur Andersen LLP, as independent public accountants for the
Company, and in accordance with their best judgment on all other matters that
may properly come before the Meeting.
The enclosed form of Proxy provides a method for shareholders to
withhold authority to vote for any one or more of the nominees for director
while granting authority to vote for the remaining nominees. The names of all
nominees are listed on the Proxy. If you wish to grant authority to vote for
all nominees, check the box marked "FOR". If you wish to withhold authority to
vote for all nominees, check the box marked "WITHHOLD AUTHORITY". If you wish
your shares to be voted for some nominees and not for one or more of the
others, check the box marked "FOR" and indicate the name(s) of the nominee(s)
for whom you are withholding the authority to vote by writing the name(s) of
such nominee(s) on the Proxy in the space provided.
RECORD DATE AND VOTING SECURITIES
Shareholders of record at the close of business on December 4, 1998,
will be entitled to notice of and to vote at the Meeting. On December 4, 1998,
the Company had issued and outstanding 5,095,578 shares of Common Stock, $.10
par value (the "Common Stock"), which is the only class of its capital stock
outstanding.
<PAGE> 4
QUORUM AND VOTING
The presence at the Meeting, in person or by Proxy, of the holders of
a majority of the issued and outstanding shares of Common Stock is necessary to
constitute a quorum. Each holder of Common Stock is entitled to one vote for
each share held on each matter, including the election of directors, to be
voted on at the Meeting. Assuming the presence of a quorum, the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the Meeting, present in person or by Proxy, is required for
the approval of each matter submitted to the Meeting, except that in the
election of directors, the seven nominees receiving the greatest number of
votes shall be deemed elected even though receiving the affirmative vote of
less than a majority of the outstanding shares entitled to be voted at the
Meeting. Additionally, in the election of directors, cumulative voting is
prohibited and Proxies cannot be voted for more than seven nominees.
Shares of Common Stock represented at the Meeting in person or by
Proxy but not voted with respect to a proposal are counted as present for
purposes of a quorum. In votes on any proposal other than for the election of
directors, the effect of an abstention or a non-vote is the same as a vote
against such proposal. In the election of directors, shares of Common Stock as
to which the authority to vote is withheld and shares of Common Stock
represented in person or by Proxy but not voted at the Meeting are not counted
toward the election of directors or toward the election of the individual
nominees named in the Proxy.
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of shares of the Common Stock of the Company as of December 4, 1998,
by (i) each person known by the Company to own more than 5% of the outstanding
shares of Common Stock, (ii) each director and nominee as a director of the
Company, (iii) the Company's Chief Executive Officer, (iv) each of the
Company's four other most highly compensated executive officers for fiscal year
1998 and (v) the directors and executive officers of the Company as a group.
The persons and entities named in the table have sole voting and investment
power with respect to all such shares owned by them, unless otherwise
indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER OR GROUP(1) BENEFICIAL OWNERSHIP OF CLASS
------------------------------------ -------------------- --------
<S> <C> <C>
Fidelity Management & Research Corporation... 510,000 10.0%
Ryback Management Corporation ............... 464,900 9.1
EQSF Advisers, Inc. ......................... 306,900 6.0
Dimensional Fund Advisors, Inc. ............. 280,600 5.5
J. Rex Vardeman(2) .......................... 187,070 3.6
James D. Carter(2) .......................... 91,833 1.8
A. Don Branum(2) ............................ 77,000 1.5
Rein Luik(3) ................................ 73,910 1.4
Bill R. Womble(2) ........................... 25,550 *
Donald E. Heitzman, Sr.(2). ................. 20,000 *
Manfred Stupnik(2) .......................... 14,000 *
John G. Farmer(2) ........................... 10,000 *
All directors and executive office
as a group (12 persons)(4) ............... 627,936 12.0
- ------------------
</TABLE>
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) The addresses of the persons or entities shown in the foregoing table who
are beneficial owners of more than 5% of the Common Stock are as follows:
Fidelity Management & Research Corporation, 82 Devonshire Street,
-2-
<PAGE> 5
Boston, Massachusetts 02109; Ryback Management Corporation, 7711 Carondelet
Avenue, Box 16900, St. Louis, Missouri 63105; EQSF Advisers, Inc., 767
Third Avenue, New York, New York 10017; and Dimensional Fund Advisors,
Inc., 1299 Ocean Avenue, Suite 650, Santa Monica, California 90401.
(2) Includes 30,000, 25,000, 30,000, 10,000, 15,000, 4,000, and 10,000 shares
as to which beneficial ownership could be acquired by Messrs. Vardeman,
Carter, Branum, Womble, Heitzman, Stupnik, and Farmer, respectively, within
sixty days of December 4, 1998, upon the exercise of outstanding options.
(3) Includes 2,080 shares held of record by the TIW Systems, Inc. Stock Bonus
Plan (the "Stock Bonus Plan") for the account of Dr. Luik, as to which
shares Dr. Luik shares voting and investment powers pursuant to the terms
of the Stock Bonus Plan.
(4) Includes (i) an aggregate of 150,200 shares as to which beneficial
ownership could be acquired by all such persons within sixty days of
December 4, 1998, upon the exercise of outstanding options and (ii) an
aggregate of 4,915 shares held of record by the Stock Bonus Plan for the
accounts of two such persons.
-3-
<PAGE> 6
ELECTION OF DIRECTORS
The Company's Board of Directors for the ensuing year will consist of
seven directors who are each to be elected at the Meeting for a term of office
expiring at the next Annual Meeting of Shareholders or until their respective
successors have been elected and qualified. It is intended that the persons
named in the following table will be nominated as directors of the Company and
that the persons named in the accompanying Proxy, unless otherwise directed,
will vote for the election of such nominees at the Meeting. Each of the
nominees is an incumbent director of the Company and has indicated his
willingness to continue to serve as a member of the Board of Directors, if
elected. In the event any nominee should become unavailable for election to the
Board of Directors for any reason not presently known or contemplated, the
Proxy holders will be vested with discretionary authority in such instance to
vote the enclosed Proxy for such substitute as the Board of Directors shall
designate.
The following slate of seven nominees has been nominated by the Board
of Directors:
<TABLE>
<CAPTION>
Director
NAME OF NOMINEE Age Position(s) Since
--------------- --- ----------- --------
<S> <C> <C> <C>
J. Rex Vardeman(1)(2).................... 59 Chairman of the Board, President,
Chief Executive Officer and Director 1984
A. Don Branum(2)......................... 61 Senior Vice President, Assistant 1984
Secretary and Director
James D. Carter(2)(3).................... 51 Vice President and Chief Financial
Officer, Treasurer and Director 1984
Bill R. Womble(1)(3)..................... 60 Director 1984
Donald E. Heitzman, Sr.(1)(3)............ 72 Director 1992
John G. Farmer........................... 51 Director 1997
Rein Luik................................ 63 Vice President and Director; and 1997
President, Vertex Electronics Group
- ---------------------------
</TABLE>
(1) Member of the Compensation Committee.
(2) Member of the Stock Option Committee of the Outside Directors Stock Option
Plan.
(3) Member of the Audit Committee.
-4-
<PAGE> 7
J. Rex Vardeman is a co-founder of the Company and has served as
Chairman of the Board, President, Chief Executive Officer and a director since
its inception in October 1984. Prior to founding the Company, Mr. Vardeman
served as Vice President of Harris Antenna Operations ("Harris Antenna
Operations"), a unit of the Satellite Communications Division of Harris
Corporation ("Harris"), until the acquisition in 1984 of the Harris Antenna
Operations by the Company. In 1973, Mr. Vardeman co-founded Radio Mechanical
Structures, Inc. ("RMS"), the predecessor to the Harris Antenna Operations, and
served as its Vice President and General Manager and a director until the
acquisition of RMS by Harris in 1977. For more than ten years prior thereto, he
was employed by E-Systems, Inc., a major electronics company, in various
engineering and management positions. Mr. Vardeman holds no other
directorships.
A. Don Branum, a co-founder of the Company, has served as Senior Vice
President, Assistant Secretary, and a director since its inception in October
1984. He also served as Vice President/General Manager of the Company's Vertex
Antenna Products Division from April 1994 through April 1998. Prior to joining
the Company, Mr. Branum served as Vice President of the Harris Antenna
Operations, with responsibility for product marketing. Mr. Branum served as
President of Dallas Telecommunications, Inc., a communication marketing and
consulting firm which he founded, from 1981 through 1984. From 1978 through
1981, Mr. Branum served as Vice President and General Manager of the Satellite
Communications Division of Harris, of which the Harris Antenna Operations were
a part. Mr. Branum was a co-founder of RMS in 1973 and served as its President
and a director until its acquisition by Harris in 1977. He holds no other
directorships.
James D. Carter has served the Company as Vice President and Chief
Financial Officer, Treasurer and a director since its inception in October
1984. Prior to joining the Company, Mr. Carter was employed by Harris as
Controller of the Harris Antenna Operations since 1978. For more than six years
prior thereto, Mr. Carter was employed by Harris in various accounting
positions. Mr. Carter holds no other directorships.
Bill R. Womble has served as a director of the Company since October
1984. He has been continuously engaged in the private practice of law since
1963 and is a shareholder of the firm of Thompson & Knight, P.C. (attorneys),
in Dallas, Texas. Mr. Womble holds no other directorships.
Donald E. Heitzman, Sr. has served as a director of the Company since
September 1992. Mr. Heitzman is President of International & Defense
Consultants, of Dallas, Texas, a private consulting firm which he founded in
May 1992. He was previously employed by Electrospace Systems, Inc.
(telecommunications systems), as Senior Vice President of International
Business Development for more than five years. Mr. Heitzman holds no other
directorships.
John G. Farmer has served as a director of the Company since August
1997. Mr. Farmer is Co-Managing Partner of Stratford Capital Partners, L.P., a
Dallas-based small business investment company (SBIC) founded in 1995 and
affiliated with the investment firm of Hicks, Muse, Tate & Furst, Inc., Dallas,
Texas. Prior to joining Stratford Capital Partners, Mr. Farmer served as Senior
Vice President and Regional Manager for GE Capital's Corporate Finance Group
from 1990 through 1994. From 1975 to 1990, Mr. Farmer served in various senior
management positions at MBank Dallas, N.A. ("MBank"), including Chairman, Chief
Executive Officer, and a director of MVenture Corp. (MBank's wholly-owned
subsidiary and SBIC) from 1985 until his departure from MBank in 1990. Mr.
Farmer also serves as a director of Hollywood Theater Holdings, Inc. (movie
entertainment centers).
Rein Luik has served as a director of the Company since August and as
Vice President of the Company since June 1997, immediately following the
Company's acquisition of Vertex Satcom Systems, Inc. ("Vertex Satcom"),
formerly known as TIW Systems, Inc., as a wholly-owned subsidiary of the
Company. Dr. Luik, a co-founder of Vertex Satcom, has served as President since
its inception in 1976 and
-5-
<PAGE> 8
has continued to serve in that position since its acquisition by the Company.
Effective October 1998, Dr. Luik became President of the Vertex Electronics
Group. Prior to founding Vertex Satcom, Dr. Luik was employed by the WDL
Division of Aeronutronic Ford Corporation from 1962 to 1976, initially as an
engineer and subsequently as Manager of its Antenna Subsystems Engineering
Department. Dr. Luik holds no other directorships.
All directors of the Company hold office until the next ensuing Annual
Meeting of Shareholders and until their respective successors are duly elected
and qualified. All officers of the Company are elected annually by the Board of
Directors and serve at the discretion of the Board. There are no family
relationships between any director or officer and any other such person.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF SUCH NOMINEES.
BOARD OF DIRECTORS AND COMMITTEES
The business affairs of the Company are managed under the direction of
the Board of Directors. The Board meets on a regularly scheduled basis during
the fiscal year of the Company to review significant developments affecting the
Company and to act on matters requiring Board approval. It also holds special
meetings as required from time to time when important matters arise requiring
Board action between scheduled meetings. The Board of Directors or its
authorized committees met six times and acted by unanimous written consent two
times during the 1998 fiscal year. During such fiscal year, each incumbent
director participated in at least 75% or more of the aggregate of (i) the total
number of meetings of the Board of Directors (held during the period for which
he was a director) and (ii) the total number of meetings of all committees of
the Board on which he served (during the period that he served). For the Board
of Directors as a whole, attendance was 100% during the 1998 fiscal year.
The Board of Directors has established Audit, Compensation, and
Outside Directors Stock Option Committees to devote attention to specific
subjects and to assist the Board in the discharge of its responsibilities. The
functions of these committees, their current members and the number of meetings
held during fiscal year 1998 are described below.
Audit Committee. The Audit Committee recommends to the Board of
Directors the appointment of the firm selected to be independent public
accountants for the Company and monitors the performance and independence of
such firm; reviews and approves the scope of the annual audit and quarterly
reviews and evaluates with the independent public accountants the Company's
annual audit and annual consolidated financial statements; reviews with
management the status and effectiveness of internal accounting controls;
evaluates problem areas having a potential financial impact on the Company
which may be brought to its attention by management, the independent public
accountants or the Board of Directors; and evaluates all public financial
reporting documents of the Company. James D. Carter (Chairman), Bill R. Womble
and Donald E. Heitzman, Sr. are members of the Audit Committee. The Audit
Committee met one time during the 1998 fiscal year.
Compensation Committee. The Compensation Committee is empowered to
review and advise management and make determinations with respect to the
compensation and other employment benefits of executive officers and key
employees of the Company. The Compensation Committee also administers the
Company's Stock Option Plan for Key Employees, 1995 Stock Compensation Plan for
officers, directors (other than non-employee directors), employees, and
advisors, Management Incentive Compensation Plans for officers and key
employees and Employee Profit Sharing Bonus Plans for employees. The
Compensation Committee is authorized, among other powers, to determine from
time to time the individuals to whom stock
-6-
<PAGE> 9
options shall be granted, the number of shares to be covered by each option and
the time or times at which options shall be granted pursuant to the Company's
stock option plans for officers and other employees.
The Compensation Committee is comprised of J. Rex Vardeman (Chairman),
Bill R. Womble, and Donald E. Heitzman, Sr. The Compensation Committee held one
meeting and acted by unanimous written consent one time during the 1998 fiscal
year.
Stock Option Committee. The Company's Outside Directors Stock Option
Plan (the "Outside Directors Plan") is administered by the Stock Option
Committee of the Board comprised of J. Rex Vardeman (Chairman), James D.
Carter, and A. Don Branum, each of whom is an executive officer and director of
the Company and ineligible to participate in such plan. The Outside Directors
Plan defines "Outside Directors" eligible to participate in such plan as those
directors of the Company who are not regular salaried employees of the Company
or its subsidiaries. The Outside Directors Plan expired on December 31, 1996,
but certain previously granted stock options remain validly issued and
outstanding pursuant to the terms of such plan. The Stock Option Committee held
no meetings during the 1998 fiscal year.
The Company does not have a nominating committee. The functions
customarily attributable to a nominating committee are performed by the Board
of Directors as a whole.
-7-
<PAGE> 10
PROPOSAL TO AMEND THE 1995 STOCK COMPENSATION PLAN
GENERAL
The 1995 Stock Option Plan of Vertex Communications Corporation (the
"Plan") was adopted in 1994 to encourage ownership of the Common Stock of the
Company by certain officers, directors (other than non-employee directors),
employees and advisors ("Participants") of the Company or any of its
subsidiaries (collectively referred to herein as the "Company") in order to
provide additional incentive for eligible Participants to promote the success
and the business of the Company and to encourage them to remain in the employ
of the Company by providing Participants opportunities to benefit from any
appreciation of the Common Stock of the Company through the issuance of stock
options and related stock appreciation rights in accordance with the terms of
the Plan. The Board of Directors believes that the best interests of the
Company will be served by increasing its ability to secure and retain highly
qualified and experienced officers, directors, employees and advisors through
affording them opportunities to acquire a stake in the future of the Company by
acquiring an equity position in the Company. Through continued implementation
and administration of the Plan, the Board of Directors seeks to assure the
maximum efforts and fullest measure of continued loyal association of eligible
Participants.
DESCRIPTION OF THE PROPOSED AMENDMENT
The Board of Directors has unanimously adopted and approved, subject
to shareholder approval, an amendment (the "Amendment") to Section 2 of the
Plan to increase the aggregate number of shares of Common Stock reserved for
and which may be issued upon exercise of options under the Plan from 500,000
shares to 1,000,000 shares. The text of the affected section of the Plan, as
amended by the proposed Amendment, is set forth in Appendix A hereto. Copies of
the Plan, as amended, will be made available upon request at the Company's
executive offices.
REQUIRED APPROVAL
Approval of the proposed Amendment to the Plan requires the
affirmative vote of the holders of a majority of the shares of Common Stock
that are issued and outstanding and entitled to vote thereon as of December 4,
1998. Members of the Board of Directors and other executive officers of the
Company, who beneficially own in the aggregate approximately 12.0% of the
issued and outstanding Common Stock, currently intend to vote such shares in
the favor of the proposal. See "Security Ownership of Management and Principal
Shareholders." The enclosed Proxy will be voted as specified, but if no
specification is made, it will be voted in favor of the proposal to approve the
proposed Amendment to the Plan.
DESCRIPTION OF THE 1995 STOCK COMPENSATION PLAN
General. The Plan currently makes available for granting of options a
maximum number of 500,000 shares (subject to adjustment for stock dividends,
stock splits and similar events) of the Company's Common Stock. As of the
December 4, 1998, options to purchase 499,400 shares of Common Stock had been
granted under the Plan, of which options to purchase 35,873 shares of Common
Stock had been exercised and options to purchase 463,527 shares of Common Stock
remained outstanding and had not yet been exercised, and options to purchase
600 shares of Common Stock remained available for grant pursuant to the Plan.
The Plan provides for the grant of incentive stock options ("Incentive
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), options which do not constitute Incentive
Options ("Nonqualified Options"), alternate stock appreciation rights ("SARs")
and reload options ("Reload Options"). If any option expires or terminates
without being fully exercised, the shares allocated to the unexercised portion
of such option will again be available for purposes of the Plan unless the Plan
shall have been terminated.
-8-
<PAGE> 11
Plan Administration and Interpretation. The Plan is administered and
interpreted by a Compensation Committee (the "Committee") appointed by the
Board of Directors which consists of three members of the Board of Directors,
two of whom are required to be disinterested directors of the Company who are
ineligible to participate in the Plan for at least one year prior to any action
taken or undertaken by the Committee. If at any time there are fewer than two
disinterested directors who are qualified to serve on the Committee, the Plan
will be administered by the full Board of Directors. Subject to the provisions
of the Plan, the Committee has the sole authority and power to construe the
Plan and options granted pursuant to the Plan, adopt, prescribe, amend, and
rescind rules and regulations relating to the Plan, and to otherwise make all
determinations necessary or advisable in administering the Plan, including but
not limited to: (i) who shall be granted options or SARs under the Plan; (ii)
the term of each option and related SAR, if applicable; (iii) the number of
shares covered by such options; (iv) whether the option shall constitute an
Incentive Option or a Nonqualified Option or a Reload Option; (v) the exercise
price for the purchase of the shares of Common Stock covered by the option,
provided that the exercise price for any Incentive Option must be at least
equal to the fair market value of the shares covered thereby as of the date of
grant of such option, or in the case of an Incentive Option granted to an
employee who owns more than 10% of the voting stock of the Company (a "10%
Holder"), the exercise price must not be less than 110% of the fair market
value of the shares covered thereby as of the date of grant of such option;
(vi) the term during which the option may be exercised, provided such term may
not generally exceed ten years from the date of grant or five years in the case
of grant of such option to a 10% Holder; (vii) whether the right to purchase
the number of shares covered by the option shall be fully vested on issuance of
the option so that such shares may be purchased in full at any time or whether
the right to purchase such shares shall become vested over a period of time so
that such shares may only be purchased in cumulative installments; and (viii)
the time or times at which the options and related SARs, if applicable, may be
granted. Except in the case of disability or death, no option or SAR may be
exercised after a Participant who is an employee of the Company ceases to be
employed by the Company; provided, however, the Committee has the authority to
extend the exercise period for not more than three months following the date of
termination of such Participant's employment. If a Participant's employment is
terminated by reason of death or disability, the Committee may extend the term
of the option and related SAR, if applicable, for a period not to exceed one
year following the date of termination of the Participant's employment.
Plan Awards. Awards under the Plan may be designated as Incentive
Options, Nonqualified Options, Reload Options, or in the case of SARs and
subject to certain conditions, a combination thereof. Nonqualified Options may
be granted only to such officers, directors (other than non-employee
directors), employees or advisors of the Company who, in the judgment of the
Committee, are responsible for or contribute to the management or success of
the Company. Incentive Options may be granted only to employees of the Company
who, in the judgment of the Committee, are responsible for or contribute to the
management or success of the Company; provided that the aggregate fair market
value of the Common Stock with respect to which Incentive Options are
exercisable for the first time by an eligible Participant during any calendar
year may not exceed $100,000.00. If an option provides for a vesting period to
be exercised in cumulative installments or a delayed vesting period, the
vesting period will be accelerated upon the occurrence of a "Change of Control"
or a threatened Change of Control of the Company so that such option will
become exercisable immediately in part or in its entirety at the election of
the Participant. For purposes of the Plan, a Change of Control will be deemed
to have occurred if: (i) a person or group, as determined in accordance with
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), becomes the beneficial holder of at least 20% of the
outstanding voting securities of the Company; (ii) as a result of, or in
connection with, a tender offer or exchange offer, merger or other business
combination, or like event, the persons who were directors of the Company
before such transaction, cease to constitute a majority of the Board of
Directors of the Company or any successor to the Company; (iii) a tender offer
or exchange offer is made and consummated for the ownership of the securities
of the Company representing 20% or more of the combined voting power of the
Company's then outstanding voting securities; (iv) the Company is merged or
consolidated with another company and as a result of such merger
-9-
<PAGE> 12
or consolidation, less than 40% of the outstanding voting securities of the
surviving or resulting corporation is then owned in the aggregate by the former
shareholders of the Company; or (v) the Company transfers more than 50% of its
assets to another corporation that is not a wholly-owned subsidiary of the
Company.
Concurrently with or subsequent to the award of an option pursuant to
the Plan, the Committee, in its sole discretion, may award to a Participant who
has an outstanding option (the "Related Option"), a SAR permitting the
Participant to be paid the appreciation on the Related Option in lieu of
exercising the Related Option. A SAR granted with respect to an Incentive
Option must be granted together with the Related Option. A SAR granted with
respect to a Nonqualified Option may be granted together with or subsequent to
the granting of the Related Option. A SAR may be exercised only to the extent
that its Related Option is eligible to be exercised on the date of exercise of
the SAR. The amount of payment to which a Participant will be entitled upon
exercise of a SAR will be equal to the amount by which the fair market value of
a share of Common Stock on the exercise date exceeds the fair market value of a
share of Common Stock on the date the Related Option was granted or became
effective. The amount payable by the Company to a Participant upon exercise of
a SAR may be paid in shares of Common Stock, cash or a combination thereof.
Except in the case of disability or death, no SAR may be exercised after an
eligible Participant ceases to be an employee, director or advisor of the
Company. Upon the exercise or termination of any Related Option, the SAR with
respect to the Related Option will terminate to the extent of the number of
shares as to which the Related Option was exercised or terminated. SARs may not
be assigned, pledged or hypothecated in any way and will not be subject to
execution, attachment or similar process.
Concurrently with the award of a Nonqualified Option and/or an
Incentive Option, the Committee may, in its discretion, authorize the grant of
a Reload Option. A Reload Option enables the Participant to purchase for cash
or shares that number of shares equal to the number of shares used to exercise
an underlying Nonqualified Option or Incentive Option. The option price per
share deliverable upon the exercise of a Reload Option is the fair market value
of a share of Common Stock on the date of grant of the Reload Option. Each
Reload Option is exercisable six months after the effective date of grant. The
term of a Reload Option is equal to the remaining term of the underlying
option.
Exercise and Payment. Full payment for shares purchased upon exercise
of an option must be made at the time of exercise. No shares may be issued
until full payment is made. The Plan provides that an option agreement may
permit a Participant to tender previously owned shares of Common Stock in
partial or full payment of shares to be purchased upon exercising an option.
Agreement to Serve. Each employee receiving an option under the Plan
agrees to remain in the employ of the Company for a period of at least one year
from the date of grant of the option.
Amendments and Termination. All options granted pursuant to the Plan
must be granted before October 26, 2004, the date the Plan terminates. The
Board of Directors may, however, terminate, modify or amend the Plan at any
time prior to such date, provided that any such modification or amendment may
not (i) materially increase the benefits accruing to participants under the
Plan, (ii) materially increase the number of securities which may be issued
under the Plan, except in certain instances relative to changes in
capitalization of the Company, or (iii) materially modify the requirements as
to eligibility for participation in the Plan without shareholder approval.
Termination or amendment of the Plan will not alter or impair, without the
consent of any affected Participant, any of the rights or obligations pursuant
to any option theretofore granted pursuant to the Plan.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
General. Options granted under the Plan, if granted to Participants
who are employees of the Company and are so designated, will constitute
Incentive Options under Section 422 of the Code, and options granted to
eligible Plan Participants and so designated, will constitute Nonqualified
Options. A Reload Option granted under the Plan will be treated as a
Nonqualified Option.
-10-
<PAGE> 13
Incentive Options. No taxable income is realized by a Participant and
no tax deduction is available to the Company upon either the grant or exercise
of an Incentive Option. If a Participant holds the shares acquired upon the
exercise of an Incentive Option for more than one year afer the issuance of the
shares upon exercise of the Incentive Option and more than two years after the
date of grant of the Incentive Option (the "Holding Period"), the difference
between the exercise price and the amount realized upon the sale of such shares
will be treated as a long-term capital gain or loss and no deduction will be
available to the Company. If the shares are transferred before the expiration
of the Holding Period, the Participant will realize ordinary income and the
Company will be entitled to a deduction on the portion of the gain, if any,
equal to the difference between the Incentive Option exercise price and the
fair market value of the shares on the date of exercise or, if less, the
difference between the amount realized on the disposition and the adjusted
basis of the shares; provided that the deduction will not be allowed to the
extent such amount exceeds the annual $1,000,000 limitation on the deduction
that an employer may claim for compensation of certain executives pursuant to
Section 162(m) of the Code (the "Deduction Limitation") and does not otherwise
satisfy an exception to the Deduction Limitation. Any further gain or loss from
an arm's length sale or exchange will be taxable as a long-term or short-term
capital gain or loss, depending upon the Holding Period before disposition.
Certain special rules apply if an Incentive Option is exercised by tendering
stock. The difference between the Incentive Option exercise price and the fair
market value, at the time of exercise, of the Common Stock acquired upon the
exercise of an Incentive Option may give rise to alternative minimum taxable
income subject to an alternative minimum tax.
Nonqualified Options. Generally, taxable income is realized by the
Participant upon the grant of a Nonqualified Option, and no deduction generally
is then available to the Company. Upon exercise of a Nonqualified Option, the
excess of the fair market value of the shares on the date of exercise over the
exercise price will be taxable to the Participant as ordinary income. This
amount will also be deductible by the Company unless the amount exceeds the
Deduction Limitation and does not satisfy an exception to the Deduction
Limitation. The tax basis of shares acquired by the Participant will be the
fair market value on the date of exercise. When a Participant disposes of
shares acquired upon exercise of a Nonqualified Option, any amount realized in
excess of the fair market value of the shares on the date of exercise generally
will be treated as a long-term or short-term capital gain, depending on the
Holding Period of the shares. The Holding Period commences upon exercise of the
Nonqualified Option. If the amount received is less than such fair market
value, the loss will be treated as a long-term or short-term capital loss,
depending on the Holding Period of the shares. The exercise of a Nonqualified
Option will not trigger the alternative minimum tax consequences applicable to
Incentive Options.
Stock Appreciation Rights. The holder of a SAR granted under the Plan
will realize no taxable income upon receipt of the SAR. If cash is paid or
unrestricted Common Stock is issued upon exercise of the SAR, such holder will
realize compensation upon the exercise of such SAR, taxable as ordinary income
to the extent the fair market value of the underlying Common Stock on the date
of exercise exceeds the fair market value of the underlying Common Stock on the
date the SAR was granted, and the Company will be entitled to a deduction from
income for tax purposes in an equal amount at the same time such holder
realizes such income. If the holder of such SAR is compensated in shares of
Common Stock subject to restrictions upon exercise of the SAR, such payment
will not be includable in such holder's taxable income until such restrictions
lapse.
ISSUANCE OF OPTIONS UNDER THE PLAN
Applicable regulations of the Securities and Exchange Commission (the
"Commission") require the presentation of information setting forth the
benefits that will be received pursuant to the Plan by (i) the
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<PAGE> 14
Company's Chief Executive Officer, (ii) each of the Company's four other most
highly compensated executive officers for fiscal year 1998, individually, (iii)
each nominee for election as director, (iv) all current executive officers as a
group, (v) all current directors who are not executive officers as a group, and
(vi) all employees, excluding executive officers, as a group, if such amounts
are determinable. If such benefits are not determinable, which is the case for
the Plan, the Company is required to describe the benefits which would have
been received for the last fiscal year if the Plan had been in effect, as
amended. The number of options to be granted under the Plan is indeterminate at
this time as awards are made to eligible Participants at the discretion of the
Committee. No determination has yet been made as to which eligible Participants
will be granted options under the Plan, as amended, in the future or the number
of shares to be covered by any such option.
The benefits which would have been received for fiscal year 1998 in
the case of the Plan are the amounts actually granted in fiscal year 1998 under
the Plan. No options were granted under the Plan in fiscal year 1998 to the
Chief Executive Officer, any of the Company's other executive officers or any
nominee for election as a director. Current directors who are not executive
officers of the Company are ineligible to participate in the Plan. All
employees of the Company as a group, excluding current executive officers, were
granted options covering an aggregate of 10,000 shares of Common Stock in
fiscal year 1998.
Each option under the Plan has an exercise price equal to the fair
market value of the Common Stock on the grant date of such option. The dollar
value of such options is currently indeterminate, as each such option is
subject to a vesting schedule and the value thereof will be dependent on the
market price of the underlying shares of Common Stock achieving levels above
the applicable exercise price. As of December 4, 1998, the closing sales price
of the Common Stock on the Nasdaq Stock Market, National Market was $18.75 per
share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
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<PAGE> 15
PROPOSAL TO RATIFY THE APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has appointed Arthur Andersen
LLP, independent public accountants, to serve as independent auditors of the
Company and to audit its consolidated financial statements for fiscal year
1999, subject to approval by shareholders at the Meeting. Arthur Andersen LLP
has served as the Company's independent public accountants since the Company's
inception and is, therefore, familiar with its affairs and financial
procedures. To the knowledge of management of the Company, neither such firm
nor any of its members has any direct or material indirect financial interest
in the Company, nor any connection with the Company in any capacity other than
as independent public accountants.
Although shareholder ratification and approval of this appointment is
not required by law or otherwise, in keeping with the Company's policy that its
shareholders should be entitled to a voice in this regard and as a matter of
good corporate practice, the Board of Directors is seeking ratification of this
appointment. If the appointment is not ratified, the Board of Directors must
then determine whether to appoint other auditors prior to the end of the
current fiscal year, and in such case, the opinions of shareholders will be
taken into consideration.
The following resolution concerning the ratification of the
appointment of independent public accountants will be submitted to the Meeting:
"RESOLVED, that the appointment by the Board of Directors of
the Company of Arthur Andersen LLP, independent public
accountants, to audit the consolidated financial statements
and related books, records, and accounts of the Company and
its subsidiaries for the fiscal year ending September 30,
1999, is hereby ratified."
A representative of Arthur Andersen LLP, the Company's independent
public accountants for fiscal year 1998, is expected to be in attendance at the
Meeting and will be afforded the opportunity to make a statement. The
representative will also be available to respond to appropriate questions.
The enclosed Proxy will be voted as specified, but if no specification
is made, it will be voted in favor of the adoption of the resolution of
ratification.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
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<PAGE> 16
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth certain information regarding all cash
compensation paid or to be paid by the Company or any of its subsidiaries, as
well as other compensation paid or accrued, during the fiscal years indicated,
to the Company's Chief Executive Officer and each of the Company's four other
most highly compensated executive officers for such respective periods in all
capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- ----------------------------------
Awards Payouts
------------------------- -------
Restricted Securities All Other
Other Annual Stock Underlying LTIP Compen-
Fiscal Bonus Compensation Award(s) Options/SARs Payouts sation
Name and Principal Position Year Salary ($) ($)(1) ($)(2) ($) (#) ($) ($)(3)
- --------------------------- ------ ---------- --------- ------------ ----------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Rex Vardeman .......... 1998 $250,000 $105,000 -- -- -- -- $ 800
Chairman of the Board, 1997 225,000 92,000 -- -- -- -- 800
President, and Chief 1996 188,000 77,000 -- -- -- -- 800
Executive Officer
A. Don Branum ............ 1998 185,000 87,000 -- -- -- -- 800
Senior Vice President 1997 175,000 37,000 -- -- -- -- 800
1996 160,000 94,000 -- -- -- -- 800
James D. Carter .......... 1998 165,000 76,000 -- -- -- -- 800
Vice President and Chief 1997 145,000 61,000 -- -- -- -- 800
Financial Officer, and 1996 125,000 51,000 -- -- -- -- 800
Treasurer
Rein Luik(4) ............. 1998 210,000 49,000 -- -- -- -- 15,497(5)
Vice President; 1997 275,000 -- -- -- -- -- 15,041(5)
President, Vertex
Electronics Group
Manfred Stupnik .......... 1998 135,000 82,000 -- -- -- -- 800
Vice President; 1997 125,000 96,000 -- -- -- -- 800
President, Vertex 1996 115,000 79,000 -- -- -- -- 800
Microwave Products, Inc.
- -------------------------------
</TABLE>
(1) Includes incentive bonus payments earned for services rendered to the
Company or a subsidiary in the year indicated that were paid in the
following year.
(2) Excludes certain incidental perquisites, the total of which did not exceed
the lesser of $50,000 or 10% of the cash compensation for any named
individual.
(3) Except as noted in footnote (5) below, the amounts reflected in this column
consist of the annual employer matching payments to the Company's qualified
Savings/Profit Sharing Plan.
(4) Information included in the Summary Compensation Table as to Dr. Luik's
1997 salary compensation (i) represents compensation for services to Vertex
Satcom Systems, Inc. ("Vertex Satcom"), formerly known as TIW Systems,
Inc., a wholly-owned subsidiary of the Company, and since June 11, 1997, as
Vice President of the Company, and (ii) reflects the annualized amount of
such compensation as if he had been employed in such capacities for the
entire fiscal year. Dr. Luik actually earned and was paid salary
compensation of $84,800 from the effective date of the Company's
acquisition of Vertex Satcom, June 11, 1997, until the end of the 1997
fiscal year.
(5) Includes, for fiscal years 1998 and 1997, respectively, annual
contributions of (i) $4,846 and $4,750 to Vertex Satcom's qualified 401(k)
Plan and (ii) $10,651 and $10,291 to Vertex Satcom's qualified Money
Purchase Pension Plan for the benefit of Dr. Luik.
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<PAGE> 17
OPTION GRANTS DURING FISCAL YEAR 1998
No options to acquire shares of Common Stock or related SARs were
granted to the named executive officers of the Company during fiscal year 1998.
1998 OPTION EXERCISES AND FISCAL YEAR END HOLDINGS
The following table sets forth information with respect to options
exercised by the named executives of the Company during fiscal year 1998 and
the number and value of unexercised options and SARs held at fiscal year end.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT FY-END(#) AT FY-END ($)(*)
---------------------------- ----------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Rex Vardeman ......... -- -- 30,000 10,000 $218,400 $ 61,800
A. Don Branum ........... -- -- 30,000 10,000 218,400 61,800
James D. Carter ......... -- -- 25,000 10,000 176,500 61,800
Rein Luik ............... -- -- -- -- -- --
Manfred Stupnik ......... -- -- 4,000 4,000 25,520 25,520
- ------------------------
</TABLE>
* THE CLOSING PRICE FOR THE COMPANY'S COMMON STOCK AS REPORTED BY THE
NASDAQ STOCK MARKET (NATIONAL MARKET SYSTEM) ON SEPTEMBER 30, 1998,
WAS $18.375 PER SHARE. THE INDICATED VALUE IS CALCULATED ON THE BASIS
OF THE DIFFERENCE BETWEEN THE OPTION EXERCISE PRICE PER SHARE AND
$18.375, MULTIPLIED BY THE NUMBER OF SHARES OF COMMON STOCK UNDERLYING
EACH OPTION.
COMPENSATION OF DIRECTORS
The Company has adopted a policy whereby all Outside Directors
(non-employees) receive directors' fees of $1,000 for each meeting of the Board
of Directors attended (exclusive of telephonic meetings) and for each meeting
of a committee of the Board of Directors attended (exclusive of committee
meetings held on the same day as Board meetings). No director who is an
employee of the Company receives any fees for services as a director or member
of any committee of the Board. All directors are reimbursed for reasonable
travel and out-of-pocket expenses incurred in connection with attendance at
meetings of the Board of Directors or of committees of the Board.
In addition, the Company has previously adopted the Outside Directors
Plan whereby stock option grants have been made from time to time on an
irregular basis to reward director performance and to encourage those
qualifying directors of the Company who are not employees to participate in the
Company's long-term success. While this plan expired in 1996, certain
previously granted options remain validly issued and outstanding under such
plan. The Company has previously granted non-qualified stock options pursuant
to this plan in fiscal year 1993 to Messrs. Womble and Heitzman to purchase
5,000 shares of Common Stock each at the exercise price of $10 per share, in
fiscal year 1995 for an additional 5,000 shares of Common Stock each at an
exercise price of $12 per share, and in fiscal year 1997 for an additional
5,000 shares of Common Stock each at an exercise price of $17 per share. To
date, Messrs. Heitzman and Womble have exercised their 1993 options of 5,000
shares each, and Mr. Womble has also exercised his 1995 option of 5,000 shares.
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<PAGE> 18
In fiscal year 1998, the Company adopted its Non-Employee Directors
Stock Option Plan to replace and accomplish the same objectives as the expired
Outside Directors Plan. Pursuant to this plan, in fiscal year 1998, the Company
granted non-qualified stock options to Messrs. Womble, Heitzman, and Farmer to
purchase 5,000 shares, 5,000 shares, and 10,000 shares, respectively, each at
the original exercise price of $25 per share. In November 1998, these options
were modified to amend the exercise price to $16.4375 per share. To date, none
of these options has been exercised.
EMPLOYMENT AGREEMENTS
J. Rex Vardeman, A. Don Branum, and James D. Carter, in their
capacities as (i) Chairman of the Board, President and Chief Executive Officer,
(ii) Senior Vice President and Assistant Secretary, and (iii) Vice President
and Chief Financial Officer and Treasurer, respectively, have each executed
employment agreements with the Company. These employment agreements are each
for three-year terms which automatically renew on a daily basis.
Among other provisions, these agreements provide that, in
consideration for remaining in the employ of the Company, each officer is
entitled, subject to certain conditions, to receive benefits in the event of
termination of employment under certain circumstances, including, among other
reasons, a Change of Control of the Company. If such an officer is terminated
for a reason other than (a) his death, disability or retirement, (b) for cause,
or (c) his voluntary termination other than for good reason, such officer would
be entitled to receive from the Company, except as otherwise indicated below, a
lump-sum severance payment equal to the sum of the following payments: (i) the
officer's full base salary through the effective date of his termination at the
rate then in effect, (ii) any authorized but unreimbursed business expenses and
any vacation benefits which have accrued but are unpaid or unused as of the
effective date of termination, (iii) any accrued but unpaid annual bonus
compensation to the effective date of termination, but without accelerating the
bonus payment date, (iv) an amount equal to three times the average aggregate
direct annual compensation (salary and bonus) of the officer for the five
fiscal years of the Company ended immediately prior to the effective date of
his termination, and (v) in the event such officer is subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), resulting from any "excess parachute payment" received by such officer
as described in Section 280G(b) of the Code, an amount sufficient to ensure
that after payment of such excise tax, plus interest or penalties thereon, if
any, as the result of such "excess parachute payment," such officer will retain
free and clear of all claims, taxes, and impositions an amount equal to such
excise tax, interest and penalties, if any, imposed upon the excess payment
received. In the event that any such officer receives a parachute payment as a
result of termination of employment, such officer would be deemed to receive an
"excess parachute payment" if it equals or exceeds 300% of the officer's "base
amount," generally the average annual compensation received by such officer
over the five most recent tax years. The "excess parachute payment" is computed
as that portion of the "parachute payment" which exceeds the "base amount."
In addition, Rein Luik and Louis E. Becker, in their capacities as
President of Vertex Electronics Group, and as President of Vertex Antenna
Systems, LLC, respectively, entered into agreements effective as of June 11,
1997, which include the same provisions for similar terms as summarized above
as related to their employment in such capacities with these respective
subsidiaries.
Certain key employees of the Company have executed proprietary
information protection agreements acknowledging that all their discoveries made
while an employee of the Company will be the property of the Company and that
they will not disclose trade secrets or other confidential information of the
Company to others.
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<PAGE> 19
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General. Pursuant to rules designed to enhance disclosure of executive
compensation policies, the Company is required to provide certain data and
information regarding compensation and benefits provided to its Chief Executive
Officer and four other most highly compensated officers. The disclosure
requirements for these executive officers include the use of tables and a
report explaining the rationale and considerations which resulted in
fundamental executive compensation decisions affecting these individuals. In
response to this requirement, the Compensation Committee submits the following
report for inclusion in this Proxy Statement. The data and information included
in the various compensation tables appearing elsewhere in this Proxy Statement
should be read in conjunction with and are deemed to be a part of this report.
Named Executives. This report includes disclosure of the required
compensation information for the Company's Chief Executive Officer and its four
other most highly compensated officers (collectively, the "Named Executives")
for 1998.
Compensation Committee. Decisions on compensation of the Company's
executive officers are made by the three-member Compensation Committee
comprised of J. Rex Vardeman, Chairman, Bill R. Womble and Donald E. Heitzman,
Sr.
Compensation Policies. The Company's executive compensation policies,
as endorsed by the Board of Directors, are designed to:
o Provide competitive levels of compensation which support a
pay-for-performance policy that integrates pay with achievement
of annual and long-term performance goals by the Company as a
whole and its respective subsidiaries and divisions, rewards
noteworthy corporate performance, and recognizes individual
initiative and achievements;
o Provide a comprehensive program which enhances opportunities to
achieve strategic business initiatives and facilitates the
recruitment, retention and motivation of talented executives
whose abilities are critical to the long-term success and
competitiveness of the Company; and
o Reward executives for long-term strategic management which
supports the Company's strategy of providing superior value to
its shareholders.
Target levels of overall compensation of the Named Executives are
intended to be reasonably consistent with those paid to similarly situated
executives of other employers of comparable size in the Company's industry, but
are increasingly being weighted toward programs contingent upon the performance
by the Company or its respective subsidiaries or divisions, as applicable. As a
result of the increased emphasis on tying executive compensation to corporate
performance (either of the Company as a whole or its respective subsidiaries or
divisions, as appropriate), in any particular year the Company's executives may
be paid more or less than executives of the Company's competitors, depending
upon the Company's performance or the performance of its respective
subsidiaries or divisions, as applicable. The Compensation Committee also
endorses the concept that stock ownership by management and stock-based
performance compensation arrangements are beneficial in aligning the interests
of management and shareholders in the enhancement of shareholder value. Thus,
the Compensation Committee has increasingly utilized these elements in
determining the Company's compensation benefits for its executive officers.
Compensation paid the Company's executive officers in 1998, as
reflected in the foregoing tables as to the Named Executives, consisted of base
salary and annual bonus compensation. No stock options were granted to any of
the Named Executives under the Company's Stock Option Plans during the 1998
fiscal year.
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<PAGE> 20
Relationship of Performance. The Compensation Committee's emphasis on
tying pay to performance criteria is reflected in the cash compensation paid to
the Named Executives for 1998, as a range from approximately 18.9% to
approximately 37.8% of the amounts paid to the Named Executives for 1998
(approximately 29.6% for the Chief Executive Officer) resulted from
performance-based compensation pursuant to the respective Management Incentive
Compensation Plans (the "Management Incentive Plans") for annual cash incentive
bonuses of the Company as a whole, its subsidiaries (the "Subsidiaries") and
its divisions (the "Divisions"). The objective measures of performance that are
utilized under the Management Incentive Plans include targeted versus actual
annual net income after tax of the Company as a whole, and targeted versus
actual net pre-tax income for its respective Divisions and Subsidiaries, each
viewed separately. Subjective considerations are considered only in
establishing base salaries and, to a lesser degree, the criteria for
establishing the annual operating plan for the Company as a whole, its
Divisions and its Subsidiaries, respectively, from which annual cash bonuses
are determined and in determining the target annual bonus award of each
participant pursuant to the respective Management Incentive Plans of the
Company, its Divisions and its Subsidiaries, as applicable.
Annual Salaries. For 1998, the Compensation Committee established the
annual base salaries of four of the Named Executives (including the Chief
Executive Officer) at higher levels than those which prevailed in 1997 and the
annual base salary of one of the Named Executives was reduced from its 1997
level in accordance with an agreement reached as a part of an acquisition
completed in that year. The salary increases awarded in 1998 ranged from
approximately 8.0% to approximately 13.8% compared to the annual base salary
levels paid such Named Executives, respectively, for 1997 (an increase of
approximately 11.1% for the Chief Executive Officer). These adjustments for
1998 were warranted as to each Named Executive who was awarded a salary
increase, including the Chief Executive Officer, based on enhanced duties and
responsibilities, competitive data, individual performance, initiative and
contribution to overall corporate performance, tenure and internal
comparability considerations. Additionally, for 1997 the Company experienced
the most successful year in its history, having achieved an increase of
approximately 19% in sales and approximately 18% in net income compared to the
results of fiscal year 1996. Accordingly, consistent with the Company's
executive compensation policy of tying executive compensation to performance,
the 1998 base salaries of four of the Named Executives indicated were increased
as compared to 1997 salary levels.
Annual Bonuses. The annual cash incentive bonuses payable under the
respective Management Incentive Plans to the Named Executives reported in the
Summary Compensation Table are based primarily on objective criteria and to a
lesser extent on subjective standards. Objective criteria include actual versus
target annual net income after tax of the Company as a whole, and actual versus
target annual net pre-tax income of each of the Company's Divisions and
Subsidiaries, respectively. Subjective criteria encompass factors considered
(i) in promulgating the annual operating plan and (ii) in determining the
target bonus award for each eligible participant under the applicable
Management Incentive Plan based upon the above described standards utilized in
determining annual base salaries. Target annual net income, after tax or
pre-tax, as applicable, utilized for purposes of establishing target annual
cash incentive bonuses for the year is based on the annual operating plan for
the Company, its Divisions, and its Subsidiaries, developed by management and
approved by the Board of Directors as a whole. In October 1997, the full Board
of Directors, acting upon the recommendations and with the participation of
management, established the following: (i) the parameters of the 1998 annual
operating plan, including, among other information, the financial objectives of
the Company, its Divisions, and its Subsidiaries, for such year; (ii) the
percentage of net income after tax of the Company to be available as the
aggregate annual bonus fund under the Company's Management Incentive Plan for
its eligible participants, including certain of the Named Executives, measured
by the degree of achievement of the Company's actual net income after tax for
1998, as compared to the target net income after tax for such year pursuant to
the annual operating plan; (iii) the percentage of pre-tax income of its
respective Divisions to be available as the aggregate annual bonus fund under
the Management Incentive Plan applicable to each Division for its eligible
participants, including certain of the Named Executives, measured by the degree
of achievement of each Division's actual pre-tax income for 1998, as compared
to its target pre-tax income for such year pursuant to the annual operating
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<PAGE> 21
plan; and (iv) the percentage of pre-tax income of its respective Subsidiaries
to be available as the aggregate annual bonus fund under the Management
Incentive Plan applicable to each Subsidiary for its eligible participants,
including two of the Named Executives, measured by the degree of achievement of
each Subsidiary's actual pre-tax income for 1998, as compared to its target
pre-tax income for such year pursuant to the annual operating plan.
In October 1997, through application of the criteria described above,
the Compensation Committee determined the target annual bonus award of each
eligible participant under the respective Management Incentive Plans, including
each Named Executive, as a percentage share of the target annual bonus fund
available under such plans, respectively, for 1998. As a result of the
performance of the Company as a whole, its Divisions, and its Subsidiaries in
1998, the Compensation Committee determined the actual 1998 cash bonus award
for each Named Executive, including the Chief Executive Officer, by applying
the objective criteria described above, which procedure was also uniformly
applied in determining the actual 1998 cash bonuses for all other officers of
the Company (including its Divisions) and its Subsidiaries. The Compensation
Committee followed the same procedure in October 1998 to determine target 1999
cash incentive bonus awards pursuant to the Management Incentive Plans.
Stock Option Grants. The Company has adopted two stock option plans
(collectively, the "Stock Plans") to provide long-term incentive compensation
for eligible participants: the Stock Option Plan for Key Employees (the "Key
Employee Plan") and the 1995 Stock Compensation Plan (the "1995 Stock Plan").
Generally, executive officers and other key employees of the Company (including
its Divisions) and its Subsidiaries are entitled to participate in these Stock
Plans. Stock option grants under the Stock Plans provide the right to purchase
shares of the Company's Common Stock at fair market value (the average of the
high and low trading prices) on the date of grant. Additionally, the 1995 Stock
Plan provides that optionees may be granted stock appreciation rights with
respect to shares of Common Stock covered by related options granted under such
plan, which permit optionees to be paid the appreciation on the related stock
option in lieu of exercising such option. Each stock option granted under the
Key Employee Plan or the 1995 Stock Plan is effectively exercisable based on an
incremental vesting schedule of 20% per annum over five years; and may have a
maximum term of seven years under the Key Employee Plan or ten years pursuant
to the 1995 Stock Plan. The Stock Plans are structured to encourage the
retention of shares purchased under the Stock Plans and provide long-term
compensation opportunities to participating executives and other key employees
only to the extent that shareholders of the Company have benefitted.
Option grants have been made from time to time on an infrequent basis
under the Stock Plans to reward executive performance and to encourage
optionees to participate in the Company's long-term success as measured by the
value of the Company's Common Stock. Factors considered in determining the
amounts of options include multiples of base salary (designed to create greater
opportunities commensurate with enhanced responsibilities), competitive data,
managerial abilities, and individual initiative and achievements. No stock
options were awarded to any of the Named Executives in fiscal year 1998.
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<PAGE> 22
The 1998 annual compensation of J. Rex Vardeman, President and Chief
Executive Officer, as reflected in certain tables accompanying this report, was
based on the policies described above.
Respectfully submitted,
COMPENSATION COMMITTEE
of the Board of Directors
J. Rex Vardeman, Chairman
Bill R. Womble
Donald E. Heitzman, Sr.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1998, the members of the Compensation Committee
were responsible for determining executive compensation and made decisions
related to stock option grants to certain officers other than executive
officers. J. Rex Vardeman, Chairman of the Board, President and Chief Executive
Officer, serves as Chairman of the Compensation Committee and participated in
deliberations concerning executive officer compensation.
No member or nominee for election as a member of the Board of
Directors or any Committee of the Board has an interlocking relationship with
the board (or member of such board) or any committee (or member of such
committee) of a board of any other company.
-20-
<PAGE> 23
STOCK PERFORMANCE INFORMATION
The following chart illustrates the percentage of change in the
cumulative total shareholder return on the Company's Common Stock during each
of the fiscal years in the five-year period ended September 30, 1998, compared
with the cumulative total returns on the Center for Research in Security Prices
("CRSP") Index for The Nasdaq Stock Market (U.S. Companies) and the CRSP Index
for Nasdaq Communications Equipment Stocks, respectively, for the same periods.
STOCK PERFORMANCE*
[GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
LEGEND
Index Description 9/30/93 9/29/94 9/30/95 9/30/96 9/30/97 9/30/98
----------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Vertex Communications Corporation ................... 100.0 84.9 130.2 126.4 182.1 138.7
CRSP Index for The Nasdaq Stock Market .............. 100.0 100.8 139.3 165.2 226.8 231.8
CRSP Index for Nasdaq Communications Equipment Stocks 100.0 94.5 190.4 216.6 237.0 141.1
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indices are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year end, is not a trading
day, the preceding trading day is used.
D. The index level for each series was set to $100.00 on September 30,
1993.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The comparison assumes (i) $100 was invested on September 30,1993, in
the Company's Common Stock and in each of the foregoing indices and (ii)
that any dividends paid by companies included in the comparative indices
were reinvested in additional shares of the same class of equity securities
of such companies at the frequency with which dividends were paid during
the applicable periods depicted.
The stock performance information depicted in the preceding chart is
not necessarily indicative of future stock price performance. The chart shall
not be deemed to be incorporated by reference in any filing by the Company
under the Securities Act of 1933, as amended, or the Exchange Act, except to
the extent that the Company specifically incorporates such information by
reference.
-21-
<PAGE> 24
CERTAIN TRANSACTIONS
The Board of Directors of the Company has adopted a policy that
transactions between the Company, its officers, directors, principal
shareholders, and affiliates be conducted on terms at least as favorable to the
Company as those which could be obtained from independent parties.
The Company has entered into certain indemnification agreements with
each of its directors and executive officers to provide the maximum
indemnification allowed pursuant to its articles or incorporation, bylaws and
applicable law.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports
of changes in ownership with the Commission. Such persons are required by
Commission regulation promulgated pursuant to the Exchange Act to furnish the
Company with copies of all Section 16(a) report forms they file with the
Commission.
Based solely on its review of the copies of such report forms received
by it with respect to fiscal year 1998, or written representations from certain
reporting persons, the Company believes that all filing requirements applicable
to its directors, officers and persons who own more than 10% of a registered
class of the Company's equity securities have been timely complied with in
accordance with Section 16(a) of the Exchange Act.
SHAREHOLDER PROPOSALS
Shareholders may submit proposals on matters appropriate for
shareholder action at subsequent annual meetings of the Company consistent with
Rule 14a-8 promulgated under the Exchange Act. For such proposals to be
considered for inclusion in the Proxy Statement and Proxy relating to the 2000
Annual Meeting of Shareholders, such proposals must be received by the Company
not later than August 23, 1999. Such proposals should be directed to Vertex
Communications Corporation, 2600 N. Longview Street, Kilgore, Texas 75662-6842,
Attention: Investor Relations (telephone: [903] 984-0555; telecopy: [903] 984-
2090; or via electronic mail to: [email protected]).
EXPENSES OF SOLICITATION
All costs incurred in the solicitation of Proxies for the Meeting will
be borne by the Company. In addition to the solicitation by mail, officers and
employees of the Company may solicit Proxies by telephone, telefax, or
personally, without additional compensation. The Company may also make
arrangements with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of shares of Common Stock held of record by such persons, and the
Company may reimburse such brokerage houses and other custodians, nominees and
fiduciaries for their out-of-pocket expenses incurred in connection therewith.
-22-
<PAGE> 25
ADDITIONAL INFORMATION AVAILABLE
UPON THE WRITTEN REQUEST OF ANY SHAREHOLDER, THE COMPANY WILL FURNISH,
WITHOUT CHARGE, A COPY OF THE COMPANY'S 1998 ANNUAL REPORT ON FORM 10-K, AS
FILED WITH THE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES
THERETO. THE REQUEST SHOULD BE DIRECTED TO INVESTOR RELATIONS AT THE COMPANY'S
OFFICES INDICATED ABOVE.
The Company's 1998 Annual Report to Shareholders accompanies this
Proxy Statement. The Annual Report, which includes financial statements, does
not form and is not to be deemed part of this Proxy Statement.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors and
management are not aware of any other matter, other than those described
herein, which will be presented for consideration at the Meeting. Should any
other matter requiring a vote of the shareholders properly come before the
Meeting or any adjournment thereof, the enclosed Proxy confers upon the persons
named in and entitled to vote the shares represented by such Proxy
discretionary authority to vote the shares represented by such Proxy in
accordance with their best judgment in the interest of the Company on such
matters. The persons named in the enclosed Proxy also may, if it is deemed
advisable, vote such Proxy to adjourn the Meeting from time to time.
PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY AT YOUR
EARLIEST CONVENIENCE IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, IF
MAILED IN THE UNITED STATES.
By Order of the Board of Directors
/s/ JOE A. YLITALO
Joe A. Ylitalo
Secretary
Kilgore, Texas
December 21, 1998
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<PAGE> 26
APPENDIX A
PROPOSED AMENDMENT TO THE
1995 STOCK COMPENSATION PLAN OF
VERTEX COMMUNICATIONS CORPORATION
The following constitutes the relevant provisions of the 1995 Stock
Compensation Plan of Vertex Communications Corporation (the "Plan"), as amended
by the proposed Amendment, with the proposed amending provision being
underlined.
It is proposed that Section 2 of the Plan be amended to read in its
entirety as follows:
2. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 14 hereof, there will be reserved for the use upon the exercise of
Options to be granted from time to time under the Plan an aggregate of
1,000,000 shares of the common stock, $.10 par value per share (the "Common
Stock"), of the Company, which shares in whole or in part shall be authorized,
but unissued, shares of the Common Stock or issued shares of Common Stock which
shall have been reacquired by the Company as determined from time to time by
the Board of Directors of the Company (the "Board of Directors"). To determine
the number of shares of Common Stock available at any time for the granting of
Options under the Plan, there shall be deducted from the total number of
reserved shares of Common Stock, the number of shares of Common Stock in
respect of which Options have been granted pursuant to the Plan which remain
outstanding or which have been exercised. If and to the extent that any Option
to purchase reserved shares shall not be exercised by an Optionee (as
hereinafter defined) for any reason or if such Option to purchase shall
terminate as provided herein, such shares which have not been so purchased
hereunder shall again become available for the purposes of the Plan unless the
Plan shall have been terminated, but such unpurchased shares shall not be
deemed to increase the aggregate number of shares specified above to be
reserved for purposes of the Plan (subject to adjustment as provided in Section
14 hereof).
<PAGE> 27
P R O X Y
VERTEX COMMUNICATIONS CORPORATION
2600 N. Longview Street
Kilgore, Texas 75662-6842
ANNUAL MEETING OF SHAREHOLDERS -- JANUARY 26, 1999
THIS PROXY IS SOLICITED
BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned shareholder(s) of Vertex Communications
Corporation, a Texas corporation (the "Company"), hereby appoints J.
Rex Vardeman and Bill R. Womble, and each of them, attorneys-in-fact
and Proxies of the undersigned, with full power of substitution, to
represent and to vote all shares of Common Stock of the Company which
the undersigned is entitled to vote at the Annual Meeting of
Shareholders of the Company to be held at the Roy H. Laird Country
Club, 1306 Houston Street, Kilgore, Texas 75662, at 11:00 A.M., local
time, on Tuesday, January 26, 1999, and at any adjournment thereof.
The above named Proxies are hereby instructed to vote such shares as
indicated on the reverse side hereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED ON THE REVERSE SIDE)
<PAGE> 28
<TABLE>
<CAPTION>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, AND 4.
<S> <C> <C>
1. Election of Directors Director nominees:
FOR all nominees WITHHOLD J. Rex Vardeman, A. Don Branum, James D. Carter, Bill R. Womble,
listed (except as AUTHORITY Donald E. Heitzman, Sr., John G. Farmer, and Rein Luik
marked to the to vote for all
contrary) to nominees listed.
the right: INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.
-------------------------------------------------------------------------
2. To approve the 3. To ratify the This Proxy, when properly executed, will be voted in the manner directed
proposed amendment appointment of Arthur by the undersigned. Please refer to the Proxy Statement for a discussion
to the 1995 Stock Andersen LLP as of each of these matters. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
Compensation Plan. independent public VOTED FOR EACH OF THE PROPOSALS.
accountants of the
FOR AGAINST ABSTAIN Company for the
fiscal year Please sign exactly as name appears hereon. When shares are held by joint
ending tenants, both should sign. If acting as attorney, executor, trustee, or
September 30, 1999. in any other representative capacity, sign name and indicate title.
FOR AGAINST ABSTAIN Dated: , 199
4. In their discretion, ------------------------------------------ ---
upon such other matters
as may properly come
before the meeting. --------------------------------------------------------------
Signature
FOR AGAINST ABSTAIN
--------------------------------------------------------------
Signature
"PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES" CARD USING THE ENCLOSED ENVELOPE.
</TABLE>
